UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q



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

For the quarterly period ended ~~September~~March 3031, ~~2019~~2020



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Transition period from to .

Commission File Number 001-36803

TOWN SPORTS INTERNATIONAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



Delaware		20-0640002
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1001 US North Highway 1, Suite 201, Jupiter, Florida 33477

Telephone: (~~212~~914) ~~246~~347-~~6700~~4009

(Address, zip code, and telephone number, including area code, of registrant’s principal executive office)

399 Executive Boulevard, Elmsford, New York 10523

(Mailing address)

Securities registered pursuant to Section 12(b) of the act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value per share	CLUB	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý¨ No ¨ý

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ý¨ Non-accelerated filer ¨ý Smaller reporting company ý Emerging growth company ¨

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of ~~October~~September 313, ~~2019~~2020, there were 2829,~~002~~715,~~197~~140 shares of Common Stock of the registrant outstanding.

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TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	3
	Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	5
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018	4
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019	6
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2020 and 2019	7
	Condensed Consolidated Reconciliation of Stockholders' Equity for the three and nine months ended September 30, 2019 and 2018	6
	Condensed Consolidated Reconciliation of Stockholders' Equity for the three months ended March 31, 2020 and 2019	8
	Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2019 and 2018	8
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019	9
	Notes to Condensed Consolidated Financial Statements	1011
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2835
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3947
Item 4.	Controls and Procedures	3947
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	4048
Item 1A.	Risk Factors	4049
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4052
Item 3.	Defaults Upon Senior Securities	4052
Item 4.	Mine Safety Disclosures	4052
Item 5.	Other Information	4052
Item 6.	Exhibits	4152
SIGNATURES		4253

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding future financial results and performance, potential sales revenue, potential club closures, results of cost savings initiatives, legal contingencies and tax benefits and contingencies, future declarations and payments of dividends, and the existence of adverse litigation and other risks, uncertainties and factors set forth under Item 1A., entitled “Risk Factors,” of this Quarterly Report and in our other reports and documents filed with the Securities and Exchange Commission (“SEC”). You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,” “could,” or the negative version of these words or other comparable words. These statements are subject to various risks and uncertainties, many of which are outside our control, including, among others, the duration and severity of the COVID-19 pandemic, actions that may be taken by governmental authorities to contain the COVID-19 outbreak or treat its impact, the potential negative impacts of COVID-19 on the economy of the United States and the impact of COVID-19 on the economy in the United States and the impact of COVID-19 on the Company’s financial condition and business operations, the impact of and risks and uncertainties related to a potential bankruptcy filing by certain of the Company’s subsidiaries, the level of market demand for our services, economic conditions affecting our business, the success of our pricing model, the geographic concentration of our clubs, competitive pressure, the ability to achieve reductions in operating costs, outsourcing of certain aspects of our business, environmental matters, the application of federal and state tax laws and regulations, any security and privacy breaches involving customer data, the levels and terms of the Company’s indebtedness and the occurrence of any defaults thereunder, and other specific factors discussed herein and in other SEC filings made by us. We believe that all forward-looking statements are based on reasonable assumptions when made; however, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that, accordingly, one should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made, and we undertake no obligation to update these statements in light of subsequent events or developments. Actual results may differ materially from anticipated results or outcomes discussed in any forward-looking statement.

Examples of forward-looking statements include, among others, statements we make regarding:

• business strategy;

• an anticipated bankruptcy filing;

• future profitability;

• financing sources;

• future industry growth;

•our ability to renew existing contracts and enter into new contracts with existing or potential customers;

• future profitability;

•the legislative/regulatory environment and exposure to increased economic regulation;

• the impact of litigation, government inquiries and investigations;

•changes in economic conditions generally and specifically in our industry sectors, and other risks relating to the global economy, including, but not limited to, public health crises, such as the COVID-19 pandemic, and any actions taken by businesses and governments;

•our ability to take advantage of acquisition opportunities at favorable prices;

•a lack of liquidity surrounding our assets, which could impede our ability to vary our portfolio in an appropriate manner;

•adverse changes in the financing markets we access affecting our ability to finance our acquisitions;

•customer defaults on their obligations;

•the availability and cost of capital

•exposure to uninsurable losses and force majeure events;

• the impact of litigation, government inquiries and investigations;

• all other statements regarding our intent, plans, beliefs or expectations or those of our directors or officers.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial markets. We cannot predict the duration and severity of the COVID-19 pandemic, actions that may be taken by governmental authorities to contain the COVID-19 outbreak or treat its impact, the potential negative impacts of COVID-19 on the economy in the United States and the impact of COVID-19 on the Company’s financial condition and business operations. The extent to which the COVID-19 pandemic impacts our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning the virus and the actions to contain it or treat its impact, among others.

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These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.

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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019

(All figures in thousands except share and per share data)

(Unaudited)

	September 30, 2019			December 31, 2018
	March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	2024,~~864~~669		$	4818,~~088~~808
Accounts receivable (less allowance for doubtful accounts of $5,093 and $4,578 as of September 30, 2019 and December 31, 2018, respectively)	3,524			3,050
Accounts receivable (less allowance for doubtful accounts of $6,660 and $4,552 as of March 31, 2020 and December 31, 2019, respectively)	1,798			2,980
Prepaid corporate income taxes	~~769~~9,434			~~746~~865
Prepaid expenses and other current assets	1118,~~441~~668			10,~~047~~148
Total current assets	3654,~~598~~569			6132,~~931~~801
Fixed assets, net	~~148~~96,~~726~~175			~~157~~146,~~677~~884
Operating lease right-of-use assets, net	~~575~~484,~~928~~138			—563,372
Goodwill	3216,~~950~~569			2132,~~877~~988
Intangible assets, net	96,~~019~~538			98,~~439~~220
Deferred membership costs	~~1,058~~976			1,~~803~~009
Other assets	108,~~139~~147			89,~~727~~004
Total assets	$	~~814~~667,~~418~~112		$	~~261~~794,~~454~~278
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt	$	3190,~~727~~917		$	21178,~~080~~433
Current portion of mortgage and term loan	197			~~314~~197
Current portion of operating lease liabilities	7374,~~198~~106			—74,279
Accounts payable	48,~~645~~729			34,~~672~~458
Accrued expenses	3626,~~659~~613			3234,~~547~~568
Accrued interest	2824			3427
Deferred revenue	3751,~~862~~775			3736,~~459~~047
Total current liabilities	~~156~~352,~~316~~361			95328,~~106~~009
Long-term debt	~~179~~3,~~648~~864			~~178~~4,~~002~~358
Long-term mortgage and term loan	54,~~088~~988			5,~~113~~039
Long-term operating lease liabilities	~~546~~516,~~541~~681			—532,977
Deferred lease liabilities	—			44,374
Deferred revenue	75			89
Deferred revenue	82			258
Other liabilities	11,909			12,151
Other liabilities	12,490			11,298
Total liabilities	889,878			882,623
Total liabilities	900,165			334,151
Commitments and Contingencies (Note 15)
Stockholders’ deficit:
Preferred stock, $0.001 par value; no shares issued and outstanding at both September 30, 2019 and December 31, 2018
Preferred stock, $0.001 par value; no shares issued and outstanding at both March 31, 2020 and December 31, 2019
Common stock, $0.001 par value; issued and outstanding 28,005,697 and 27,192,154 shares at September 30, 2019 and December 31, 2018, respectively	26			25
Common stock, $0.001 par value; issued and outstanding 29,481,474 and 29,425,557 shares at March 31, 2020 and December 31, 2019, respectively	27			26
Additional paid-in capital	12,~~165~~979			(1,~~644~~919		)
Accumulated other comprehensive income	1,~~790~~924			1,~~841~~909
Accumulated deficit	(88228,~~441~~093		)	(7391,~~212~~770		)
Total Town Sports International Holdings, Inc. and Subsidiaries stockholders’ deficit	(85223,~~460~~163		)	(7287,~~990~~916		)
Non-controlling interests	~~(287~~397		)	~~293~~(429		)
Total stockholders’ deficit	(85222,~~747~~766		)	(7288,~~697~~345		)
Total liabilities and stockholders’ deficit	$	~~814~~667,~~418~~112		$	~~261~~794,~~454~~278

See notes to condensed consolidated financial statements.

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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three ~~and Nine~~ Months Ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019

(All figures in thousands except share and per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2019			2018			2019			2018
	2020			2019
Revenues:
Club operations	$	~~113~~96,~~864~~809		$	~~108~~115,~~709~~140		$	~~346,031~~		$	~~325,431~~
Fees and other	1,~~632~~270			1,~~464~~458			~~4,767~~			~~4,182~~
	115,496			110,173			350,798			329,613
	98,079			116,598
Operating Expenses:
Payroll and related	4441,~~976~~285			4245,~~108~~323			~~135,846~~			~~123,978~~
Club operating	5554,~~789~~201			5053,~~107~~576			~~164,382~~			~~148,602~~
General and administrative	69,~~915~~177			6,~~700~~870			~~20,278~~			~~18,992~~
Depreciation and amortization	98,~~456~~704			9,~~188~~585			~~29,116~~			~~27,956~~
Impairment of fixed assets	746,~~189~~822			~~2,082~~—			~~7,189~~			~~2,082~~
	124,325			110,185			356,811			321,610
Impairment of right-of-use assets	62,865			—
Operating (loss) income	(8,829		)	(12		)	(6,013		)	8,003
Impairment of intangible assets	17,408			—
Interest expense	3,221			3,493			9,913			9,999
	240,462			115,354
Interest income	(12		)	(46		)	(56		)	(127		)
Operating (loss) income	(142,383		)	1,244
Equity in the earnings of investees	(58		)	(79		)	(206		)	(262		)
Interest expense	3,016			3,452
Loss before provision for corporate income taxes	(11,980		)	(3,380		)	(15,664		)	(1,607		)
Interest income	(8		)	(28		)
Provision for corporate income taxes	74			562			146			605
Equity in the earnings of investees	(30		)	(55		)
Net loss including non-controlling interests	(12,054		)	(3,942		)	(15,810		)	(2,212		)
Loss before (benefit) provision for corporate income taxes	(145,361		)	(2,125		)
Less: net (loss) income attributable to non-controlling interests	(321		)	4			(581		)	4
(Benefit) provision for corporate income taxes	(8,598		)	74
Net loss attributable to Town Sports International Holdings, Inc. and subsidiaries	$	(11,733	)	$	(3,946	)	$	(15,229	)	$	(2,216	)
Net loss including non-controlling interests	(136,763		)	(2,199		)
Loss per share:
Less: net loss attributable to non-controlling interests	(440		)	(150		)
Basic	$	(0.44	)	$	(0.15	)	$	(0.57	)	$	(0.09	)
Net loss attributable to Town Sports International Holdings, Inc. and subsidiaries	$	(136,323	)	$	(2,049	)
Diluted	$	(0.44	)	$	(0.15	)	$	(0.57	)	$	(0.09	)
Loss per share:
Weighted average number of shares used in calculating loss per share:
Basic	$	(4.98	)	$	(0.08	)
Basic	26,592,031			25,849,800			26,539,459			25,801,480
Diluted	$	(4.98	)	$	(0.08	)
Diluted	26,592,031			25,849,800			26,539,459			25,801,480
Weighted average number of shares used in calculating loss per share:
Basic	27,381,231			26,443,946
Diluted	27,381,231			26,443,946

See notes to condensed consolidated financial statements.

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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Three ~~and Nine~~ Months Ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019

(All figures in thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2019			2018			2019			2018
	2020			2019
Statements of Comprehensive Loss:
Statements of Comprehensive (Loss) Income:
Net loss including non-controlling interests	$	(12136,~~054~~763	)	$	(32,~~942~~199	)	$	~~(15,810~~	)	$	~~(2,212~~	)
Other comprehensive income, net of tax:
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments, net of tax of $0, for each of the three and nine months ended September 30, 2019 and 2018	143			60			51			551
Foreign currency translation adjustments, net of tax of $0, for each of the three months ended March 31, 2020 and 2019	(15		)	11
Interest rate swap, net of tax of $0, for each of the three and nine months ended September 30, 2019 and 2018	—			—			—			110
Total other comprehensive (loss) income, net of tax	(15		)	11
Total other comprehensive income, net of tax	143			60			51			661
Total comprehensive (loss) income including non-controlling interests	(136,778		)	(2,188		)
Total comprehensive loss including non-controlling interests	(11,911		)	(3,882		)	(15,759		)	(1,551		)
Comprehensive (loss) income attributable to non-controlling interest	(440		)	(150		)
Comprehensive (loss) income attributable to non-controlling interest	(321		)	4			(581		)	4
Total comprehensive (loss) income attributable to Town Sports International Holdings, Inc. and Subsidiaries	$	(136,338	)	$	(2,038	)
Total comprehensive loss attributable to Town Sports International Holdings, Inc. and Subsidiaries	$	(11,590	)	$	(3,886	)	$	(15,178	)	$	(1,555	)

See notes to condensed consolidated financial statements.

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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED RECONCILIATION OF STOCKHOLDERS' EQUITY

For the ~~Nine~~Three Months Ended ~~September~~March 3031, ~~2019~~2020

(All figures in thousands except share and per share data)

(Unaudited)

	Common Stock($.001 par)				AdditionalPaid-inCapital			AccumulatedOtherComprehensiveIncome			RetainedEarnings(Deficit)			Total Town Sports International and Subsidiaries Stockholders’ (Deficit) Equity			Non-controlling interests			TotalStockholders’(Deficit) Equity
	Shares		Amount
Balance at December 31, 2018	27,192,154		$	25	$	(1,644	)	$	1,841		$	(73,212	)	$	(72,990	)	$	293		$	(72,697	)
Balance at December 31, 2019	29,425,557		$	26	$	1,919		$	1,909		$	(91,770	)	$	(87,916	)	$	(429	)	$	(88,345	)
Stock option exercises	—		1		—			—			—			1			—			1
Common stock grants	114,285		1		238			—			—			239			—			239
Common stock grants	53,692		—		320			—			—			320			—			320
Restricted stock grants	40,304		—		—			—			—			—			—			—
Restricted stock grants	713,710		—		—			—			—			—			—			—
Shares issued under Employee Stock Purchase Plan	16,926		—		6			—			—			6			—			6
Shares issued under Employee Stock Purchase Plan	8,410		—		7			—			—			7			—			7
Forfeiture of restricted stock	(115,598	)	—		—			—			—			—			—			—
Forfeiture of restricted stock	(9,834	)	—		—			—			—			—			—			—
Stock-based compensation	—		—		816			—			—			816			—			816
Stock-based compensation	—		—		805			—			—			805			—			805
Net loss	—		—		—			—			(136,323		)	(136,323		)	(440		)	(136,763		)
Net loss	—		—		—			—			(2,049		)	(2,049		)	(150		)	(2,199		)
Write-off of receivable with partnership interest	—		—		—			—			—			—			1,266			1,266
Foreign currency translation adjustment	—		—		—			~~(11~~15		)	—			~~(11~~15		)	—			~~(11~~15		)
Balance at March 31, 2019	27,958,132		26		(512		)	1,830			(75,261		)	(73,917		)	143			(73,774		)
Balance at March 31, 2020	29,481,474		27		2,979			1,924			(228,093		)	(223,163		)	397			(222,766		)
Stock option exercises	—		—		—			—			—			—			1			1
Restricted stock grants	10,941		—		—			—			—			—			—			—
Shares issued under Employee Stock Purchase Plan	11,259		—		6			—			—			6			—			6
Forfeiture of restricted stock	(10,001	)	—		—			—			—			—			—			—
Stock-based compensation	—		—		814			—			—			814			—			814
Net loss	—		—		—			—			(1,447		)	(1,447		)	(110		)	(1,557		)
Foreign currency translation adjustment	—		—		—			103			—			103			—			103
Balance at June 30, 2019	27,970,331		26		308			1,933			(76,708		)	(74,441		)	34			(74,407		)
Restricted stock grants	42,696		—		—			—			—			—			—			—
Shares issued under Employee Stock Purchase Plan	7,336		—		6			—			—			6			—			6
Forfeiture of restricted stock	(14,666	)	—		—			—			—			—			—			—
Stock-based compensation	—		—		851			—			—			851			—			851
Net loss	—		—		—			—			(11,733		)	(11,733		)	(321		)	(12,054		)
Foreign currency translation adjustment	—		—		—			(143		)	—			(143		)	—			(143		)
Balance at September 30, 2019	28,005,697		$	26	$	1,165		$	1,790		$	(88,441	)	$	(85,460	)	$	(287	)	$	(85,747	)



Balance at December 31, 2018	27,192,154		25		(1,644		)	$	1,841		(73,212		)	$	(72,990	)	293			(72,697		)
Stock option exercises	—		1		—			—			—			1			—			1
Common stock grants	53,692		—		320			—			—			320			—			320
Restricted stock grants	713,710		—		—			—			—			—			—			—
Shares issued under Employee Stock Purchase Plan	8,410		—		7			—			—			7			—			7
Forfeiture of restricted stock	(9,834	)	—		—			—			—			—			—			—
Stock-based compensation	—		—		805			—			—			805			—			805
Net loss	—		—		—			—			(2,049		)	(2,049		)	(150		)	(2,199		)
Foreign currency translation adjustment	—		—		—			(11		)	—			(11		)	—			(11		)
Balance at March 31, 2019	27,958,132		$	26	$	(512	)	$	1,830		$	(75,261	)	$	(73,917	)	$	143		$	(73,774	)

See notes to condensed consolidated financial statements.

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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED RECONCILIATION OF STOCKHOLDERS' EQUITY (continued)

For the Nine Months Ended September 30, 2018

(All figures in thousands except share and per share data)

(Unaudited)

	Common Stock				AdditionalPaid-inCapital			AccumulatedOtherComprehensiveIncome			RetainedEarnings(Deficit)			Total Town Sports International and Subsidiaries Stockholders’ (Deficit) Equity			Non-controlling interests		TotalStockholders’(Deficit) Equity
	Shares		Amount
Balance at December 31, 2017	27,149,135		$	25	$	(4,290	)	$	1,201		$	(74,893	)	$	(77,957	)	$	—	$	(77,957	)
Common stock grants	52,460		—		320			—			—			320			—		320
Restricted stock grants	13,115		—		—			—			—			—			—		—
Stock-based compensation	—		—		606			—			—			606			—		606
Forfeiture of restricted stock	(9,433	)	—		—			—			—			—			—		—
Stock-based compensation	—		—		—			—			—			—			—		—
Net income	—		—		—			—			1,129			1,129			—		1,129
Other increases from non-controlling interests	—		—		—			—			—			—			—		—
Cumulative effect of change in accounting principle	—		—		—			—			1,604			1,604			—		1,604
Derivative financial instruments	—		—		—			176			—			176			—		176
Foreign currency translation adjustment	—		—		—			619			—			619			—		619
Balance at March 31, 2018	27,205,277		25		(3,364		)	1,996			(72,160		)	(73,503		)	—		(73,503		)
Stock option exercises	1,034		—		2			—			—			2			—		2
Shares issued under Employee Stock Purchase Plan	—		—		1			—			—			1			—		1
Forfeiture of restricted stock	(15,542	)	—		—			—			—			—			—		—
Stock-based compensation	—		—		556			—			—			556			—		556
Net income	—		—		—			—			601			601			—		601
Derivative financial instruments	—		—		—			(66		)	—			(66		)	—		(66		)
Foreign currency translation adjustment	—		—		—			(128		)	—			(128		)	—		(128		)
Balance at June 30, 2018	27,190,769		25		(2,805		)	1,802			(71,559		)	(72,537		)	—		(72,537		)
Stock option exercises	5,826		—		13			—			—			13			—		13
Shares issued under Employee Stock Purchase Plan	3,360		—		9			—			—			9			—		9
Forfeiture of restricted stock	(17,667	)	—		—			—			—			—			—		—
Stock-based compensation	—		—		548			—			—			548			—		548
Net income	—		—		—			—			(3,946		)	(3,946		)	4		(3,942		)
Other increases from non-controlling interests	—		—		—			—			—			—			459		459
Foreign currency translation adjustment	—		—		—			60			—			60			—		60
Balance at September 30, 2018	27,182,288		$	25	$	(2,235	)	$	1,862		$	(75,505	)	$	(75,853	)	$	463	$	(75,390	)

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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~Nine~~Three Months Ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019

(All figures in thousands) (Unaudited)

(Unaudited)



	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net loss including non-controlling interests	$	(136,763	)	$	(2,199	)
Adjustments to reconcile net loss including non-controlling interest to net cash provided by operating activities:
Depreciation and amortization	8,704			9,585
Impairment of fixed assets	46,822			—
Impairment of right of use asset	62,865			—
Impairment of goodwill and intangible assets	17,408			—
Write-off of receivable with partnership interest	1,266			—
Amortization of debt discount	323			250
Amortization of debt issuance costs	129			112
Non-cash rental expense (income)	130			(136		)
Share-based compensation expense	1,060			1,132
Net change in certain operating assets and liabilities	5,708			6,238
Decrease in deferred membership costs	33			387
Landlord contributions to tenant improvements	—			15
Increase in insurance reserves	576			151
Other	(2		)	(131		)
Total adjustments	145,022			17,603
Net cash provided by operating activities	8,259			15,404
Cash flows from investing activities:
Capital expenditures	(5,543		)	(3,873		)
Acquisition of business	—			(21,667		)
Net cash used in investing activities	(5,543		)	(25,540		)
Cash flows from financing activities:
Principal payments on 2013 Term Loan Facility	(473		)	(520		)
Prepayment of debt buy-back on 2013 Term Loan Facility	(8,357		)	—
Proceeds from borrowings on Revolving Loan Facility	12,500			(189		)
Principal payments on finance lease obligations	(463		)	—
Principal payments on mortgage and term loan	(51		)	(48		)
Proceeds from stock option exercises	—			1
Net cash provided by (used in) financing activities	3,156			(756		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(11		)	(15		)
Net increase (decrease) in cash and cash equivalents and restricted cash	5,861			(10,907		)
Cash, cash equivalents and restricted cash beginning of period	21,003			50,061
Cash, cash equivalents and restricted cash end of period	$	26,864		$	39,154
Summary of the change in certain operating assets and liabilities:
Decrease (increase) in accounts receivable	$	1,182		$	(179	)
Increase in prepaid expenses and other current assets	(339		)	(347		)
(Decrease) increase in accounts payable, accrued expenses and accrued interest	(2,301		)	2,731
Change in prepaid corporate income taxes and corporate income taxes payable	(8,548		)	63
Increase in deferred revenue	15,714			3,970
Net change in certain working capital components	$	5,708		$	6,238
Supplemental disclosures of cash flow information:
Cash payments for interest	$	2,630		$	3,071
Cash payments for income taxes	$	14		$	25

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net loss including non-controlling interests	$	(15,810	)	$	(2,212	)
Adjustments to reconcile net loss including non-controlling interest to net cash provided by operating activities:
Depreciation and amortization	29,116			27,956
Impairment of fixed assets	7,189			2,082
Amortization of debt discount	757			728
Amortization of debt issuance costs	334			449
Non-cash rental expense (income)	138			(2,620		)
Share-based compensation expense	2,809			2,040
Net change in deferred taxes	—			110
Net change in certain operating assets and liabilities	1,592			21,232
Decrease (increase) in deferred membership costs	745			(1,354		)
Landlord contributions to tenant improvements	51			800
Increase (decrease) in insurance reserves	841			(165		)
Other	(692		)	(1,292		)
Total adjustments	42,880			49,966
Net cash provided by operating activities	27,070			47,754
Cash flows from investing activities:
Capital expenditures	(11,811		)	(8,430		)
Acquisition of business	(21,667		)	(19,010		)
Acquisition of asset	—			(3,989		)
Other	—			99
Net cash used in investing activities	(33,478		)	(31,330		)
Cash flows from financing activities:
Principal payments on 2013 Term Loan Facility	(19,604		)	(1,562		)
Proceeds from borrowings on Revolving Loan Facility	9,500			—
Repayments of Revolving Loan Facility	(9,500		)	—
Principal payments on finance lease obligations	(1,053		)	(400		)
Proceeds from mortgage and term loan	—			5,530
Principal payments on mortgage and term loan	(142		)	(56		)
Cash dividends paid	—			(2		)
Proceeds from stock option exercises	1			15
Net cash (used in) provided by financing activities	(20,798		)	3,525
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(17		)	57
Net (decrease) increase in cash and cash equivalents	(27,223		)	20,006
Cash, cash equivalents and restricted cash beginning of period	50,061			30,321
Cash, cash equivalents and restricted cash end of period	$	22,838		$	50,327
Summary of the change in certain operating assets and liabilities:
Increase in accounts receivable	$	(473	)	$	(697	)
(Increase) decrease in prepaid expenses and other current assets	(84		)	8,427
Increase in accounts payable, accrued expenses and accrued interest	3,971			8,947
Change in prepaid corporate income taxes and corporate income taxes payable	37			4,197
(Decrease) increase in deferred revenue	(1,859		)	358
Net change in certain working capital components	$	1,592		$	21,232
Supplemental disclosures of cash flow information:
Cash payments for interest, net of capitalized interest	$	9,073		$	8,773
Cash payments for income taxes	$	119		$	496

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The following is a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:

	September 30, 2019		December 31, 2018
	March 31, 2020		December 31, 2019
Cash and cash equivalents	$	2024,~~864~~669	$	4818,~~088~~808
Restricted cash included in other assets(a)	12,~~974~~195		12,~~973~~195
Total cash, cash equivalents and restricted cash	$	2226,~~838~~864	$	5021,~~061~~003

(a) Restricted cash associated with certain letters of credit to secure lease related obligations.

See notes to condensed consolidated financial statements.

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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

1. Basis of Presentation

Town Sports International Holdings, Inc. (the “Company” or “TSI Holdings”) is a diversified holding company ~~that~~with ~~owns~~ subsidiaries engaged in a number of business and investment activities. References to “TSI LLC” refer to Town Sports International, LLC, and references to “TSI Group” refer to Town Sports Group, LLC, both of which are wholly-owned operating subsidiaries of the Company.

As of ~~September~~March 3031, ~~2019~~2020, the Company owned and operated ~~187~~185 fitness clubs (“clubs”) under various brand names, primarily located in the United States of America (“United States”, “U.S.”)

The Company’s operations are conducted mainly through its clubs and aggregated into one reportable segment. Each of the clubs has similar economic characteristics, services, product offerings and revenues are derived primarily from services to the Company’s members. The Company’s chief operating decision maker is the Chief Executive Officer. The operating segment is the level at which the chief operating decision maker manages the business and reviews operating performance in order to make business decisions and allocate resources. The Company determined that the business is managed and operating performance is reviewed on a consolidated company level and therefore that it has one operating segment.

The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the ~~Securities and Exchange Commission (the “~~SEC”) and should be read in conjunction with the Company’s December 31, ~~2018~~2019 consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019. The year-end condensed consolidated balance sheet data included within this Form 10-Q was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and footnote disclosures that are normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to SEC rules and regulations. The information reflects all normal and recurring adjustments which, in the opinion of management, are necessary for a fair statement of the financial position and results of operations for the interim periods set forth herein. The results for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2019~~2020 are not necessarily indicative of the results for the entire year ending December 31, ~~2019~~2020.

~~During~~Substantial ~~the~~Doubt ~~three~~about ~~months ended September 30, 2019,~~ the Company’s ~~identified~~Ability ~~an error relating~~ to anContinue ~~overstatement~~as ~~of club operating expenses for utility accruals at certain clubs in prior periods. The error was corrected on~~ a ~~cumulative~~Going basis in the three months ended September 30, 2019. This out-of-period adjustment resulted in a decrease in club operating expenses of approximately $761 and $669 for the three and nine months ended September 30, 2019, respectively. The Company assessed the materiality of these errors on the previously issued interim and annual financial statements in accordance with SEC Staff Accounting Bulletin No. 99 and No. 108. The Company concluded that the errors were not material to any of the previously issued consolidated financial statements and the impact of correcting these errors in the three months ended September 30, 2019 is not material to the current condensed consolidated financial statements, and is not expected to be material to the full year financial statements. The Company appropriately reflected club operating expenses in the condensed consolidated statements of operations for the three and nine months ended September 30, 2019.Concern

~~The~~In ~~Company~~accordance ~~continues~~with tothe ~~experience~~Financial ~~revenue~~Accounting ~~pressure~~Standards asBoard ~~the~~(“FASB”) ~~fitness~~Accounting ~~industry~~Standards isUpdate ~~highly~~(“ASU”) ~~competitive~~2014-15, in“Presentation ~~the~~of ~~areas~~Financial inStatements ~~which~~- Going Concern”, the Company’s ~~operates.~~management ~~The~~evaluated ~~Company~~whether ~~continues~~there toare ~~strategize~~conditions onor ~~improving~~events that raise substantial doubt about its ~~financial~~ability ~~results~~to ~~and~~continue ~~focuses~~as ona ~~increasing~~going ~~membership~~concern towithin ~~increase~~one ~~revenue~~year after the financial statements’ issuance date. The ~~Company~~following ~~may~~matters ~~consider~~raise ~~additional~~substantial ~~actions~~doubt ~~within~~about ~~its~~the ~~control,~~Company’s ~~including~~ability ~~certain~~to ~~acquisitions,~~continue ~~licensing~~as ~~arrangements,~~a ~~the~~going ~~closure~~concern ofwithin ~~unprofitable~~one ~~clubs~~year ~~upon~~after ~~lease~~the ~~expiration~~date ~~and~~ the ~~sale~~financial ofstatements ~~certain~~are ~~assets~~issued.

Loan Maturities: The Company’s ~~ability~~2013 toTerm ~~continue~~Loan toFacility ~~meet~~is ~~its~~due ~~obligations~~in isits ~~dependent~~entirety on ~~its~~November ~~ability~~15, to2020 ~~generate~~and ~~positive~~was ~~cash~~therefore ~~flow~~classified ~~from~~as a ~~combination~~current ofliability ~~initiatives,~~on ~~including~~the ~~those~~Company’s ~~mentioned~~consolidated ~~above.~~balance Itsheet isas ~~also~~of ~~important~~March ~~for~~31, ~~the~~2020 and December 31, 2019. The Company todoes ~~generate~~not ~~positive~~have ~~revenue~~sufficient ~~from~~sources ~~clubs~~of ~~operating~~cash ~~for~~to ~~more~~satisfy ~~than~~this 12obligation ~~months~~on ~~(“comparable~~the ~~club~~date ~~revenue”)~~of maturity. ~~Failure~~The toCompany ~~successfully~~is ~~implement~~currently ~~these~~working ~~initiatives~~with ~~could~~prospective ~~have~~lenders ato ~~material~~refinance ~~adverse~~the ~~effect~~2013 onTerm ~~the~~Loan ~~Company’s~~Facility ~~liquidity~~in ~~and~~advance of its ~~operations~~maturity date, ~~and~~however, ~~the~~there ~~Company~~can ~~would~~be ~~need~~no toassurance ~~implement~~that ~~alternative~~the ~~plans~~Company ~~that~~will ~~could~~be ~~include~~able ~~additional~~to ~~asset~~refinance ~~sales~~its debt, ~~additional~~or ~~reductions~~if init ~~operating~~is ~~costs,~~able ~~additional~~to ~~reductions~~refinance inits ~~working capital~~debt, ~~the~~that ~~deferral~~such offinancing ~~capital~~will ~~expenditures~~be ~~and~~on ~~debt~~terms ~~restructuring.~~favorable ~~There~~to ~~can~~the beCompany. If nothe ~~assurance~~Company ~~that~~cannot ~~such~~obtain ~~alternatives~~refinancing, ~~would~~the beremaining ~~available~~principal tobalance of the ~~Company~~2013 orTerm ~~that~~Loan ~~the~~of ~~Company~~$177,286 ~~would~~will bebecome ~~successful~~payable inon ~~their~~November ~~implementation~~15, 2020.

As ofdiscussed ~~September 30,~~in ~~2019~~the section immediately below, recent events relating to the COVID-19 pandemic have had a material adverse effect on the Company’s results of operations, cash ~~balance~~flows isand ~~$20,864.~~liquidity ~~The~~and further contribute to conditions that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Under the terms of the 2013 ~~Senior~~Term ~~Credit~~Loan Facility, this is ~~due~~considered onan ~~November~~event ~~15,~~of ~~2020.~~default ~~There~~which ~~can~~allows bethe nolenders ~~assurance~~to ~~that~~call the ~~Company~~debt ~~will~~in beadvance ~~able~~of tomaturity. ~~refinance~~On March 13, 2020, the Company borrowed $12,500 from its ~~debt~~2013 atRevolving ~~market~~Loan ~~rates~~Facility and asthe ~~such~~Company continues to actively manage its cash flow on a daily basis.

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~~the~~The Company ~~may~~is ~~have~~facing tosignificant ~~seek~~debt ~~alternative~~maturities ~~financing~~in the near term. Our 2013 Revolving Loan Facility expired on August 14, if2020 ~~available~~and our 2013 Term Loan Facility is due to mature on November 15, 2020. IfFurther, the Company ~~cannot~~is ~~obtain~~in ~~refinancing~~breach of one of its covenants as of December 31, 2019 and this allows the ~~remaining~~lenders ~~principal~~to ~~balance~~call the debt in advance of maturity. As a result of the Company’s failure to repay all amounts outstanding under the 2013 ~~Term~~Revolving Loan ofFacility ~~$178,231~~prior ~~will~~to ~~become~~maturity ~~payable~~ on ~~November~~August ~~15,~~14 2020, the Company is in breach of the terms associated with this facility. ~~The~~Accordingly, the lenders may by written request cause the issuance of a notice of default to the Company ~~does~~and ~~not~~immediately ~~have~~exercise remedies under the ~~cash~~2013 onSenior ~~hand~~Credit orFacility, ~~other~~including ~~sources~~without limitation, by declaring the principal of ~~available~~and ~~liquidity~~any accrued interest in respect of all loans, notes, and all obligations owing thereunder to ~~satisfy~~be ~~this~~immediately ~~obligation~~due and payable. As of September 4, 2020 no lender pursuant to the Credit Agreement has commenced any legal action against the Company.

~~Certain~~As ~~reclassifications~~a ~~were~~result ~~made~~of the Company’s strained cash position and current inability to ~~the~~repay ~~reported~~all amounts inoutstanding under the ~~consolidated~~2013 ~~balance~~Term ~~sheet~~Loan asFacility and 2013 Revolving Loan Facility, and the challenges of ~~December 31~~COVID-19, ~~2018~~we currently anticipate that TSI LLC, Holdings II and certain other subsidiaries of the Company that constitute the Subsidiary Guarantors (as defined in the Credit Agreement) may be forced to ~~conform~~file a petition for relief under the United States Bankruptcy Code (the “Bankruptcy Code”) in the near future. Such a filing would subject us to the ~~presentation~~risks and uncertainties associated with bankruptcy proceedings and may place equity holders in the Company at significant risk of losing some or all of their investment in TSI LLC, Holdings II, and such subsidiaries that constitute Subsidiary Guarantors (as defined in the Credit Agreement). In addition, it is possible that the Company may be forced to file a petition for relief under the Bankruptcy Code, which may further exacerbate the risks described herein and further increase the likelihood that our equity holders would lose some or all their investment in the Company. A bankruptcy filing by such entities, or by the Company, could cause a material adverse effect on our business, financial condition, results of ~~September 30~~operations and liquidity. In the event of such bankruptcy filing, ~~2019~~the Company expects that it will need to raise up to approximately $80 million in financing to fund the costs associated with the bankruptcy filing, professional fees in connection with the bankruptcy and to cover operating shortfalls.

COVID-19 Pandemic: On March 16, 2020, the Company was mandated to close approximately 95% of its clubs pursuant to the exercise of emergency executive authority invoked by state and local governments in order to combat the spread of the COVID-19 pandemic. The Florida clubs continued to operate but were closed on March 20, 2020. There is significant uncertainty as to when the clubs will be allowed to re-open and as such, the Company has experienced reduced customer demand, a significant increase in membership terminations and may be unable to recover these members or generate new ones. The Company has taken some immediate steps to reduce operating costs and to conserve cash. The Company informed all non-executive employees working at clubs which have been ordered to close due to the COVID-19 pandemic (as discussed below) that their employment with the Company was terminated with immediate effect. The Company has also ceased paying rent at its club locations that are subject to mandatory closure due to COVID-19.

Due to the impact of the COVID-19 pandemic, the Company was further forced to close eight clubs permanently during the second fiscal quarter of 2020 and expects to permanently close additional clubs during the third fiscal quarter of 2020. Furthermore, re-opening protocols may include restrictions on capacity and activity that make it difficult for us to attract customers and generate revenue. For example, the Governor of New York announced on August 17, 2020 that fitness centers in New York will be permitted to re-open at only 33% capacity and that they must require customers to wear masks indoors at all times. In many cases, state and local governments have not provided a clear timeline for the projected further easing of restrictions, which creates uncertainty for our customers. These developments may further hinder the Company’s ability to generate operating revenue going forward.

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2. Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. This new guidance requires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Also, capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. This standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of this standard is permitted. The adoption of this guidance ishas not ~~expected~~had ~~to have a~~ material impact on the Company's financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” and subsequent amendments to the initial guidance: ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842). ASU 2016-02 requires an entity to recognize a right-of-use asset and lease liability for all leases and provide enhanced disclosures. Recognition, measurement, and presentation of expenses will depend on classification as a finance lease or an operating lease. On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. Results for reporting periods after January 1, 2019 are presented under Topic 842, while prior periods have not been adjusted. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. Refer to Note 6 - Leases for further detail.13

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3. Revenue

Disaggregation of Revenue

The following table presents our revenue by type:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

2019

2018

2019

2018

2020

2019

Membership dues

8974,~~687~~592

8488,~~162~~823

~~268,378~~

~~251,992~~

Initiation and processing fees

~~122~~146

~~337~~429

~~954~~

~~1,006~~

Membership revenue

8974,~~809~~738

8489,~~499~~252

~~269,332~~

~~252,998~~

Personal training revenue

1816,~~222~~391

1819,~~019~~489

~~58,079~~

~~55,451~~

Other ancillary club revenue

5,~~833~~680

6,~~191~~399

~~18,620~~

~~16,982~~

Ancillary club revenue

2422,~~055~~071

2425,~~210~~888

~~76,699~~

~~72,433~~

Fees and other revenue

1,~~632~~270

1,~~464~~458

~~4,767~~

~~4,182~~

Total revenue

~~115~~98,~~496~~079

~~110~~116,~~173~~598

~~350,798~~

~~329,613~~

The COVID-19 pandemic that forced the Company to close approximately 95% of our clubs on March 16, 2020 negatively impacted our first quarter 2020 revenue by $19,642 across all revenue categories including: membership dues, initiation and processing fees, personal training, ancillary club revenue, and fees and other revenue.

Revenue Recognition

Membership dues:

The Company generally receives one-time non-refundable joining fees and monthly dues from its members. The Company also offers paid-in-full memberships giving members the option to pay their membership dues in advance. The Company offers both month-to-month and commit memberships. Members can cancel their membership with a fee charged to those members still under contract. Membership dues are recognized in the period in which access to the club is provided.

The Company’s membership plans allow for club members to elect to pay a per visit fee to use non-home clubs. These usage fees are recorded to membership revenue in the month the usage occurs.

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Initiation and processing fees:

Initiation and processing fees, as well as related direct and incremental expenses of membership acquisition, which may include sales commissions, bonuses and related taxes and benefits, are deferred and recognized, on a straight-line basis, in operations over the estimated average membership life or 12 months to the extent these costs are related to the first annual fee paid within 45 days of enrollment. Annual fees are amortized over 12 months.

The estimated average membership life was 20 months for the ~~nine~~three and twelve months ended ~~September 30~~March 31, ~~2019~~2020 and 26December 31, ~~months~~2019, ~~for the full-year of 2018~~respectively. The Company monitors factors that might affect the estimated average membership life including retention trends, attrition trends, membership sales volumes, membership composition, competition, and general economic conditions, and adjusts the estimate as necessary on an annual basis.

Personal training revenue:

The Company recognizes revenue from personal training sessions as the services are performed (i.e., when the session occurs). Unused personal training sessions expire after a set, disclosed period of time after purchase (except in California and Florida) and are not refundable or redeemable by the member for cash. For six of the jurisdictions in which the Company operates, the Company has concluded, based on opinions from outside counsel, that monies paid to the ~~company~~Company for unused and expired personal training membership sessions were not escheatable. For the remaining jurisdictions in which the Company operates, the Company has likewise concluded that the monies paid to the ~~company~~Company for unused personal training sessions were not escheatable, regardless of whether they expire. However, the Company has not yet obtained opinions from outside counsel for these jurisdictions. It is possible however, that one or more of these jurisdictions may not agree with the Company’s position and may claim that the Company must remit all or a portion of these amounts to such jurisdiction. As of ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019, the Company had approximately $13,116 and $12,~~400~~792 of unused and expired personal training sessions, respectively, that had not been recognized as revenue and was recorded as deferred revenue~~, approximately $10,600 of which related to the State of New York~~. This could have a material adverse effect on the Company’s cash flows. Specifically, the State of New York has informed the Company that it is considering whether the Company is required to remit the amount received by the Company for unused, expired personal training sessions to the State of New York as unclaimed property.

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Approximately $11,142 of which related to the State of New York for the period ended March 31, 2020. This could have a material adverse effect on the Company’s cash flows. Specifically, the State of New York has informed the Company that it is considering whether the Company is required to remit the amount received by the Company for unused, expired personal training sessions to the State of New York as unclaimed property.

In addition to the prepaid personal training sessions the Company also offers a personal training membership product which generally consists of multi-session packages. These sessions provided by the membership product are at a discount to our stand-alone session pricing and are generally required to be used in each respective month. Revenue related to this product is recognized in each respective month.

Other ancillary club revenue:

Other ancillary club revenue primarily consists of Sports Clubs for Kids, Small Group Training and racquet sports. Revenues are recognized as the services are performed.

Fees and other revenue:

Fees and other revenue primarily consist of rental income from third party tenants, marketing revenue related to third party marketing in the Company’s club locations, management fees related to clubs the Company manages but does not wholly-own and revenue related to laundry services. Revenue generated from fees and other revenue is generally recognized at the time the related contracted services are performed.

When a revenue agreement involves multiple elements, such as sales of both memberships and services in one arrangement or potentially multiple arrangements, the entire fee from the arrangement is allocated to each respective element based on its relative fair value and recognized when the revenue recognition criteria for each element is met.

Contract Liability

The Company records deferred revenue when cash payments are received or due in advance of our performance. In the three ~~and nine~~ months ended ~~September~~March 3031, ~~2019~~2020, the Company recognized revenue of $311,~~635~~484 ~~and $22,156, respectively,~~ that was included in the deferred revenue balance as of December 31, ~~2018~~2019.

Additionally, as of March 31, 2020, due to temporary club closures as a result of the COVID-19 pandemic, the Company deferred approximately $14,177 of revenue related to monthly membership billings that it will recognize as the clubs reopen.

Practical Expedients and Exemptions

The Company has elected to not capitalize contracts that are shorter than one year. The majority of the Company's contracts have an expected length of one year or less. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

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obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

4. Long-Term Debt

	September 30, 2019			December 31, 2018
	March 31, 2020			December 31, 2019
2013 Term Loan Facility outstanding principal balance	$	~~178~~177,~~231~~286		$	~~197~~177,~~835~~759
Finance lease liabilities	6,700			3,817
2013 Revolving Credit Facility borrowings	12,500			—
Less: Unamortized discount	(1,178		)	(1,936		)
Finance lease liabilities	5,784			6,248
Less: Deferred financing costs	(378		)	(634		)
Less: Unamortized discount	(598		)	(922		)
Less: Current portion due within one year	(3,727		)	(21,080		)
Less: Deferred financing costs	(191		)	(294		)
Long-term portion	$	179,648		$	178,002
Less: Current portion due within one year	(190,917		)	(178,433		)
Long-term portion	$	3,864		$	4,358

2013 Senior Credit Facility

On November 15, 2013, TSI LLC, an indirect, wholly-owned subsidiary, entered into a $370,000 senior secured credit facility (“2013 Senior Credit Facility”), pursuant to a credit agreement among TSI LLC, TSI Holdings II, LLC, a newly-formed, wholly-owned subsidiary of the Company (“Holdings II”), as a Guarantor, the lenders party thereto, Deutsche Bank AG, as administrative agent, and Keybank National Association, as syndication agent. The 2013 Senior Credit Facility consists of a $325,000 term loan facility maturing on November 15, 2020 (“2013 Term Loan Facility”) and a $15,000 revolving loan facility maturing on August 14, 2020 (“2013 Revolving Loan Facility”). Proceeds from the 2013 Term Loan Facility of $323,375 were issued, net of an original issue discount of 0.5%, or $1,625. The borrowings under the 2013 Senior Credit Facility are guaranteed and secured by assets and pledges of capital stock by Holdings II, TSI LLC, and, subject to certain customary exceptions, the wholly-owned domestic subsidiaries of TSI LLC.

On January 30, 2015, the 2013 Senior Credit Facility was amended (the “First Amendment”) to permit TSI Holdings to purchase term loans under the credit agreement. Any term loans purchased by TSI Holdings will be canceled in accordance with the terms of the credit agreement, as amended by the First Amendment. The Company may from time to time purchase term loans in market transactions, privately negotiated transactions or otherwise; however the Company is under no obligation to make any such purchases. Any such transactions, and the amounts involved, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

On November 8, 2018, the 2013 Senior Credit Facility was amended (the “Second Amendment”), which modified the revolving loan facility amount from $45,000 to $15,000, and extended the maturity date from November 15, 2018 to August 14, 2020. In addition, the Second Amendment stated that the Company is not able to utilize more than 20% or $3,000 in accordance with terms of the 2013 Revolving Loan Facility if the total leverage ratio exceeds 4.00:1.00 (calculated on a proforma basis to give effect to any borrowing). Previously, the Company was not able to utilize more than 25% or $11,250 in accordance with terms of the 2013 Revolving Loan Facility if the total leverage ratio exceeded 4.50:1.00 (calculated on a proforma basis to give effect to any borrowing).

Borrowings under the 2013 Term Loan Facility and the 2013 Revolving Loan Facility, at TSI LLC’s option, bear interest at either the administrative agent’s base rate plus 2.5% or a LIBOR rate adjusted for certain additional costs (the “Eurodollar Rate”) plus 3.5%, each as defined in the 2013 Senior Credit Facility. With respect to the outstanding term loans, the Eurodollar Rate has a floor of 1.00% and the base rate has a floor of 2.00%. Commencing with the last business day of the quarter ended March 31, 2014, TSI LLC is required to pay 0.25% of the principal amount of the term loans each quarter, which may be reduced by voluntary prepayments. During the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020, TSI LLC made a total of $~~19,604~~473 in principal payments on the 2013 Term Loan Facility~~, which included the required excess cash flow payment of $18,138~~.

In May 2017 and February 2019, TSI LLC loaned $5,000 and $2,000, respectively, to TSI Group, a wholly-owned subsidiary of TSI Holdings, at a rate of LIBOR plus 9.55% per annum. In ~~April~~June 2019, TSI Group repaid the outstanding loan balance of $6,900. In addition to the interest payments, TSI Group was required to repay 1.0% of the principal amount of the loan, $70 per annum, on a quarterly basis commencing September 30, 2017. The loan was secured by certain collateral. This transaction has no impact on the Company's consolidated financial statements as it is eliminated in consolidation. In October 2017 and June 2019, TSI LLC made dividend distributions of $35,000 and $16,000, respectively, as permitted under the 2013 Credit Facility. As of ~~September~~March 3031, ~~2019~~2020, TSI Group had a cash balance of approximately $~~11,776~~885.

13As of March 31, 2020, TSI LLC had outstanding letters of credit of $2,149 under the 2013 Revolving Credit Facility and a total leverage ratio that was below 4.00:1.00. On January 2, 2020, TSI LLC borrowed $8,000 under the 2013 Revolving Loan Facility to fund TSI LLC working capital and repaid the full amount on January 3, 2020.

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~~As of September 30, 2019, TSI LLC had outstanding letters of credit of $2,459 under the 2013 Revolving Credit Facility and a total leverage ratio that was below 4.00:1.00.~~ On ~~June~~March 2716, ~~2019~~2020, TSI LLC borrowed $912,500 under the 2013 Revolving Loan Facility to fund TSI LLC working capital ~~and repaid the full amount on July 3, 2019~~. The Company also had $12,~~974~~194 in outstanding letters of credit issued that were not associated with the 2013 Revolving Credit Facility to secure certain lease obligations. The unutilized portion of the 2013 Revolving Loan Facility as of ~~September~~March 3031, ~~2019~~2020 was $12353,~~541,~~ with borrowings under such facility subject to the conditions applicable to borrowings under the Company’s 2013 Senior Credit Facility, which conditions the Company may or may not be able to satisfy at the time of borrowing. In addition, the financial covenant described above, the 2013 Senior Credit Facility contains certain affirmative and negative covenants, including those that may limit or restrict TSI LLC and Holdings II’s ability to, among other things, incur indebtedness and other liabilities; create liens; merge or consolidate; dispose of assets; make investments; pay dividends and make payments to stockholders; make payments on certain indebtedness; and enter into sale leaseback transactions, in each case, subject to certain qualifications and exceptions. The 2013 Senior Credit Facility also includes customary events of default (including non-compliance with the covenants or other terms of the 2013 Senior Credit Facility) which may allow the lenders to terminate the commitments under the 2013 Revolving Loan Facility and declare all outstanding term loans and revolving loans immediately due and payable and enforce its rights as a secured creditor.

TSI LLC may prepay the 2013 Term Loan Facility and 2013 Revolving Loan Facility without premium or penalty in accordance with the 2013 Senior Credit Facility. Mandatory prepayments are required relating to certain asset sales, insurance recovery and incurrence of certain other debt and commencing in 2015 in certain circumstances relating to excess cash flow (as defined) for the prior fiscal year, as described below, in excess of certain expenditures. Pursuant to the terms of the 2013 Senior Credit Facility, the Company is required to apply net proceeds in excess of $30,000 from sales of assets in any fiscal year towards mandatory prepayments of outstanding borrowings.

In addition, the 2013 Senior Credit Facility contains provisions that require excess cash flow payments, as defined therein, to be applied against outstanding 2013 Term Loan Facility balances. The excess cash flow is calculated annually for each fiscal year ending December 31 and paid 95 days after the fiscal year end. The applicable excess cash flow repayment percentage is applied to the excess cash flow when determining the excess cash flow payment. Earnings, changes in working capital and capital expenditure levels all impact the determination of any excess cash flow. The applicable excess cash flow repayment percentage is 50% when the total leverage ratio, as defined in the 2013 Senior Credit Facility, exceeds or is equal to 2.50:1.00; 25% when the total leverage ratio is greater than or equal to 2.00:1.00 but less than 2.50:1.00 and 0% when the total leverage ratio is less than 2.00:1.00. TSI LLC may pay dividends in the amount of cumulative retained excess cash flow to TSI Holdings as long as at the time the dividend is made, and immediately after, TSI LLC is in compliance on a pro forma basis with a total leverage ratio of less than 4.00:1.00. For the year ended December 31, 2018, the Company had $36,276 of excess cash flow, as defined in the 2013 Senior Credit Facility, resulting in a principal payment of $18,138 paid in April 2019. In June 2019, TSI LLC paid a dividend of $16,000 to TSI Holdings using the cumulative retained excess cash flow. The next excess cash flow payment is due in April 2020, if applicable. The Company does not expect such payment will be required.

AsLoan ofMaturities: ~~September 30,~~The ~~2019,~~Company’s ~~the~~ 2013 Term Loan Facility ~~has~~is adue ~~gross~~in ~~principal~~its ~~balance~~entirety ofon ~~$178~~November 15,~~231~~ 2020 and was therefore classified as a current liability on the Company’s consolidated balance sheet as of ~~$176~~March 31,~~675~~ ~~net~~2020 ofand ~~unamortized~~December ~~debt~~31, ~~discount~~2019. The Company does not have sufficient sources of ~~$1,178~~cash ~~and~~to ~~unamortized~~satisfy ~~debt~~this ~~issuance~~obligation ~~costs~~on the date of ~~$378~~maturity. AsThe Company is currently working with prospective lenders to refinance the 2013 Term Loan Facility in advance of ~~September 30~~its maturity date, ~~2019~~however, ~~both~~there ~~the~~can ~~unamortized~~be ~~balance~~no ofassurance ~~debt~~that ~~issuance~~the ~~costs~~Company ~~and~~will ~~unamortized~~be ~~debt~~able ~~discount~~to ~~are~~refinance ~~recorded~~its asdebt, aor ~~contra-liability~~if ~~and~~it ~~netted~~is ~~with~~able ~~long-term~~to refinance its debt, that such financing will be on terms favorable to the ~~accompanying~~Company. If ~~condensed~~the ~~consolidated~~Company cannot obtain refinancing, the remaining principal balance ~~sheet~~of ~~and~~the ~~are~~2013 ~~being~~Term ~~amortized~~Loan asFacility ~~interest~~of ~~expense~~$177,286 ~~using~~will ~~the~~become ~~effective~~payable ~~interest~~on ~~method~~November 15, 2020.

Recent events relating to the COVID-19 pandemic have had a material adverse effect on the Company’s results of operations, cash flows and liquidity and further contribute to conditions that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Under the terms of the 2013 Term Loan Facility, this is considered an event of default which allows the lenders to call the debt in advance of maturity. On March 16, 2020, the Company borrowed $12,500 from its 2013 Revolving Credit Facility and the Company continues to actively manage its cash flow on a daily basis.

The Company is facing significant debt maturities in the near term. Our 2013 Revolving Loan Facility expired on August 14, 2020 and our 2013 Term Loan Facility is due to mature on November 15, 2020. Further, the Company is in breach of one of its covenants as of December 31, 2019 and this allows the lenders to call the debt in advance of maturity. As a result of the Company’s failure to repay all amounts outstanding under the 2013 Revolving Loan Facility prior to maturity on August 14 2020, the Company is in breach of the terms associated with this facility. Accordingly, the lenders may by written request cause the issuance of a notice of default to the Company and immediately exercise remedies under the 2013 Senior Credit Facility, including without limitation, by declaring the principal of and any accrued interest in respect of all loans, notes, and all obligations owing thereunder to be immediately due and payable. As of September 4, 2020, no lender pursuant to the Credit Agreement has commenced any legal action against the Company.

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As a result of the Company’s strained cash position and current inability to repay all amounts outstanding under the 2013 Term Loan Facility and 2013 Revolving Loan Facility, and the challenges of COVID-19, we currently anticipate that TSI LLC, Holdings II and certain other subsidiaries of the Company that constitute the Subsidiary Guarantors (as defined in the Credit Agreement) may be forced to file a petition for relief under the Bankruptcy Code in the near future. Such a filing would subject us to the risks and uncertainties associated with bankruptcy proceedings and may place equity holders in the Company at significant risk of losing some or all of their investment in TSI LLC, Holdings II, and such subsidiaries that constitute Subsidiary Guarantors (as defined in the Credit Agreement). In addition, it is possible that the Company may be forced to file a petition for relief under the Bankruptcy Code, which may further exacerbate the risks described herein and further increase the likelihood that our equity holders would lose some or all their investment in the Company. A bankruptcy filing by such entities, or by the Company, could cause a material adverse effect on our business, financial condition, results of operations and liquidity. In the event of such bankruptcy filing, the Company expects that it will need to raise up to approximately $80 million in financing to fund the costs associated with the bankruptcy filing, professional fees in connection with the bankruptcy and to cover operating shortfalls.

As of March 31, 2020, the 2013 Term Loan Facility has a gross principal balance of $177,286 and a balance of $176,497 net of unamortized debt discount of $598 and unamortized debt issuance costs of $191. As of March 31, 2020, both the unamortized balance of debt issuance costs and unamortized debt discount are recorded as a contra-liability and netted with long-term debt on the accompanying condensed consolidated balance sheet and are being amortized as interest expense using the effective interest method.

Fair Market Value

Based on quoted market prices, the 2013 Term Loan Facility had a fair value of approximately $~~151~~62,~~497~~050, or 8535%, and $~~183~~133,~~987~~319, or 9375%, at ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019, respectively, and is classified within level 2 of the fair value hierarchy. Level 2 is based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. The fair value for the Company’s 2013 Term Loan Facility is determined using observable current market information such as the prevailing Eurodollar interest rate and Eurodollar yield curve rates and includes consideration of counterparty credit risk.

~~5. Mortgage~~As a result of the COVID-19 pandemic, the fair value of our long-term debt has fluctuated significantly during the first quarter and ~~Term~~may ~~Loan~~continue to fluctuate based on market conditions and other factors.

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~~2018~~5. Mortgage ~~The entire principal balance of this mortgage note is due~~ and ~~payable~~Term ~~in full on its maturity date of August 3, 2028. As of September 30, 2019, this mortgage note had an outstanding principal balance of $3,084, net of principal payments of $66.~~ Loan

On August 3, 2018, TSI - Donald Ross Realty LLC, a subsidiary of TSI Group, entered into a mortgage note for $3,150 with BankUnited, N.A. (the “Lender”). This mortgage note bears interest at a fixed rate of 5.36% and is payable in 120 monthly payments of principal and interest based on a 25 year amortization period. The first payment was due and paid on September 3, 2018. The entire principal balance of this mortgage note is due and payable in full on its maturity date of August 3, 2028. As of March 31, 2020, this mortgage note had an outstanding principal balance of $3,052, net of principal payments of $98.

On April 24, 2018, Dixie Highway Realty, LLC, a subsidiary of TSI Group, entered into promissory notes for $1,880 (the “Mortgage Note”) and $500 (the “Term Note”) with the Lender. The Mortgage Note bears interest at a fixed rate of 5.46% and is payable in 120 monthly payments of principal and interest based on a 25 year amortization period. The first payment was due and paid on May 24, 2018. The entire principal balance of the Mortgage Note is due and payable in full on its maturity date of April 24, 2028.

The Term Note bears interest at a fixed rate of 5.30% and is payable in 60 payments of principal and interest. The first payment was due and paid on May 24, 2018 and the final payment will be due to the Lender on the maturity date of April 24, 2023 for all principal and accrued interest not yet paid. In connection with the above mortgage and term loan notes, TSI Group or TSI Holdings must maintain a minimum relationship liquidity balance with the Lender of $500 in the form of an operating account. As of ~~September~~March 3031, ~~2019~~2020, the Mortgage Note and Term Note had an outstanding principal balance of $1,~~829~~809 and $~~372~~324, respectively, reflecting net of principal payments of $5171 for the Mortgage Note and $~~128~~176 for the Term Note.

The carrying amount of the mortgage notes and Term Note approximates fair value based on Level 2 inputs. Level 2 is based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

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6. Leases

The Company leases office, warehouse and multi-recreational facilities under non-cancelable operating leases. Also, the Company has operating and finance leases for certain equipment. In addition to base rent, the facility leases generally provide for additional payments to cover common area maintenance charges incurred and to pass along increases in real estate taxes. Also, certain leases provide for additional rent based on revenue or operating results of the respective facilities. The Company accrues for any unpaid common area maintenance charges and real estate taxes on a club-by-club basis. Under the provisions of certain of these leases, the Company is required to maintain irrevocable letters of credit, which amounted to $4,~~018~~343 as of ~~September~~March 3031, ~~2019~~2020. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company determines if an arrangement is a lease at inception. Operating leases are recorded in operating lease right of use assets, current portion of operating lease liabilities, and long-term operating lease liabilities on its condensed consolidated balance sheet. Finance leases are recorded in fixed assets, net, current portion of long-term debt, and long-term debt on its condensed consolidated balance sheet.

Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for lease payments are recognized on a straight-line basis over the lease term.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years or more. The leases expire at various times through ~~fiscal~~June ~~year~~30, 2038 and certain leases may be extended at the Company’s option. Escalation terms on these leases generally include fixed rent escalations, escalations based on an inflation index such as the consumer price index, and fair market value adjustments.

The Company, as landlord, subleases space to third party tenants under non-cancelable operating leases and licenses. In addition to base rent, certain leases provide for additional rent based on increases in real estate taxes, indexation, ~~utilizes~~utilities and defined amounts based on the operating results of the lessee. The sub-leases expire at various times through January 2023.

15Property and equipment and lease-related right-of-use assets, along with other long-lived assets, are evaluated for impairment periodically whenever triggering events or indicators exist that the carrying values may not be fully recoverable. As a result of the COVID-19 pandemic, the Company experienced lower than projected revenues and identified indicators of impairment for certain clubs. The Company performed undiscounted cash flow analyses over the long-lived assets of certain clubs with impairment indicators and compared it to the carrying value of those assets. Based on these undiscounted cash flow analyses, the Company determined that certain long-lived assets had carrying values that exceeded their estimated undiscounted cash flows. Fair values of the long-lived assets are estimated using an income approach based on (a) management’s forecast of future cash flows derived from continued operations and (b) the fair value of individual operating lease assets based on estimated market rental rates. Significant estimates are used in determining future cash flows of each club over its remaining lease term including our expectations of future projected cash flows which include revenues, operating expenses, and market conditions. An impairment loss is recorded if the carrying amount of the long-lived asset exceeds its fair value. As a result, the Company recognized a pre-tax charge of $62,865 for impairment of its right-of-use assets and a pre-tax charge of $46,822 for impairment of its club leasehold improvements and furniture and fixtures for the three months ended March 31, 2020. The charges for right-of-use assets were recorded in operating expenses in the consolidated statements of operations.

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The balance sheet classification of lease assets and liabilities was as follows:

	Balance Sheet Classification	~~September~~March 3031, ~~2019~~2020
Assets
Operating lease assets, gross	Operating lease right-of-use assets, net	$	~~627~~634,~~942~~441
Accumulated amortization	Operating lease right-of-use assets, net	(52,014		)
Accumulated lease expense	Operating lease right-of-use assets, net	(87,438		)
Total operating lease assets	Operating lease right-of-use assets, net	575,928
Accumulated impairment	Operating lease right-of-use assets, net	(62,865		)
Finance lease assets, gross	Fixed assets, net	8,337
Total operating lease assets	Operating lease right-of-use assets, net	484,138
Accumulated depreciation	Fixed assets, net	(1,493		)
Finance lease assets, gross	Fixed assets, net	8,842
Total finance lease assets	Fixed assets, net	6,844
Accumulated depreciation	Fixed assets, net	(2,559		)
Total lease assets		$	582,772
Total finance lease assets	Fixed assets, net	6,283
Total lease assets		$	490,421
Liabilities
Current
Operating leases	Current portion of operating lease liabilities	$	7374,~~198~~106
Finance leases	Current portion of long-term debt	1,~~835~~920
Non-current
Operating leases	Long-term operating lease liabilities	~~546~~516,~~541~~681
Finance leases	Long-term debt	43,~~865~~864
Total lease liabilities		$	~~626~~596,~~439~~571

The components of lease costs were as follows:

	Statement of Operations Classification	Three Months Ended ~~September~~March 3031, ~~2019~~2020			~~Nine~~Three Months Ended ~~September~~March 3031, 2019
Operating lease costs	Club operating	$	29,~~976~~504		$	9030,~~164~~022
Amortization of lease assets	Depreciation and amortization	~~417~~430			~~1,042~~259
Interest on lease liabilities	Interest expense	~~160~~140			~~318~~54
Finance lease costs		~~577~~570			~~1,360~~313
Variable lease costs	Club operating	~~174~~179			~~525~~210
Sublease income	Fees and other revenue	(~~738~~632		)	~~(2,513~~866		)
Total lease costs		$	29,~~989~~621		$	8931,~~536~~411

As of ~~September~~March 3031, ~~2019~~2020, the maturities of our lease liabilities were as follows:

	Operating Leases			Finance Leases			Total
2019	$	29,489		$	606		$	30,095
2020	$	89,357		$	1,781		$	91,138
2020	118,275			2,383			120,658
2021	111,432			2,364			113,796
2021	110,431			2,363			112,794
2022	102,979			1,909			104,888
2022	102,036			1,912			103,948
2023	94,679			545			95,224
2023	93,712			548			94,260
2024	85,485			—			85,485
2024 and thereafter	430,532			—			430,532
2025 and thereafter	352,563			—			352,563
Total lease payments	~~884~~836,~~475~~495			76,~~812~~599			~~892~~843,~~287~~094
Less: imputed interest	(~~264~~245,~~736~~708		)	(~~1,112~~815		)	(~~265~~246,~~848~~523		)
Lease liabilities	$	~~619~~590,~~739~~787		$	65,~~700~~784		$	~~626~~596,~~439~~571

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As of December 31, ~~2018~~2019, future minimum rental payments by fiscal year under non-cancelable leases and future capital lease payments are shown in the chart below.

	~~MinimumAnnual Rental~~	MinimumAnnual Rental
Year Ending December 31,
2019	$	110,215
2020		$	121,113
2020	107,143
2021		113,779
2021	96,768
2022		104,904
2022	83,766
2023		95,261
2023	70,892
2024		85,540
2024 and thereafter	325,644
2025 and thereafter		348,857
Total	$	~~794~~869,~~428~~454

The Company, as landlord, leases space to third party tenants under non-cancelable operating leases and licenses. Future minimum rentals receivable under non-cancelable leases are shown in the chart below.

The Company, as landlord, leases space to third party tenants under non-cancelable operating leases and licenses. In addition to base rent, certain leases provide for additional rent based on increases in real estate taxes, indexation, utilities and defined amounts based on the operating results of the lessee. The sub-leases expire at various times through January 2023. As of December 31, 2018, future minimum rentals receivable by fiscal year under non-cancelable leases are shown in the chart below.



	Minimum Annual Rental
Year Ending December 31,
2020	$	2,301
2021	1,841
2022	1,099
2023	362
2024	258
2025 and thereafter	514
Total	6,375

	MinimumAnnual Rental
Year Ending December 31,
2019	$	2,477
2020	1,658
2021	1,189
2022	485
2023	5
2024 and thereafter	—
Total	$	5,814

The weighted average remaining lease term and weighted average discount rate were as follows:

	September 30, 2019
	March 31, 2020
Weighted average remaining lease term
Operating leases	8.85 years
Finance leases	3.40 years
Weighted average discount rate
Operating leases	8.0	%
Finance leases	9.18	%

Supplemental cash flow information related to leases was as follows:

	Nine months ended September 30, 2019
	Three months ended March 31, 2020		Three months ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	8929,~~424~~603	$	29,503
Operating cash flows from finance leases	$	~~319~~612	$	54
Financing cash flows from finance leases	$	1,~~053~~970	$	189
Leased assets obtained in exchange for new operating lease liabilities	$	171,~~812~~548	$	17,812
Leased assets obtained in exchange for new finance lease liabilities	$	3,937	$	934

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7. Related Party

On April 25, 2017, the Company approved the appointment of Stuart M. Steinberg as General Counsel of the Company, effective as of May 1, 2017. Furthermore, the Company and Mr. Steinberg's law firm (the “Firm”) previously entered into an engagement letter agreement (the “Agreement”) dated as of February 4, 2016, and as amended and restated effective as of May 1, 2017, pursuant to which the Company engaged the Firm to provide general legal services requested by the Company. Mr. Steinberg continues to provide services for the Firm while employed by the Company. The Agreement provides for a monthly retainer fee payable to the Firm in the amount of $21, excluding litigation services. The Company will also reimburse the Firm for any expenses incurred in connection with the Firm’s services to the Company. In connection with this arrangement, the Company incurred legal expenses payable to the Firm in the amount of $70 and $66 for the three months ended March 31, 2020 and 2019, respectively. These amounts were classified within general and administrative expenses on the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019.

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engagement letter agreement (the “Agreement”) dated as of February 4, 2016, and as amended and restated effective as of May 1, 2017, pursuant to which the Company engaged the Firm to provide general legal services requested by the Company. Mr. Steinberg continues to provide services for the Firm while employed by the Company. The Agreement provides for a monthly retainer fee payable to the Firm in the amount of $21, excluding litigation services. The Company will also reimburse the Firm for any expenses incurred in connection with the Firm’s services to the Company. In connection with this arrangement, the Company incurred legal expenses payable to the Firm in the amount of $65 and $198 for the three and nine months ended September 30, 2019, respectively, compared to $67 and $201 for the three and nine months ended September 30, 2018, respectively. These amounts were classified within general and administrative expenses on the condensed consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018.

8. Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents. Although the Company deposits its cash with more than one financial institution, as of ~~September~~March 3031, ~~2019~~2020, $1018,~~528~~987 of the cash balance of $2024,~~864~~669 was held at one financial institution. The Company has not experienced any losses on cash and cash equivalent accounts to date, and the Company believes that, based on the credit ratings of these financial institutions, it is not exposed to any significant credit risk related to cash at this time.

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9. Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) applicable to common stockholders by the weighted average numbers of shares of common stock outstanding during the period. Diluted EPS is calculated using the treasury stock method and is computed similarly to basic EPS, except that the denominator is increased for the assumed exercise of dilutive stock options and unvested restricted stock for the diluted shared based awards.

The following table summarizes the weighted average common shares for basic and diluted EPS computations.

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2019			2018			2019			2018
	2020			2019
Weighted average number of common shares outstanding — basic	2627,~~592~~381,~~031~~231			2526,~~849~~443,~~800~~946			~~26,539,459~~			~~25,801,480~~
Effect of dilutive share based awards	—			—			—			—
Weighted average number of common shares outstanding — diluted	2627,~~592~~381,~~031~~231			2526,~~849~~443,~~800~~946			~~26,539,459~~			~~25,801,480~~
Loss per share:
Basic	$	(04.4498	)	$	(0.1508	)	$	~~(0.57~~	)	$	~~(0.09~~	)
Diluted	$	(04.4498	)	$	(0.1508	)	$	~~(0.57~~	)	$	~~(0.09~~	)

For the three ~~and nine~~ months ended ~~September 30~~ March 31, ~~2019~~2020 and ~~2018~~2019, there was no effect of dilutive stock options and unvested restricted common stock on the calculation of diluted EPS as the Company had a net loss for these periods.

For the three months ended ~~September 30~~March 31, ~~2019~~2020, there would have been 135,~~314~~044 anti-dilutive shares had the Company not been in a net loss position. For the ~~nine months ended September 30, 2019 as well as the~~ three ~~and nine~~ months ended ~~September~~March 3031, ~~2018,~~2020 there were no stock options or outstanding restricted stock awards excluded from the computation of earnings per diluted share as there were no shares with an anti-dilutive effect.

~~10. Stock-Based Compensation~~25

The Company’s 2006 Stock Incentive Plan, as amended and restated in April 2015 (the “2006 Plan”), authorizes the Company to issue up to 3,500,000 shares of common stock to employees, non-employee directors and consultants pursuant to awards of stock options, stock appreciation rights, restricted stock, in payment of performance shares or other stock-based awards. The Company amended the 2006 Plan to increase the aggregate number of shares of common stock issuable under the 2006 Plan by 1,000,000 shares to a total of 4,500,000 in May 2016, by 2,000,000 shares to a total of 6,500,000 in May 2017 and by 2,000,000 shares to a total of 8,500,000 in May 2019.

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~~Code~~10. ~~The exercise price of a stock option is equal to the fair market value of the Company's Common~~ Stock-Based ~~on the option grant date. As of September 30, 2019, there were 3,290,627 shares available to be issued under the 2006 Plan.~~ Compensation

AtThe ~~September 30~~Company’s certificate of incorporation provides for 105,000,000 shares ~~2019~~of capital stock, ~~the~~consisting ~~Company~~of ~~had~~5,000,000 shares 22of Preferred Stock,~~439~~ ~~stock~~par ~~options~~value ~~outstanding~~$0.001 per share (“Preferred Stock”) and 1100,~~339~~000,~~663~~ 000 shares of ~~restricted~~Common ~~stock~~Stock, ~~outstanding~~par ~~under~~value ~~the~~$0.001 ~~2006~~per ~~Plan.~~share (“Common Stock”).

Under the 2006 Plan, stock options must be granted at a price not less than the fair market value of the stock on the date the option is granted, generally are not subject to re-pricing, and will not be exercisable more than ten years after the date of grant. Options granted under the 2006 Plan generally qualify as “non-qualified stock options” under the U.S. Internal Revenue Code. The exercise price of a stock option is equal to the fair market value of the Company's Common Stock on the option grant date. As of March 31, 2020, there were 1,850,684 shares available to be issued under the 2006 Plan.

At March 31, 2020, the Company had 10,315 stock options outstanding and 1,970,768 shares of restricted stock outstanding under the 2006 Plan.

Stock Option Awards

The Company did not grant any stock options during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2019 and 2018~~2020. There was no compensation expense related to stock options outstanding for ~~each~~both of the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2019~~2020 and ~~2018~~2019.

Restricted Stock Awards

During the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2019~~2020, the Company issued 4238,~~696~~095 ~~and 767,347~~ shares of restricted stock, ~~respectively,~~ to employees under the 2006 Plan with a ~~weighted average~~ per unit grant-date fair value of $12.~~64 for the three months ended September 30, 2019 and $5~~10.88 ~~for the nine months ended September 30, 2019.~~ These shares will vest in three equal installments on each of the first three anniversaries of the date of grant.

~~The~~During ~~total~~the ~~compensation~~three ~~expense,~~months ~~classified~~ended March ~~within~~31, ~~Payroll~~2020, ~~and related on~~ the ~~condensed~~Company ~~consolidated~~issued ~~statements of operations~~2,209 ~~related~~shares toof restricted stock ~~was~~to ~~$851~~employees ~~and~~under ~~$2,470 for~~ the ~~three~~2018 ~~and~~Management ~~nine~~Stock ~~months~~Purchase ~~ended~~Plan ~~September 30,~~(as ~~2019~~amended, ~~respectively,~~the ~~compared~~“MSPP”) towith ~~$548~~a ~~and~~per ~~$1,710~~unit ~~for the comparable prior~~grant-~~year~~date ~~periods.~~fair ~~The~~value ~~Company~~of ~~adjusted the forfeiture estimates to reflect actual forfeitures~~$1.05. ~~The~~These ~~forfeiture~~awards ~~adjustment~~will ~~reduced~~vest ~~stock-based~~on ~~compensation expense by $27 and $59 for~~ the ~~three~~second ~~and~~anniversary ~~nine~~of ~~months ended September 30, 2019, respectively, compared to $21 and $48 for~~ the ~~comparable~~ ~~prior-year~~award ~~periods~~date.

AsThe oftotal ~~September 30,~~compensation ~~2019~~expense, aclassified ~~total~~within ofPayroll ~~$4,630~~and inrelated ~~unrecognized~~on ~~compensation~~the ~~expense~~condensed consolidated statements of operations, related to restricted stock ~~awards~~was is$816 ~~expected~~for the three months ended March 31, 2020, compared to be$805 ~~recognized~~for ~~over~~the acomparable ~~weighted~~prior-~~average~~year period. ofThe 2Company adjusted the forfeiture estimates to reflect actual forfeitures.0 ~~years~~The forfeiture adjustment reduced stock-based compensation expense by $139 and $7 for the three months ended March 31, 2020, and 2019 respectively.

As of March 31, 2020, a total of $2,938 in unrecognized compensation expense related to restricted stock awards is expected to be recognized over a weighted-average period of 2.3 years.

Stock Grants

The Company issued 53114,~~692~~285 shares of common stock to members of the Company’s Board of Directors in respect of their annual retainer on February 1, ~~2019~~2020. The fair value of the shares issued was $52.9610 per share and was expensed upon the date of grant. The total compensation expense, classified within general and administrative expenses, related to Board of Directors common stock grants was $239 and $320 for each of the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019, respectively.

Management Stock Purchase Plan

The Company first adopted the ~~2018~~MSPP ~~Management Stock Purchase Plan~~ in January 2018, and amended and restated it in March 2018 ~~(the “MSPP”)~~. The purpose of the MSPP is to provide eligible employees of the Company (corporate title of Director or above) an opportunity to voluntarily purchase the Company’s stock in a convenient manner. ~~As of September 30, 2019, shares purchased under this plan did not have a material impact on the Company’s financial statements.~~

Upon adoption of the MSPP, eligible employees could elect to use up to 20% of their cash compensation (as defined in the MSPP), but in no event more than $200 in any calendar year, to purchase the Company’s common stock generally on a quarterly basis on the open market through a broker (such purchased shares being referred to as “MSPP Shares”). This amount was amended to $300, effective June 15, 2019, pursuant to a Board of Directors meeting held on May 15, 2019, “Amendment No.1” of the MSPP. If the participant holds the MSPP Shares for the requisite period specified in the Plan (two years from the purchase date) and remains an employee of the Company, the participant will receive an award of shares of restricted stock under the Company’s 2006 Stock Incentive Plan, as amended, in an amount equal to the number of MSPP Shares that satisfied the holding period. The award will vest on the second anniversary of the award date so long as the participant remains an employee on the vesting date. Awards granted under the Stock Incentive Plan in any calendar year as a result of participants holding the MSPP Shares for the requisite period will be the lesser of (i) 50% of the shares available for grant under the Stock Incentive Plan and (ii) the number of MSPP Shares that have satisfied the two year holding period.26

Employee Stock Purchase Plan

In May 2018, the Company’s shareholders approved the Town Sports International Holdings, Inc. Employee Stock Purchase Plan (the “ESPP”), effective as of June 15, 2018. Under the ESPP, an aggregate of 800,000 shares of common stock (subject to certain adjustments to reflect changes in the Company’s capitalization) are reserved and may be purchased by

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Upon adoption of the MSPP, eligible employees ~~who~~could ~~become~~elect ~~participants~~to use up to 20% of their cash compensation (as defined in the ~~ESPP.~~MSPP), ~~The~~but ~~purchase~~in ~~price~~no ~~per~~event ~~share~~more ofthan $200 in any calendar year, to purchase the Company’s common stock isgenerally on a quarterly basis on the ~~lesser~~open market through a broker (such purchased shares being referred to as “MSPP Shares”). This amount was amended to $300, effective June 15, 2019, pursuant to Amendment No. 1 to the MSPP, approved at a Board of ~~85%~~Directors meeting held on May 15, 2019. Subsequently, on July 14, 2020, the Board of Directors approved Amendment No. 2 to the ~~fair~~MSPP, ~~market~~pursuant ~~value~~to ofwhich certain definitions were amended in order to provide for accelerated matching and vesting entitlements for participants in the MSPP upon a ~~share~~change of ~~common~~control. ~~stock~~If onthe participant holds the ~~offering~~MSPP Shares for the requisite period specified in the Plan (two years from the purchase date or ~~85%~~until a change of ~~the~~control) ~~fair~~and ~~market~~remains ~~value~~an employee of athe ~~share~~Company, the participant will receive an award of ~~common~~shares of restricted stock under the Company’s 2006 Stock Incentive Plan, as amended, in an amount equal to the number of MSPP Shares that satisfied the holding period. The award will vest on the ~~purchase~~second anniversary of the award date so long as the participant remains an employee on the vesting date. AsAwards granted under the Stock Incentive Plan in any calendar year as a result of ~~September 30,~~participants ~~2019,~~holding ~~there~~the ~~were~~MSPP ~~764,352~~Shares ~~shares~~for the requisite period will be the lesser of ~~common~~(i) ~~stock~~50% of the shares available for ~~issuance~~grant ~~pursuant~~under tothe Stock Incentive Plan and (ii) the ~~ESPP~~number of MSPP Shares that have satisfied the two year holding period.

~~Total~~Employee ~~compensation~~Stock ~~expense,~~Purchase classified within Payroll and related on the condensed consolidated statements of operations, related to ESPP was $6 and $19 for the three and nine months ended September 30, 2019, respectively compared to $9 and $10 for the comparable prior-year periods.Plan

~~The~~In ~~fair~~May ~~value~~2018, ofthe Company’s shareholders approved the ~~purchase~~Town ~~rights~~Sports ~~granted~~International ~~under~~Holdings, Inc. Employee Stock Purchase Plan (the “ESPP”), ~~for~~effective ~~the~~as ~~offering~~of ~~period~~June ~~beginning~~15, ~~September~~2018. 16Under the ESPP, ~~2019~~an ~~was~~aggregate $0of 800,000 shares of common stock (subject to certain adjustments to reflect changes in the Company’s capitalization) are reserved and may be purchased by eligible employees who become participants in the ESPP.57 The purchase price per share. Itof ~~was~~the ~~estimated~~common bystock ~~applying~~is the ~~Black-Scholes~~lesser ~~option-pricing~~of ~~model~~85% toof the ~~purchase~~fair ~~period~~market invalue of a share of common stock on the offering ~~period~~date ~~using~~or 85% of the ~~following~~fair ~~assumptions:~~market value of a share of common stock on the purchase date. As of March 31, 2020, there were 740,642 shares of common stock available for issuance pursuant to the ESPP.

	September 16, 2019
Grant price	$	1.86
Expected term	3 months
Expected volatility	77.78		%
Risk-free interest rate	1.97		%
Expected dividend yield	—		%

Total compensation expense, classified within Payroll and related on the condensed consolidated statements of operations, related to ESPP was $0 and $7 for the three months ended March 31, 2020 and 2019, respectively.

The fair value of the purchase rights granted under the ESPP for the offering period beginning March 16, 2020 was $0.28 per share. It was estimated by applying the Black-Scholes option-pricing model to the purchase period in the offering period using the following assumptions:



	March 16, 2020
Grant price	$	0.74
Expected term	3 months
Expected volatility	112.98		%
Risk-free interest rate	0.24		%
Expected dividend yield	—		%

Grant price - Closing stock price on the first day of the offering period.

Expected Term - The expected term is based on the end date of the purchase period of each offering period, which is three months from the commencement of each new offering period.

Expected volatility - The expected volatility is based on historical volatility of the Company’s stock as well as the implied volatility from publicly traded options on the Company’s stock.

Risk-free interest rate - The risk-free interest rate is based on a U.S. Treasury rate in effect on the date of grant with a term equal to the expected term.

~~11. Asset Impairment~~27

Long-lived assets, particularly leasehold improvements, furniture and fixtures and operating lease right-of-use assets are evaluated for impairment periodically whenever events or changes in circumstances indicate that related carrying amounts may not be recoverable from undiscounted cash flows in accordance with the FASB guidance. These include, but are not limited to, material declines in operational performance, a history of losses, an expectation of future losses, adverse market conditions and club closure decisions. On at least a quarterly basis, the Company reviews for indicators of impairment at the individual club level, which is the lowest level for which there are identifiable cash flows. The key assumptions used in the Company’s undiscounted cash flow model include revenue, operating expenses and future capital expenditures. An impairment loss may be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group. In the circumstance of impairment, any loss is measured as the excess of the carrying amount of the asset group over its fair value. The fair value of the asset group is determined based on the highest and best use of the asset group, which may include the consideration of market rent for the right to use leased assets included in the asset group. The Company may also utilize assumptions related to projected cash flows when estimating the fair value of impaired assets.

In the three and nine months ended September 30, 2019, and the three and nine months ended September 30, 2018, the Company tested underperforming clubs and recorded an impairment charge of $7,189 and $2,082, respectively, on leasehold improvements and furniture and fixtures at clubs that experienced decreased profitability and sales levels below expectations during these periods. The asset impairment charges are included as a component of club operating expenses in a separate line on the accompanying condensed consolidated statements of operations. In the three and nine months ended September 30, 2019, the fair value of the operating lease right of use assets supported the carrying value and as such, no impairment of these assets was required.

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~~fixed assets evaluated for impairment was determined considering a combination of a market approach and a cost approach~~11. Asset For the right-of-use asset impairment test, the most significant assumptions in those budgets and forecasts were based on a market analysis of the fair value of the applicable real estate operating leases.Impairment

Since March 16, 2020, the Company has been required to close nearly all of its clubs for extended periods of time in order to maintain social distancing and align with the Federal guidance on minimizing the impact of COVID-19. Due to this and other factors, the Company determined as of July 6, 2020 that it was required to recognize a material impairment of the carrying values of the Company’s right of use assets, fixed assets and other long term assets including goodwill.

Long-lived assets, particularly leasehold improvements, furniture and fixtures and equipment and operating lease right-of-use assets are evaluated for impairment periodically whenever events or changes in circumstances indicate that related carrying amounts may not be recoverable from undiscounted cash flows in accordance with the FASB guidance. These include, but are not limited to, material declines in operational performance, a history of losses, an expectation of future losses, adverse market conditions and club closure decisions. On at least a quarterly basis, the Company reviews for indicators of impairment at the individual club level, which is the lowest level for which there are identifiable cash flows. The key assumptions used in the Company’s undiscounted cash flow model include revenue, operating expenses and future capital expenditures. An impairment loss may be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group. In the circumstance of impairment, any loss is measured as the excess of the carrying amount of the asset group over its fair value. The fair value of the asset group is determined based on the highest and best use of the asset group, which may include the consideration of market rent for the right to use leased assets included in the asset group. The Company may also utilize assumptions related to projected cash flows when estimating the fair value of impaired assets.

In the three months ended March 31, 2020, the Company tested underperforming clubs and recorded an impairment charge of $46,822 on leasehold improvements and furniture and fixtures at clubs that experienced decreased profitability and sales levels below expectations. The asset impairment charges are included as a component of club operating expenses in a separate line on the accompanying condensed consolidated statements of operations. No impairment charge was recorded for the comparative 2019 period.

In the three months ended March 31, 2020, the Company tested underperforming clubs and recorded an impairment charge of $62,865 on right-of-use assets at clubs that experienced decreased profitability and sales levels below expectations. The right-of-use impairment charges are included as a component of club operating expenses in a separate line on the accompanying condensed consolidated statements of operations. No impairment charge was recorded for the comparative 2019 period.

In periods tested, the recoverability of fixed assets and right-of-use assets, Level 3 inputs were used in determining undiscounted cash flows, which are based on internal budgets and forecasts through the end of the life of the primary asset in the asset group which is normally the life of leasehold improvements. For the fixed asset impairment test, the most significant assumptions in those budgets and forecasts relate to estimated membership and ancillary revenue, attrition rates, discount rates, income tax rates, estimated results related to new program launches and maintenance capital expenditures. The fair value of fixed assets evaluated for impairment was determined considering a combination of a market approach and a cost approach. For the right-of-use asset impairment test, the most significant assumptions in those budgets and forecasts were based on a market analysis of the fair value of the applicable real estate operating leases.

12. Goodwill and Other Intangibles

Goodwill was allocated to reporting units that closely reflect the regions served by the Company: New York, Boston, Washington, D.C., Philadelphia, Florida, California, Puerto Rico and Switzerland. The Company has acquired several clubs in ~~2018 and~~ the first half of 2019 and has recorded goodwill as applicable to the appropriate regions. ~~For more information on these acquisitions, refer to Note 13 - Acquisitions.~~ Goodwill for all acquisitions was recorded at fair value at the time of such acquisitions and may have changes to the balances up to one year after acquisition. As of ~~September~~March 3031, ~~2019~~2020, the New York, Boston, California, Florida, Puerto Rico and Switzerland regions have a goodwill balance.

Entities that have one or more reporting units with zero or negative carrying amounts of net assets shall disclose those reporting units with allocated goodwill and the amount of goodwill allocated to each and in which reportable segment the reporting unit is included. The Company's New York and Boston reporting units have negative carrying value as of March 31, 2020 and therefore were not subject to goodwill impairments.

The Company’s annual goodwill impairment test is performed on August 1, or more frequently, should circumstances change which would indicate the fair value of goodwill is below its carrying amount.

The Company’s annual goodwill impairment tests as of August 1, 2019 were performed by comparing the fair value of the Company’s reporting unit with its carrying amount and then recognizing an impairment charge, as necessary, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The estimated fair value was determined by using an income approach. The income approach was based on discounted future cash flows and required significant assumptions, including estimates regarding revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. The August 1, 2019 annual impairment test supported the goodwill balance and as such, no impairment of goodwill was required.28

	New York			Boston			California		Florida		Puerto Rico		Switzerland			OutlierClubs			Total
Goodwill	$	38,376		$	23,348		$	1,584	$	2,467	$	2,380	$	1,175		$	3,982		$	73,312
Changes due to foreign currency exchange rate fluctuations	—			—			—		—		—		(129		)	—			(129		)
Less: accumulated impairment of goodwill	(31,549		)	(15,775		)	—		—		—		—			(3,982		)	(51,306		)
Balance as of December 31, 2018	6,827			7,573			1,584		2,467		2,380		1,046			—			21,877
Acquired goodwill (Refer to Note 13 - Acquisitions)	—			—			—		8,038		—		—			—			8,038
Measurement period adjustments	(5		)	590			—		2,199		268		—			—			3,052
Changes due to foreign currency exchange rate fluctuations	—			—			—		—		—		(17		)	—			(17		)
Balance as of September 30, 2019	$	6,822		$	8,163		$	1,584	$	12,704	$	2,648	$	1,029		$	—		$	32,950

Amortization expense was $916 and $2,658 for the three and nine months ended September 30, 2019, respectively, compared to $527 and $1,561 for the prior periods. Intangible assets are as follows:

	As of September 30, 2019							As of December 31, 2018
	Gross CarryingAmount		AccumulatedAmortization			Net IntangibleAssets		Gross CarryingAmount		AccumulatedAmortization			Net IntangibleAssets
Membership lists	$	7,652	$	(5,932	)	$	1,720	$	7,042	$	(4,224	)	$	2,818
Favorable lease commitment(1)	—		—			—		2,390		(553		)	1,837
Non-compete agreement	3,761		(825		)	2,936		3,050		(295		)	2,755
Trade names(2)	5,071		(708		)	4,363		2,337		(308		)	2,029
	$	16,484	$	(7,465	)	$	9,019	$	14,819	$	(5,380	)	$	9,439

(1) Balances in favorable lease commitment were reclassified effective January 1, 2019 to Operating lease right-of-use assets in connection with Topic 842. Prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under previous lease guidance.

(2) In the second quarter of 2019, the Company discontinued the TMPL trade name and wrote off the remaining net balance of $180.

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As a result of the sustained decline in the Company's market capitalization and changes in the Company's long-term projections driven largely by the impacts of the COVID-19 pandemic, the Company determined a triggering event had occurred that required an interim impairment assessment for all of its reporting units and indefinite lived intangible assets. The Company determined the fair value of each of its reporting units using a market approach, an income approach, or a combination of both, where appropriate. Relative to the prior assessment, as part of this current assessment, it was determined that an increase in the discount rate applied in the valuation was required to align with market-based assumptions and company-specific risk. This higher discount rate, in conjunction with revised long-term projection resulted in lower fair values of the reporting units. As a result, the Company recognized impairment charges of $16,426 for goodwill and $983 for other intangible assets during the first quarter of 2020.

The changes in the carrying amount of goodwill from December 31, 2019 through March 31, 2020 are detailed in the chart below:



	New York			Boston			California		Florida			Puerto Rico			Switzerland			Total
Goodwill	$	38,371		$	23,938		$	1,584	$	12,704		$	2,648		$	1,175		$	80,420
Changes due to foreign currency exchange rate fluctuations	—			—			—		—			—			(108		)	(108		)
Less: accumulated impairment of goodwill	(31,549		)	(15,775		)	—		—			—			—			(47,324		)
Balance as of December 31, 2019	6,822			8,163			1,584		12,704			2,648			1,067			32,988
Impairment of goodwill	—			—			—		(12,704		)	(2,648		)	(1,074		)	(16,426		)
Changes due to foreign currency exchange rate fluctuations	—			—			—		—			—			7			7
Balance as of March 31, 2020	$	6,822		$	8,163		$	1,584	$	—		$	—		$	—		$	16,569

Amortization expense was $699 and $746 for the three months ended March 31, 2020 and 2019 respectively. Impairment charges for intangible assets were $983 for the three months ended March 31, 2020 while no impairment charges were recorded for the three months ended March 31, 2019. Intangible assets are as follows:



	As of March 31, 2020										As of December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Impairment			Net Intangible Assets		Gross Carrying Amount		Accumulated Amortization			Impairment		Net Intangible Assets
Membership lists	$	7,652	$	(6,738	)	$	(145	)	$	769	$	7,652	$	(6,385	)	—		$	1,267
Non-compete agreements	3,761		(1,202		)	—			2,559		3,761		(1,013		)	—		2,748
Trade names⁽¹⁾	5,071		(1,023		)	(838		)	3,210		5,071		(866		)	—		4,205
	$	16,484	$	(8,963	)	$	(983	)	$	6,538	$	16,484	$	(8,264	)	$	—	$	8,220


(1)	In the second quarter of 2019, the Company discontinued the TMPL trade name and wrote off the remaining net balance of $180.

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13. Acquisitions

Acquisitions of businesses are accounted for in accordance with ASC 805, Business Combinations and ASU 2017-01. According to ASC 805, transactions that represent business combinations should be accounted for under the acquisition method. In addition, ~~the~~ ASC 805 includes a subtopic which provides guidance on transactions sometimes associated with business combinations but that do not meet the requirements to be accounted for as business combinations under the acquisition method. Under the acquisition method, the purchase price is allocated to the assets acquired and the liabilities assumed based on their respective estimated fair values as of the acquisition date. Any excess of the purchase price over the fair values of the assets acquired and liabilities assumed was allocated to goodwill. The results of operations of the clubs acquired have been included in the Company’s condensed consolidated financial statements from the date of acquisition.

The Company incurred acquisition-related costs of $5102 and $~~322~~149 in the three ~~and nine~~ months ended ~~September~~March 3031, ~~2019,~~2020 ~~respectively, compared to $722~~ and $12019,~~736~~ ~~for the comparable prior-year periods~~respectively. These costs are included in general and administrative expenses in the accompanying condensed consolidated statements of operations.

Acquisition of Around the Clock Fitness

In February 2019, the Company acquired Around The Clock Fitness for a purchase price of $22,222 and a net cash purchase price of $21,667. The acquisition added six clubs to the Company's portfolio in Florida. The following table summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired. The purchase price allocation presented below has been prepared on a preliminary basis and changes to the preliminary purchase price allocations may occur as additional information concerning asset and liability valuations are finalized.

~~Certain~~No measurement period adjustments were made ~~subsequent to the initial purchase price allocation~~ in the ~~nine~~current ~~months~~quarter ~~ended~~subsequent ~~September 30, 2019, including adjustments related~~ to the ~~valuation~~initial ofpurchase ~~fixed~~price ~~assets and membership lists~~allocation. ~~The difference in depreciation and amortization of fixed assets and membership lists as a result of the measurement period adjustments was not material.~~



	February 2019
Allocation of purchase price:
Fixed Assets	$	8,803
Goodwill	9,976
Definite lived intangible assets:
Trade name	2,221
Membership list	610
Non-compete agreement	1,424
Operating lease right-of-use assets	17,812
Operating lease liabilities	(18,212		)
Deferred revenue	(967		)
Total allocation of purchase price	$	21,667

The goodwill recognized represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. The goodwill associated with this acquisition is partially attributable to the avoided costs of acquiring the assembled workforce and is deductible for tax purposes in its entirety. The definite lived intangible assets acquired are being amortized over their estimated useful lives with the membership lists over the estimated average membership life, the trade name over eight years and the non-compete agreement over the contract life of five years.

In the three ~~and nine~~ months ended ~~September~~March 3031, 2020 and 2019, the Company recorded revenue of $3,~~030~~052 and $71,~~557~~086, respectively, and net loss of $~~848~~16,596 ~~and~~for ~~$1,244~~2020 ~~related~~compared to ~~Around~~net ~~the~~income ~~Clock~~of ~~Fitness~~$25 for 2019. Such amounts are included in the respective accompanying condensed consolidated statements of operations.

Acquisition in the Boston Metropolitan Region

In December 2018, the Company acquired four existing clubs in the Boston metropolitan region for a purchase price of $12,500 and a net cash purchase price of $12,267 and was accounted for as a business combination. The following table summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired. The purchase price allocation presented below has been prepared on a preliminary basis and changes to the preliminary purchase price allocations may occur as additional information concerning asset and liability valuations are finalized.

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	December 2018
Allocation of purchase price:
Fixed assets	$	3,680
Goodwill	7,087
Definite lived intangible assets:
Membership list	1,435
Trade name	248
Non-compete agreement	717
Deferred revenue	(900		)
Total allocation of purchase price	$	12,267

The goodwill recognized represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. The goodwill associated with this acquisition is partially attributable to the avoided costs of acquiring the assembled workforce and is deductible for tax purposes in its entirety. The definite lived intangible assets acquired are being amortized over their estimated useful lives with the membership lists over the estimated average membership life, the trade name over three years and the non-compete agreement over the contract life of five years.

In the three and nine months ended September 30, 2019, the Company recorded revenue of $2,953 and $9,467, respectively, associated with these clubs and net loss of $101 for the three months ended September 30, 2019 and net income of $48 for the nine months ended September 30, 2019, respectively. Such amounts are included in the respective accompanying condensed consolidated statements of operations.

Acquisition of LIV Fitness

In September 2018, the Company acquired LIV Fitness for a purchase price of $5,000 and net cash purchase price of $4,930. The acquisition added two clubs to the Company’s portfolio in Puerto Rico. These clubs continue to operate under the LIV Fitness trade name. The following table summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired.

	September 2018
Allocation of purchase price:
Fixed assets	$	2,134
Goodwill	2,648
Definite lived intangible assets:
Membership list	480
Trade name	340
Non-compete agreement	320
Operating lease right-of-use assets	(400		)
Deferred revenue	(592		)
Total allocation of purchase price	$	4,930

The goodwill recognized represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. The goodwill associated with this acquisition is partially attributable to the avoided costs of acquiring the assembled workforce and is deductible for tax purposes in its entirety. The definite lived intangible assets acquired are being amortized over their estimated useful lives with the membership lists being amortized over the estimated average membership life, the trade name over 13 years, the non-compete agreement over the contract life of five years, and the unfavorable lease commitment through March 31, 2023, the remaining life of the lease.

In the three and nine months ended September 30, 2019, the Company recorded revenue of $1,239 and $3,910 respectively, related to LIV Fitness, and net income of $27 for the three months ended September 30, 2019 and net loss of $696 for the nine months ended September 30, 2019. Such amounts are included in the respective accompanying condensed consolidated statements of operations. In the three and nine months ended September 30, 2018, the revenue and net results related to this acquisition were immaterial to the Company’s condensed consolidated statement of operations.

Acquisition in the New York Metropolitan Region

In September 2018, the Company acquired 60% of two existing clubs in the New York metropolitan region, with the seller retaining the other 40%. As a result, these two clubs became majority owned subsidiaries of the Company. This acquisition added two clubs to the Company’s portfolio in the New York Metropolitan region and will operate under the New

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York Sports Clubs brand. The following table summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired.

	September 2018
Allocation of purchase price:
Fixed assets	$	703
Goodwill	232
Right of use assets	(76		)
Other assets and liabilities assumed, net	(106		)
Deferred revenue	(476		)
Total allocation of purchase price	$	277

In the three and nine months ended September 30, 2019, the Company recorded revenue of $533 and $1,566, respectively, and net loss attributable to Town Sports International Holdings, Inc. and subsidiaries of $439 and $1,203, respectively, related to these two clubs. Such amounts are included in the respective accompanying condensed consolidated statements of operations. In the three and nine months ended September 30, 2018, the revenue and net results related to this acquisition were immaterial to the Company’s condensed consolidated statement of operations.

Acquisition of Palm Beach Sports Clubs

In August 2018, the Company acquired 85% of three clubs in Florida, with the seller retaining the other 15%, for a purchase price of $7,307 and a net cash purchase price of $6,697 and branded them “Palm Beach Sports Clubs”. A net amount of $610 is owed to the seller over the next four years. As a result, Palm Beach Sports Clubs became a majority owned subsidiary of the Company. The acquisition added three clubs to the Company’s portfolio in the Florida region and was accounted for as a business combination. The acquisition also included the purchase of a building in which one of the three clubs operates. The following table summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired.

	August 2018
Allocation of purchase price:
Fixed assets	$	5,646
Goodwill	2,728
Definite lived intangible assets:
Membership list	288
Amount due to seller, net	(610		)
Deferred revenue	(860		)
Non-controlling interest	(495		)
Total allocation of purchase price	$	6,697

The goodwill recognized represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. The goodwill associated with this acquisition is partially attributable to the avoided costs of acquiring the assembled workforce and is deductible for tax purposes in its entirety. The definite lived intangible assets acquired are amortized over their estimated useful lives with the membership lists being amortized over the estimated average membership life.

In the three and nine months ended September 30, 2019, the Company recorded revenue of $1,136 and $3,639, respectively, and net income of $217 and $329, respectively, related to Palm Beach Sports Clubs. In the three and nine months ended September 30, 2018, the Company recorded revenue of $373 and net income of $45 related to Palm Beach Sports Clubs. Such amounts are included in the respective accompanying condensed consolidated statements of operations.

Acquisition of Total Woman Gym and Spa Business

In April 2018, the Company acquired substantially all of the assets of the Total Woman Gym and Spa business for a purchase price of $8,000 and a net cash purchase price of $7,265. The acquisition added 12 clubs to the Company’s portfolio in California and was accounted for as a business combination. The clubs continue to operate under the Total Woman Gym and Spa trade name. The following table summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired.

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	April 2018
Allocation of purchase price:
Fixed assets	$	8,064
Goodwill	1,584
Definite lived intangible assets:
Operating lease right-of-use assets	440
Trade name	1,562
Working capital, net	161
Deferred revenue	(4,546		)
Total allocation of purchase price	$	7,265

The goodwill recognized represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. The goodwill associated with this acquisition is partially attributable to the avoided costs of acquiring the assembled workforce and is deductible for tax purposes in its entirety. The definite lived intangible assets acquired are being amortized over their estimated useful lives of 15 years for the trade name, and through June 30, 2026, the remaining life of the related lease, for the favorable lease commitment.

In the three and nine months ended September 30, 2019, the Company recorded revenue of $5,289 and $16,219, respectively, and net loss of $37 for the three months ended September 30, 2019 and net income of $102 for the nine months ended September 30, 2019, respectively, related to Total Woman Gym and Spa. In the three and nine months ended September 30, 2018, the Company recorded revenue of $5,387 and $9,899, respectively, and a net loss of $343 and $730, respectively, related to Total Woman. Such amounts are included in the respective accompanying condensed consolidated statements of operations.

Acquisition in the Boston Metropolitan Region

In January 2018, the Company acquired an existing club in the Boston metropolitan region for a purchase price of $2,750 and a net cash purchase price of 2,866 and was accounted for as a business combination. The following table summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired.

	January 2018
Allocation of purchase price:
Fixed assets	$	982
Goodwill	1,075
Definite lived intangible assets:
Membership list	600
Non-compete agreement	400
Working capital assets	130
Deferred revenue	(321		)
Total allocation of purchase price	$	2,866

The goodwill recognized represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. The goodwill associated with this acquisition is partially attributable to the avoided costs of acquiring the assembled workforce and is deductible for tax purposes in its entirety. The definite lived intangible assets acquired are being amortized over their estimated useful lives with the membership list over the estimated average membership life and the non-compete agreement over the contract life of five years.

In the three and nine months ended September 30, 2019, the Company recorded revenue of $1,036 and $3,685, respectively, and a net loss of $284 and $228, respectively, related to this club. In the three and nine months ended September 30, 2018, the Company recorded revenue of $1,012 and $3,443, respectively, and a net loss of $280 and $284, respectively, related to this club. Such amounts are included in the respective accompanying condensed consolidated statements of operations.

Unaudited Pro forma Results

The following table provides the Company’s consolidated unaudited pro forma revenues, net income and net income per basic and diluted common share had the results of the acquired businesses’ operations been included in its operations commencing on January 1, 2018, based on available information related to the respective operations. This pro forma

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information is not necessarily indicative either of the combined results of operations that actually would have been realized by the Company had the acquisitions been consummated at the beginning of the period for which the pro forma information is presented, or of future results and does not account for any operational improvements to be made by the Company post-acquisition.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue	$	115,496		$	120,487		$	352,760		$	367,470
Net loss including non-controlling interests	$	(11,773	)	$	(4,706	)	$	(15,184	)	$	(2,269	)
Loss per share:
Basic	$	(0.44	)	$	(0.18	)	$	(0.57	)	$	(0.09	)
Diluted	$	(0.44	)	$	(0.18	)	$	(0.57	)	$	(0.09	)

Asset Acquisitions

In January 2018, the Company acquired a building and the land it occupies in the Florida region, as well as a single health club located on the premises for a purchase price of $4,039. Of the total purchase price, $2,691 was attributed to the building, $1,021 was attributed to the land, and the remainder of the purchase price was primarily attributed to the equipment, intangible assets and deferred revenue. This transaction was accounted for as an asset acquisition.

14. Income Taxes

The Company recorded an income tax (benefit)provision inclusive of a valuation allowance of $~~146~~(8,598) and $~~605~~74 for the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019, respectively, reflecting a ~~negative~~positive effective income tax rate of 16% for the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 and a negative effective income tax rate of 383% for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019. For the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019, the Company calculated its income tax provision using the estimated annual effective tax rate methodology.

On December 22, 2017, the President of the United States signed into law H.R.1, formerly known as the Tax Cuts and Jobs Act (the “Tax Legislation”). The Tax Legislation significantly revises the U.S. tax code by among other items lowering the U.S federal statutory income tax rate from 35% to 21%. The Company has computed its income tax provision for the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019 considering this new rate. The Company also initially recorded the applicable impact of the Tax Legislation within its provision for income taxes in the year ended December 31, 2017.

~~As of September~~ 30~~, 2019 and December 31, 2018, the Company maintained a full valuation allowance against its net deferred tax assets.~~

As of September 30, 2019, the Company had $1,155 of unrecognized tax benefits and it is reasonably possible that the entire amount could be realized by the Company in the year ending December 31, 2019, since the related income tax returns may no longer be subject to audit in 2019.

From time to time, the Company is under audit by federal, state, and local tax authorities and the Company may be liable for additional tax obligations and may incur additional costs in defending any claims that may arise.

The following state and local jurisdictions are currently examining our respective returns for the years indicated: New York State (2006 through 2014), and New York City (2006 through 2014).

In particular, the Company disagrees with the proposed assessment dated December 12, 2016 from the State of New York and attended a conciliation conference with the New York State Department of Taxation and Finance Audit section on June 7, 2017. No settlement was reached at the conference and the proposed assessment was sustained. As such, in a revised letter dated November 30, 2017, the Company received from the State of New York a revised assessment related to tax years 2006 through 2009 for approximately $5,097, inclusive of approximately $2,419 of interest. The Company has appealed the assessment with the New York State Division of Tax Appeals. On November 17, 2017, the Company was notified that the State of New York proposed an adjustment in the amount of approximately $3,906 for the years 2010 to 2014, inclusive of approximately $757 in interest. In November 2018, the Company met with the Department officials for the assessment related to 2010 to 2014. The meeting ended with the Company disagreeing with the proposed assessment for the years in audit. Subsequently, in a letter dated August 16, 2019, the Company was notified that an adjustment was made to the proposed

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~~amount~~On ofMarch ~~approximately~~27, $22020,~~687~~ the Coronavirus Aid, ~~inclusive~~Relief, ofand ~~approximately~~Economic ~~$778~~Security Act (“CARES Act”) was enacted in ~~interest,~~the ~~along~~United ~~with~~States ~~opening~~and uphas ofvarious tax provisions, including modifications to the ~~audit~~net ~~period~~operating loss (NOL) limitation, which provides for a 5-year carryback for NOLs arising in taxable years ~~2015~~beginning in 2018, 2019 and 2020. The CARES Act also classifies Qualified Improvement Property (“QIP”) as 15-~~2017~~year property, which was assigned as 39-year property and was not eligible for bonus depreciation under the Tax Cuts and Jobs Act. The Company ~~disagrees~~as ~~with~~a result of the ~~proposed~~CARES ~~assessment~~Act recognized a benefit of approximately $8,652 for reclassifying QIP and other benefits derived from carrying back the losses to prior years. The Company ~~has~~is ~~consented~~also toevaluating ~~extend~~potential ~~such~~opportunities ~~assessment~~from ~~period~~other ~~through~~tax ~~December~~provisions 31in the CARES Act, ~~2020~~but does not expect the impact to be material.

~~The~~As ~~Company is also under examination in New York City (2006 through 2014). New York City Department~~ of ~~Finance has proposed an audit change notice to the Company dated May 2, 2018, for the tax years ended December~~ March 31, ~~2006~~2020 ~~through~~and December 31, ~~2009 for proposed general corporation tax liability in the amount of $4,797 plus $4,138 in interest. In a letter dated January 18,~~ 2019, ~~NYC Department of finance has issued a proposed general tax liability of $5,599, inclusive of $1,569 in interest for audit periods 2010 to 2014. The Company disagrees with~~ the ~~proposed assessment and the~~ Company ~~has~~maintained ~~consented~~a tofull ~~extend~~valuation ~~such~~allowance ~~assessment~~against ~~period~~its ~~through~~net ~~December~~deferred ~~31,~~tax ~~2020~~assets.

As of March 31, 2020, the Company had $1,155 of unrecognized tax benefits and it is reasonably possible that the entire amount could be realized by the Company in the year ending December 31, 2020, since the related income tax returns may no longer be subject to audit in 2020.

The following state and local jurisdictions are currently examining our respective returns for the years indicated: New York State (2006 through 2014), and New York City (2006 through 2017).

In particular, the Company disagrees with the assessment dated November 30, 2017, from New York State related to tax years 2006 through 2009 for approximately $5,097, inclusive of approximately $2,419 of interest. The Company has appealed the assessment with the New York State Division of Tax Appeals for these tax years. In a letter dated December 27, 2019, the Company was notified of an adjustment for an amount of approximately $2,749, inclusive of approximately $840 in interest for tax years 2010 through 2014. Also, in a letter dated August 16, 2019, New York State has also opened the audit period for years 2015-2017. The Company disagrees with the proposed assessment and has consented to extend such assessment period through December 31, 2020.

The Company is also under examination in New York City (2006 through 2017). New York City Department of Finance has proposed an audit change notice to the Company dated May 2, 2018, for the tax years ended December 31, 2006 through December 31, 2009 for proposed general corporation tax liability in the amount of $8,935, inclusive of $4,138 in interest. In a letter dated January 18, 2019, the New York City Department of Finance has issued a proposed general tax liability of $5,599, inclusive of $1,569 in interest for audit periods 2010 to 2014. Also, in a letter dated June 3, 2020, the New York City department of finance has also opened the audit period for the years 2015-2017. The Company disagrees with the proposed assessment and has consented to extend such assessment period through December 31, 2021.

The Company has not recorded a tax reserve related to these proposed assessments. It is difficult to predict the final outcome or timing of resolution of any particular matter regarding these examinations. An estimate of the reasonably possible changes to unrecognized tax benefits within the next 12 months cannot be made.

~~In March 2018, Commonwealth of Massachusetts began an audit of state tax filing of the Company for the Commonwealth of Massachusetts for the 12 month periods ending December~~ 31~~, 2014, 2015 and 2016. During the quarter ended September 30, 2019, the audit was closed with no changes.~~

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15. Commitments and Contingencies

On February 7, 2007, in an action styled White Plains Plaza Realty, LLC v. TSI LLC et al., the landlord of one of TSI LLC’s former health and fitness clubs filed a lawsuit in the Appellate Division, Second Department of the Supreme Court of the State of New York against it and two of its health club subsidiaries alleging, among other things, breach of lease in connection with the decision to close the club located in a building owned by the plaintiff and leased to a subsidiary of TSI LLC, the tenant, and take additional space in a nearby facility leased by another subsidiary of TSI LLC. Following a determination of an initial award, which TSI LLC and the tenant have paid in full, the landlord appealed the trial court’s award of damages, and on August 29, 2011, an additional award (amounting to approximately $900) (the “Additional Award”), was entered against the tenant, which has recorded a liability. Separately, TSI LLC is party to an agreement with a third-party developer, which by its terms provides indemnification for the full amount of any liability of any nature arising out of the lease described above, including attorneys’ fees incurred to enforce the indemnity. As a result, the developer reimbursed TSI LLC and the tenant the amount of the initial award in installments over time and also agreed to be responsible for the payment of the Additional Award, and the tenant has recorded a receivable related to the indemnification for the Additional Award. The developer and the landlord are currently litigating the payment of the Additional Award and judgment was entered against the developer on June 5, 2013, in the amount of approximately $1,000, plus interest, which judgment was upheld by the appellate court on April 29, 2015. TSI LLC does not believe it is probable that TSI LLC will be required to pay for any amount of the Additional Award.

In ~~June~~April, ~~2019~~2020, athe ~~consultant~~Company ofcharged members their monthly charges pursuant to and in accordance with the ~~Company~~terms ~~commenced~~of antheir ~~arbitration~~Membership ~~seeking~~Agreements. The toAttorney ~~recover~~General’s offices for the states of Massachusetts, ~~inter~~New ~~alia~~York, ~~consulting~~Pennsylvania, ~~fees~~Washington, ~~under~~DC ~~his~~and ~~Consulting~~Maryland ~~Agreement~~had ~~which~~taken ~~expires~~the position that charging members in ~~October~~April 2020 at the time of the Governmental Ordered closure violated State Consumer Protection laws. ~~This~~The ~~case~~Company isresolved inthe ~~its~~matter ~~infancy~~with ~~stages~~the Attorney General’s offices by offering members various options such as upgrades to Elite status, providing members who were already Elite members with a three month guest pass, by permitting members during the periods of club closures to cancel their memberships without a cancellation fee, providing free access to members for the ~~Company~~period ~~having~~charged ~~had~~when the ~~benefit~~clubs ofwere ~~discovery~~not open, and, asby ~~such,~~freezing all memberships during the ~~outcome~~periods isof ~~uncertain~~club closures free of charge. ~~The~~Any ~~Company~~member ~~intends~~who wished to ~~vigorously~~cancel ~~defend~~or ~~this~~freeze ~~matter~~their ~~and~~memberships ~~believes~~after itthe ~~has~~clubs ~~meritorious~~reopened ~~defenses~~were charged with cancellation or freeze fees, as applicable, pursuant to the ~~claims~~terms ~~asserted~~of their membership agreements. These resolutions are not expected in the aggregate to have a material impact on the Company’s financial statements.

InBy ~~addition~~reason toof the ~~litigations discussed above, the~~ Company’s isfailure ~~involved in various other lawsuits, claims, investigations and proceedings incidental~~ to ~~the~~pay ~~ordinary~~rent ~~course of business, including personal injury, landlord tenant disputes, construction matters, employee and member relations, and Telephone Consumer Protection Act claims (a number of which purport~~ to ~~represent~~many ~~a class and one~~ of ~~which~~our ~~was~~commercial ~~brought~~landlords bywhile the ~~Washington,~~closure ~~D.C.~~orders ~~Attorney~~were ~~General’s~~in ~~Office~~effect (and ~~the~~in ~~New~~some ~~York~~cases ~~Department~~after oflocations ~~Consumer~~were ~~Affairs~~opened). ~~The~~we ~~results~~have ofreceived ~~litigation~~a ~~are~~number ~~inherently~~of ~~unpredictable.~~Landlord ~~Any~~default ~~claims against the Company~~notices, ~~whether~~lease ~~meritorious~~terminations ~~or not, could be time consuming, result in costly litigation, require significant amounts of management time~~ and ~~result~~ in ~~diversion~~some ofcases ~~significant resources. The results of these other~~ lawsuits, ~~claims~~to ~~and~~collect ~~proceedings~~outstanding ~~cannot~~rent ~~be predicted with certainty. The Company establishes accruals for loss contingencies when it has determined that a loss is probable~~ and ~~that the amount of loss, or range of loss, can be reasonably estimated~~evictions. ~~Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances. The Company concluded that an accrual for any such matters is not required as of September 30, 2019.~~

~~The~~We ~~Company~~have ~~assigned~~asserted ~~its~~defenses ~~interest,~~to ~~and~~the ~~is contingently liable~~defaults, ~~under~~terminations aand ~~real~~suits ~~estate~~consisting ~~lease.~~of ~~This~~force ~~lease~~majeure, ~~expires~~impossibility ~~in 2020. As~~ of ~~September 30~~performance, ~~2019,~~compliance ~~the~~with ~~undiscounted~~governmental ~~payments~~mandates ~~the~~and ~~Company~~frustration ~~could~~of bepurpose. ~~required~~It tois ~~make~~uncertain inwhether ~~the~~we ~~event~~will ofprevail ~~non-payment~~on bythese ~~the~~defenses. ~~primary~~However ~~lessee~~should ~~was~~the ~~approximately $473. The~~ Company ~~has~~or ~~not~~certain ~~recorded~~of aits ~~liability~~subsidiaries ~~with~~file ~~respect~~for tobankruptcy ~~this~~protection, ~~guarantee~~many ~~obligation~~of asthe ofleases ~~September 30,~~subject ~~2019~~to assuch itbankruptcy ~~concluded~~proceedings ~~that~~are ~~payment~~likely ~~under~~to ~~this~~be ~~lease~~rejected ~~guarantee~~and ~~was~~or ~~not~~renegotiated ~~probable~~in bankruptcy.

27The Company assigned its interest, and is contingently liable, under a real estate lease. This lease expired in June 2020. As of the expiration of the lease, the undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee is approximately $1,336. The Company has not recorded a liability with respect to this guarantee obligation as of March 31, 2020 as it was concluded that payment under this lease guarantee was not probable.

In addition, the Company is involved in various other lawsuits, claims, investigations and proceedings incidental to the ordinary course of business, including personal injury, landlord tenant disputes, construction matters, employee and member relations (including charging members April dues during the Government Ordered closure), and Telephone Consumer Protection Act claims (a number of which purport to represent a class and one of which was brought by the Washington, D.C. Attorney General’s Office and the New York Department of Consumer Affairs). The results of litigation are inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. The results of these other lawsuits, claims and proceedings cannot be predicted with certainty. The Company establishes accruals for loss contingencies when it has determined that a loss is probable and that the amount of loss, or range of loss, can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances. The Company concluded that an accrual for any such matters is not required as of March 31, 2020.

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16. Subsequent Events

1. In April 2020, the Company purchased $23,900 principal amount of debt outstanding under the 2013 Senior Credit Facility in the open market for $8,300, or 35% of face value, which resulted in a gain on extinguishment of debt of $15,500, including the write-off of related deferred financing costs and debt discount of $249 and $707, The purchased debt was transferred to TSI LLC and canceled.

2. On April 24, 2020, TSI LLC, received funding in connection with “Small Business Loans” under the federal Paycheck Protection Program provided in Section 7(a) of the Small Business Act of 1953, as amended by the Coronavirus Aid, Relief and Economic Security Act, as amended from time to time (the “PPP”). TSI LLC borrowed $2,742 original principal amount, which was funded on April 24, 2020 (the “PPP Loan”). The PPP Loan bears interest at 1% per annum and matures in 2 years from the date of disbursement of funds under the PPP Loan. Interest and principal payments under the PPP Loan will be deferred for a period of 6 months. Under certain circumstances, all or a portion of the PPP Loan may be forgiven, however, there can be no assurance that any portion of the PPP Loan will be forgiven and that TSI LLC would not be required to repay the PPP Loan in full.

The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our business activity and ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. Forgiveness of the PPP Loan is dependent on the Company having initially qualified for the loan and adhering to applicable forgiveness criteria set forth in the PPP Loan and in the CARES Act.

3.Currently, the Company has 55 clubs open to the public and operating in: Florida, Connecticut, Washington D.C., Massachusetts, Pennsylvania and Switzerland. Furthermore, the Company plans to re-open existing clubs in its remaining markets of California, Puerto Rico, New Jersey and New York as and when state and local authorities lift closure orders applicable to gyms and health clubs. However, the recent resurgence of COVID-19 in certain regions of the U.S. has led some state and local governments to delay the implementation of plans to re-open a variety of businesses, including fitness centers, and could lead to new closures in states like Florida where we have been permitted to re-open. Moreover re-opening protocols may include restrictions on capacity and activity that make it difficult for us to attract customers and generate revenue. For example, the Governor of New York announced on August 17, 2020 that fitness centers in New York will be permitted to re-open at only 33% capacity and that they must require customers to wear masks indoors at all times. In many cases, state and local governments have not provided a clear timeline for the projected further easing of restrictions, which creates uncertainty for our customers. These developments may further hinder the Company’s ability to generate operating revenue going forward.

4. Amendment No.2 to the MSPP was adopted on July 14, 2020 in order to provide for certain accelerated matching and vesting entitlements for participants in the MSPP upon a change of control.

5. On July 15, 2020, the Company approved the appointment of Justin Lundberg to serve as a member of the Board, effectively immediately. Mr. Lundberg serves as the sole member of JSP Realty Investments, LLC (“JSP”), a company that receives annual payments from the Company of approximately $150,000 as part of a lease for real property located in Westborough, MA and for electricity credits generated by a solar array also located in Westborough. As the sole member of JSP, Mr. Lundberg is the sole beneficiary of such transactions.

6. Our 2013 Revolving Loan Facility expired on August 14, 2020 and our 2013 Term Loan Facility expires on November 15, 2020. We are currently working with prospective lenders to refinance our debt and are pursuing additional options as described below to address our liquidity needs, however, there can be no assurance that we will be able to refinance our debt, or if we are able to refinance our debt, that such financing will be on terms favorable to us. This raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

In this Form 10-Q, unless otherwise stated or the context otherwise indicates, references to “the Company,” “we,” “our,” “TSI Holdings” and similar references refer to Town Sports International Holdings, Inc. and its subsidiaries. References to “TSI LLC” refer to Town Sports International, LLC, and “TSI Group” refers to Town Sports Group, LLC, both of which are wholly-owned operating subsidiaries of the Company. The Company is a diversified holding company owning subsidiaries engaged in a number of business and investment activities. The Company’s largest operating subsidiary, TSI LLC, has been involved in the fitness industry since 1973 and has grown to become one of the largest owners and operators of fitness clubs in the Northeast region of the United States. TSI Group was formed in 2017 to invest in public and private equities and real estate. TSI Holdings’ corporate structure provides flexibility to make investments across a broad spectrum of industries in order to create long-term value for stockholders.

~~Based on the number of clubs, we are one of the leading owners and operators of fitness clubs in the Northeast and Mid~~COVID-~~Atlantic~~19 regions of the United States and one of the largest fitness club owners and operators in the United States of America. As of September 30, 2019, we owned and operated 187 fitness clubs (“clubs”) and collectively served approximately 630,000 members under various brand names, primarily located in the U.S.Impact

Brand	Count
New York Sports Clubs	100
Boston Sports Clubs	31
Washington Sports Clubs	9
Philadelphia Sports Clubs	5
Lucille Roberts	16
Total Woman Gym and Spa	11
Palm Beach Sports Clubs	3
Christi’s Fitness	1
Around the Clock Fitness	6
LIV Fitness	2
New York Sports Clubs - Switzerland	3
	187

On March 11, 2020, the World Health Organization declared a global pandemic related to the COVID-19 outbreak. The pandemic has caused unprecedented economic volatility and uncertainty which has negatively impacted our recent operating results. In response to the COVID-19 pandemic, we proactively closed all of our clubs system wide by March 22, 2020. We have not recognized first quarter revenue related to monthly membership dues collected in March before clubs closed. We plan to re-open clubs once local authorities issue guidelines authorizing the reopening of fitness centers and we determine it is safe to do so. However, the recent resurgence of COVID-19 in certain regions of the U.S. has led some state and local governments to delay the implementation of plans to re-open a variety of businesses, including fitness centers, and could lead to new closures in states like Florida where we have been permitted to re-open. Moreover re-opening protocols may include restrictions on capacity and activity that make it difficult for us to attract customers and generate revenue. For example, the Governor of New York announced on August 17, 2020 that fitness centers in New York will be permitted to re-open at only 33% capacity and that they must require customers to wear masks indoors at all times. In many cases, state and local governments have not provided a clear timeline for the projected further easing of restrictions, which creates uncertainty for our customers. These developments may further hinder the Company’s ability to generate operating revenue going forward.

The March deferrals have had a significant impact on our first quarter financial results. Due to the outbreak of COVID-19, we have taken measures to protect the health and safety of our employees, including having employees work remotely, where possible. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related restrictions put in place by the U.S. and international governments, all of which are uncertain and cannot be predicted.

We anticipate that the COVID-19 pandemic will continue to negatively impact our operating results and cash flow in future periods. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the “Risk Factors” sections of our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, such as those risks relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and other liabilities, our ability to comply with the covenants contained in the agreements that govern our indebtedness, our ability to attract and retain members in a competitive marketplace during a time when consumer habits in personal fitness are changing rapidly, and our ability to maintain our relationships with our vendors and landlords. Moreover, the Company is facing significant debt maturities in the near term. Our 2013 Revolving Loan Facility expired on August 14, 2020 and our 2013 Term Loan Facility is due to mature on November 15, 2020. The Company currently does not have adequate sources of cash to repay the amounts outstanding thereunder.

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In addition, it is possible that the Company may be forced to file a petition for relief under the Bankruptcy Code, which may further exacerbate the risks described herein and further increase the likelihood that our equity holders would lose some or all their investment in the Company. A bankruptcy filing by such entities, or by the Company, could cause a material adverse effect on our business, financial condition, results of operations and liquidity. In the event of such bankruptcy filing, the Company expects that it will need to raise up to approximately $80 million in financing to fund the costs associated with the bankruptcy filing, professional fees in connection with the bankruptcy and to cover operating shortfalls.

Based on the number of clubs, we are one of the leading owners and operators of fitness clubs in the United States, particularly in the Northeast and Mid-Atlantic regions. As of March 31, 2020, we owned and operated 185 fitness clubs (“clubs”) and collectively served approximately 580,000 members under various brand names, primarily located in the United States.



Brand	Count
New York Sports Clubs	99
Boston Sports Clubs	31
Washington Sports Clubs	9
Philadelphia Sports Clubs	5
Lucille Roberts	16
Total Woman Gym and Spa	10
Palm Beach Sports Clubs	3
Christi’s Fitness	1
Around the Clock Fitness	6
LIV Fitness	2
New York Sports Clubs - Switzerland	3
	185

We develop clusters of clubs to serve densely populated metropolitan regions and we service such populations by clustering clubs near the highest concentrations of our target customers’ areas of both employment and residence. Our clubs are located for maximum convenience to our members in urban or suburban areas, close to transportation hubs or office or retail centers. Our members include a wide age demographic covering the student market to the active mature market. In each of our main regions, we have developed clusters by initially opening or acquiring clubs located in the more central urban markets of the region and then branching out from these urban centers to suburbs and neighboring communities.

InThe ~~the~~above ~~nine~~reflect ~~months ended September 30, 2019, we opened seven~~ clubs, ~~six~~operating ofprior ~~which~~to ~~were~~temporary ~~obtained~~club ~~through~~closures ~~acquisition,~~related ~~and~~to ~~closed~~the ~~five~~COVID-19 ~~clubs~~pandemic. InAll ~~2018, we acquired 25~~ clubs ~~and~~were ~~constructed~~closed ~~and~~in ~~opened~~March ~~one~~2020 ~~new~~in ~~club~~response ~~for~~to ~~which~~COVID-19 weand ~~had~~remained anclosed ~~existing~~as ~~lease.~~of InMarch ~~the 2018 period~~31, ~~we also closed six clubs and transitioned one to a licensed location~~2020.

Revenue and operating expenses

We have two principal sources of revenue:

• Membership revenue: Our largest sources of revenue are dues inclusive of monthly membership fees, annual maintenance fees, and initiation and processing fees paid by our members. In addition, we collect usage fees on a per visit basis for non-passport members using non-home clubs. These dues and fees comprised 76.81% of our total revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020. We recognize revenue from membership dues in the month when the services are rendered. We recognize revenue from initiation and processing fees over the estimated average membership life and annual fees over a twelve month period.

• Ancillary club revenue: For the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020, we generated 16.67% of our revenue from personal training and 5.38% of our revenue from other ancillary programs and services consisting of Sports Clubs for Kids, racquet sports and Small Group Training programs. We continue to grow ancillary club revenue by building on ancillary programs such as our personal training membership product and our fee-based Small Group Training programs.

28We also receive revenue (approximately 1.3% of our total revenue for the three months ended March 31, 2020) from the rental of space in our facilities to operators who offer wellness-related offerings, such as physical therapy and juice bars. In addition, we sell in-club advertising and sponsorships, provide laundry services to third parties, and generate management fees from certain club facilities that we do not wholly own. We refer to these revenues as Fees and other revenue.

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~~for~~Our ~~Kids,~~performance ~~racquet~~is ~~sports~~dependent ~~and~~in ~~Small~~part ~~Group~~on ~~Training~~our ~~programs.~~ability ~~We continue~~ to ~~grow~~continually ~~ancillary~~attract ~~club~~and ~~revenue~~retain bymembers ~~building~~at onour ~~ancillary~~clubs. ~~programs~~In ~~such~~the asthree ~~our~~months ~~personal~~ended ~~training~~March ~~membership~~31, ~~product~~2020 and 2019, our ~~fee-based~~monthly ~~Small~~average ~~Group~~attrition ~~Training~~rate ~~programs~~was 4.4% and 3.8%, respectively.

WeOur ~~also~~operating ~~receive~~expenses ~~revenue~~are ~~(approximately~~comprised ~~1.3%~~ of ~~our~~both ~~total~~fixed ~~revenue~~and ~~for~~variable ~~the~~costs. ~~nine~~Fixed ~~months~~costs ~~ended~~include ~~September~~club ~~30,~~and ~~2019)~~supervisory ~~from~~and ~~the~~other ~~rental~~salary ofand ~~space~~related inexpenses, ~~our~~occupancy ~~facilities~~costs, toincluding ~~operators~~elements ~~who~~of ~~offer~~rent, ~~wellness-related offerings~~utilities, ~~such~~housekeeping ~~as physical therapy~~ and ~~juice~~contracted ~~bars.~~maintenance ~~In addition~~expenses, weas ~~sell~~well ~~in-club~~as ~~advertising~~depreciation. ~~and~~Variable ~~sponsorships,~~costs ~~provide~~are ~~laundry~~primarily ~~services~~related to ~~third~~payroll ~~parties,~~associated ~~and~~with ~~generate~~ancillary ~~management fees from certain~~ club ~~facilities~~revenue, ~~that~~membership wesales docompensation, ~~not~~advertising, ~~wholly~~certain ~~own.~~facility Werepairs ~~refer to these revenues as Fees~~ and ~~other~~club ~~revenue~~supplies.

~~Our~~General ~~performance~~and isadministrative ~~dependent~~expenses include costs relating to our centralized support functions, such as accounting, insurance, information and communication systems, acquisition related costs, purchasing, member relations, legal and consulting fees and real estate development expenses. Payroll and related expenses are included in ~~part~~a separate line item on ~~our~~the ~~ability~~condensed toconsolidated ~~continually~~statements ~~attract~~of operations and ~~retain~~are ~~members~~not atincluded ~~our~~in ~~clubs~~general and administrative expenses. InApproximately $3.7 million and $2.3 million, or 41% and 34%, of general and administrative expenses relate directly to club operations for the three months ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019, ~~our~~respectively, ~~monthly~~including ~~average~~general ~~attrition~~liability ~~rate~~insurance, ~~was~~phone ~~4.3%~~and data lines, computer maintenance, business licenses, office and ~~4.6%~~sales supplies, ~~respectively.~~recruiting and training.

Our operating expenses are comprised of both fixed and variable costs. Fixed costs include club and supervisory and other salary and related expenses, occupancy costs, including most elements of rent, utilities, housekeeping and contracted maintenance expenses, as well as depreciation. Variable costs are primarily related to payroll associated with ancillary club revenue, membership sales compensation, advertising, certain facility repairs and club supplies.

General and administrative expenses include costs relating to our centralized support functions, such as accounting, insurance, information and communication systems, acquisition related costs, purchasing, member relations, legal and consulting fees and real estate development expenses. Payroll and related expenses are included in a separate line item on the condensed consolidated statements of operations and are not included in general and administrative expenses. Approximately $7.1 million and $5.7 million, or 35% and 30%, of general and administrative expenses relate directly to club operations for the nine months ended September 30, 2019 and 2018, respectively, including general liability insurance, phone and data lines, computer maintenance, business licenses, office and sales supplies, recruiting and training.

As clubs mature and increase their membership base, fixed costs are typically spread over an increasing revenue base and operating margins tend to improve. Conversely, when our membership base declines, our operating margins are negatively impacted.

At acquired clubs, operating margins may initially decline due to costs related to the acquisition and time to implement and integrate into our process. Our primary capital expenditures relate to routine improvements at our clubs, the construction or acquisition of new club facilities and the upgrade and renovation of our existing clubs. The construction and equipment costs vary based on the costs of construction labor, as well as the planned service offerings and size and configuration of the facility. We perform routine improvements at our clubs and partial replacement of the fitness equipment each year for which we are currently budgeting approximately 2.5% of projected annual revenue. In this regard, facility remodeling is also considered where appropriate.

As of ~~September~~March 3031, ~~2019~~2020, our consolidated operating results included ~~five~~three majority owned clubs for which we had control. In addition, we owned 45% ~~and 20%, respectively,~~ of ~~two clubs (~~one ofclub ~~which operated under a different brand name)~~ for which we applied the equity method of accounting. We also owned one licensed club and provided management services at one location in which we did not have an equity interest.

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Historical Club Count

The following table set forth the changes in our club count during each of the quarters in ~~2018~~2019, the full-year ~~2018~~2019, and the first, ~~second~~quarter ~~and third quarters~~ of ~~2019~~2020.

	2018										2019
	2019										2020
	Q1		Q2		Q3		Q4		Full Year		Q1		Q2	Q3
Clubs included in consolidated operating results:
Clubs operated at beginning of period	~~164~~183		~~164~~187		~~175~~188		~~179~~185		~~164~~183		~~183~~184		~~187~~	~~188~~
Acquired clubs	26		12—		7—		4—		256		6—		—	—
New clubs opened	—		—1		—		1—		1		—		1	—
Club converted to licensed club(3)	(1—	)	—		—		—		(1—	)	—		—	—
Clubs closed	(12	)	(1—	)	(3	)	(1	)	(6	)	(21	)	—	(3	)
Clubs operated at end of period	~~164~~187		~~175~~188		~~179~~185		~~183~~184		~~183~~184		~~187~~183		~~188~~	~~185~~
Club included in equity investment at end of period(1)	1		1		1		1		1		1		1	1
Licensed club operated at end of period(3)	1		1		1		1		1		1		1	1
Total clubs operated at end of period(1)(2)	~~166~~189		~~177~~190		~~181~~187		~~185~~186		~~185~~186		~~189~~185		~~190~~	~~187~~


(1)	Excludes one 20% owned club that operated under a different brand name in our Washington, D.C. region.

(2) Excludes locations that were managed by us in which we did not have an equity interest. As of ~~September~~March 3031, ~~2019~~2020, we had one remaining managed location.


(3)	Includes one club that transitioned to a licensed location in the first quarter of 2018 and bears the “Washington Sports Clubs” brand name.

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Comparable Club Revenue

We define comparable club revenue as revenue at those clubs that were operated by us for over 12 months (“comparable clubs”) and comparable club revenue increase (decrease) as revenue for the 13th month and thereafter as applicable as compared to the same period of the prior year.

Key determinants of comparable club revenue increases shown in the table below are new memberships, member retention rates, pricing and ancillary revenue increases.

	2018								2019
	2019								2020
	Q1		Q2		Q3		Q4		Q1		Q2		Q3
Comparable club revenue	(1.78	)%	1(3.84	)%	1(2.59	)%	(1.12	)%	(116.8	)%	~~(3.4~~	)%	~~(2.9~~	)%

The comparable club revenue decreases in the 2019 quarterly periods were primarily due to a decrease in member count and personal training revenue, partially offset by higher average dues per membership. The comparable club revenue ~~increase~~was inon ~~2018~~a ~~was~~positive ~~primarily~~trend but due to ~~higher~~the ~~average~~COVID-19 ~~dues per membership~~pandemic, ~~increased~~decreased ~~annual~~substantially. ~~fees~~The ~~and~~club ~~personal~~closure ~~training~~losses ~~revenue,~~were ~~partially~~ offset bydue ato ~~decrease~~higher inaverage ~~member~~dues ~~count~~per ~~and other ancillary club revenue~~membership, ~~particularly~~increased ~~our~~annual ~~Sports~~fees ~~Clubs~~and ~~for~~personal ~~Kids~~training ~~programs~~revenue.

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Consolidated Results of Operations

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2019		2018		2019		2018
	2020		2019
Revenue	100.0	%	100.0	%	~~100.0~~	%	~~100.0~~	%
Operating expenses:
Payroll and related	3842.91		38.29		~~38.7~~		~~37.6~~
Club operating	4855.3		45.59		~~46.9~~		~~45.1~~
General and administrative	69.04		65.19		~~5.8~~		~~5.8~~
Depreciation and amortization	8.29		8.32		~~8.3~~		~~8.5~~
Impairment of fixed assets	647.27		10.91		~~2.0~~		~~0.6~~
	107.6		100.0		101.7		97.6
Impairment of right-of-use assets	64.1		—
Operating (loss) income	(7.6	)	—		(1.7	)	2.4
Impairment of intangible assets	17.7		—
Interest expense	2.8		3.2		2.8		3.0
Impairment of goodwill	—		—
Equity in the earnings of investees	—		(0.1	)	—		(0.1	)
	245.2		98.9
Loss before provision for corporate income taxes	(10.4	)	(3.1	)	(4.5	)	(0.5	)
Operating (loss) income	(145.2	)	1.1
Benefit for corporate income taxes	—		0.5		—		0.2
Interest expense	3.1		3.0
Net loss including non-controlling interests	(10.4	)	(3.6	)	(4.5	)	(0.7	)
Equity in the earnings of investees	0.1		—
Less: net loss attributable to non-controlling interests	(0.2	)	—		(0.2	)	—
Loss before (benefit) provision for corporate income taxes	(148.2	)	(1.8	)
Net loss attributable to TSI Holdings	(10.2	)%	(3.6	)%	(4.3	)%	(0.7	)%
Benefit for corporate income taxes	(8.9	)	0.1
Net loss including non-controlling interests	(139.3	)	(1.9	)
Less: net loss attributable to non-controlling interests	(0.3	)	(0.1	)
Net loss attributable to TSI Holdings	(139.0	)%	(1.8	)%

~~Three Months Ended September 30, 2019 compared to Three Months Ended September 30, 2018~~ 38

Revenue (in thousands) was comprised of the following for the periods indicated:

	Three Months Ended September 30,
	2019				2018
	Revenue		% Revenue		Revenue		% Revenue		% Variance
Membership dues	$	89,687	77.7	%	$	84,162	76.4	%	6.6	%
Initiation and processing fees	122		0.1		337		0.3		(63.8	)
Membership revenue	89,809		77.8		84,499		76.7		6.3
Personal training revenue	18,222		15.8		18,019		16.4		1.1
Other ancillary club revenue (1)	5,833		5.0		6,191		5.6		(5.8	)
Ancillary club revenue	24,055		20.8		24,210		22.0		(0.6	)
Fees and other revenue (2)	1,632		1.4		1,464		1.3		11.5
Total revenue	$	115,496	100.0	%	$	110,173	100.0	%	4.8	%

(1) Other ancillary club revenue primarily consisted of Sports Clubs for Kids, Small Group Training, racquet sports and spa.

(2) Fees and other revenue primarily consisted of rental income, marketing revenue, management fees and laundry service fees.

Revenue increased $5.3 million, or 4.8%, in the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to increases related to the newly acquired clubs of $9.4 million. These increases were partially offset by the impact of club closures of $1.4 million and a decline of $2.7 million in comparable clubs revenue.

Membership dues revenue increased $5.5 million, or 6.6%, in the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily reflecting $7.4 million from the newly acquired clubs. These increases were partially offset by the impact of club closures of $919,000 and a decrease due to net member decline of $931,000 in comparable clubs.

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~~Personal~~Three ~~training~~Months ~~revenue~~Ended ~~increased~~March ~~$203~~31,~~000,~~ or2020 ~~1.1%, in the three months ended September 30, 2019~~ compared to ~~the~~Three ~~three~~Months ~~months~~Ended ~~ended~~March ~~September 30~~31, ~~2018,~~2019 ~~primarily due to the favorable impact from the newly acquired clubs, partially offset by a decline in comparable clubs and the impact of club closures.~~

Other ancillary club revenue decreased $358,000, or 5.8%, in the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to decreased revenue from our Sports Clubs for Kids, partially offset by the favorable impact from the newly acquired clubs.

Operating expenses (in thousands) were comprised of the following for the periods indicated:

	Three Months Ended September 30,
	2019		2018		% Variance
Payroll and related	$	44,976	$	42,108	6.8	%
Club operating	55,789		50,107		11.3
General and administrative	6,915		6,700		3.2
Depreciation and amortization	9,456		9,188		2.9
Impairment of fixed assets	7,189		2,082		>100%
Total operating expenses	$	124,325	$	110,185	12.8	%

Operating expenses increased due to the following factors:

Payroll and related. Payroll and related expenses increased $2.9 million, or 6.8%, in the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily reflecting the impact from the acquired and newly opened clubs of approximately $4.0 million. We were also subject to compliance with minimum wage increases in jurisdictions in which we operate. These increases were partially offset by a decrease in personal training payroll expenses related to lower personal training revenue in comparable clubs and the impact of club closures and other savings initiatives.

Club operating. Club operating expenses increased $5.7 million, or 11.3%, in the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily reflecting the impacts of both newly opened and closed clubs. The increase from the newly opened clubs was $4.7 million, including $2.9 million for rent and occupancy expenses. This is offset by the decrease at closed clubs of $1.4 million, including $1.0 million for rent and occupancy expenses.

At comparable club locations, rent and occupancy expenses increased $1.4 million at comparable clubs due to rent escalations and the impact of the adoption of the new lease standard (Accounting Standards Codification Topic 842), marketing expenses increased $948,000, and repair and maintenance expenses increased $699,000. Partially offsetting these increases was a decline of $1.2 million in utilities expenses primarily due to certain utility adjustments and lower rates as compared to prior year.

General and administrative. General and administrative expenses increased $215,000, or 3.2%, in the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily reflecting increased reserve for general liability insurance of $1.1 million and professional fees of $232,000, partially offset by decreases in acquisition costs of $716,000 and contingencies reserves of $440,000.

Depreciation and amortization. In the three months ended September 30, 2019 compared to the three months ended September 30, 2018, depreciation and amortization expense increased $268,000, or 2.9%, primarily due to the depreciation of assets at our new clubs, partially offset by a decrease at our mature clubs and the impact of closed locations.

Provision for corporate income taxes

We recorded an income tax provision inclusive of valuation allowance of $74,000 and $562,000 for the three months ended September 30, 2019 and 2018, respectively, reflecting an effective income tax rate of 1% for the three months ended September 30, 2019 and 17% for the three months ended September 30, 2018. For the three months ended September 30, 2019 and 2018, we calculated our income tax provision using the estimated annual effective tax rate methodology.

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Nine Months Ended September 30, 2019 compared to Nine Months Ended September 30, 2018

Revenue (in thousands) was comprised of the following for the periods indicated:

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2019				2018
	2020				2019
	Revenue		% Revenue		Revenue		% Revenue		% Variance
Membership dues	$	~~268~~74,~~378~~592	76.51	%	$	~~251~~88,~~992~~823	76.52	%	6(16.50	)%
Initiation and processing fees	~~954~~146		0.31		~~1,006~~429		0.34		(566.20	)
Membership revenue	~~269~~74,~~332~~738		76.82		~~252~~89,~~998~~252		76.86		6(16.53	)
Personal training revenue	5816,~~079~~391		16.67		5519,~~451~~489		16.87		4(15.79	)
Other ancillary club revenue (1)	185,~~620~~680		5.38		166,~~982~~399		5.25		9(11.62	)
Ancillary club revenue	7622,~~699~~071		2122.95		7225,~~433~~888		22.02		5(14.97	)
Fees and other revenue (2)	41,~~767~~270		1.3		41,~~182~~458		1.2		14(12.09	)
Total revenue	$	~~350~~98,~~798~~079	100.0	%	$	~~329~~116,~~613~~598	100.0	%	6(15.49	)%


(1)	Other ancillary club revenue primarily consisted of Sports Clubs for Kids, Small Group Training, racquet sports and spa.


(2)	Fees and other revenue primarily consisted of rental income, marketing revenue, management fees and laundry service fees.

Revenue ~~increased~~decreased $2118.25 million, or 615.49%, in the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, primarily due to a decrease related to ~~increases~~comparable clubs of $3418.87 million atand the ~~newly~~impact ~~acquired~~related ~~clubs~~to COVID-19. ~~These~~This ~~increases~~decrease ~~were~~was partially offset by the impact of ~~club~~newly ~~closures~~acquired clubs of $51.37 million and aclosed ~~decline in revenue in comparable~~ clubs of $81.36 million.

Membership dues revenue ~~increased~~decreased $1614.42 million, or 616.50%, in the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, primarily ~~reflecting~~due ~~the~~to ~~favorable~~a ~~impact~~decrease related to comparable clubs of $2514.57 million ~~from~~and the ~~newly~~impact ~~acquired~~related ~~clubs~~to COVID-19. ~~These~~This ~~increases~~decrease ~~were~~was partially offset by the impact of ~~club~~newly ~~closures~~acquired clubs of $41.05 million and aclosed ~~decrease~~clubs ~~due to net member decline~~ of $5.1.0 million ~~in comparable clubs~~.

Personal training revenue ~~increased~~decreased $23.61 million, or 415.79%, in the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 compared to the ~~nine~~ three months ended ~~September~~March 3031, ~~2018~~2019, primarily due to ~~the~~a ~~favorable~~decrease ~~impact~~related ~~from~~to ~~the~~comparable ~~newly~~clubs ~~acquired~~of ~~clubs~~$2.9 million and $400,000 ~~partially~~related ~~offset~~to byclosed aclubs ~~decline~~as inwell ~~comparable~~as ~~clubs~~the ~~and~~impact related to COVID-19. This decrease was partially offset by the impact of ~~club~~newly ~~closures.~~acquired clubs of $273,000.

Other ancillary club revenue ~~increased~~decreased $~~1.6 million~~719,000, or 911.62%, in the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, primarily due to ~~the~~a ~~favorable~~decrease ~~impact~~related ~~from~~to ~~the~~comparable ~~newly~~clubs ~~acquired~~of ~~clubs~~$700,000 ~~which~~and ~~included~~$171,000 ~~increased~~related ~~revenue~~to ofclosed ~~$747,000~~clubs and the impact related to ~~spa~~COVID-19. ~~services~~This ~~revenue~~decrease was partially offset by the impact of newly acquired clubs of $146,000.

Operating expenses (in thousands) were comprised of the following for the periods indicated:

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2019		2018		% Variance
	2020		2019		% Variance
Payroll and related	$	~~135~~41,~~846~~285	$	~~123~~45,~~978~~323	9(8.69	)%
Club operating	~~164~~54,~~382~~201		~~148~~53,~~602~~576		101.62
General and administrative	209,~~278~~177		186,~~992~~870		633.86
Depreciation and amortization	298,~~116~~704		279,~~956~~585		4(9.12	)
Impairment of fixed assets	7,189		2,082		>100%
Impairment of right-of-use assets	62,865		—		100.0	%
Total operating expenses	$	356,811	$	321,610	10.9	%
Impairment of fixed assets	46,822		—		100.0	%
Impairment of intangible assets	983		—		100.0	%
Impairment of goodwill	16,426		—		100.0	%
Total operating expenses	$	240,462	$	115,354	108.5	%

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Operating expenses increased due to the following factors:

Payroll and related. Payroll and related expenses ~~increased~~decreased $114.90 million, or 98.69%, in the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, primarily reflecting the impact from the ~~acquired~~comparable ~~and~~clubs of approximately $4.0 million, partially offset by newly ~~opened~~acquired clubs of ~~approximately~~$800,000 and closed clubs of $~~14.5~~900,000 ~~million~~and the impact related to COVID-19. We were also subject to compliance with minimum wage increases ~~of approximately $2.1 million~~ in jurisdictions in which we operate. These increases were partially offset by a decrease in personal training payroll expenses related to lower personal training revenue in comparable clubs and the impact of club closures and other savings initiatives.

33Club operating. Club operating expenses increased $625,000, or 1.2%, in the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily reflecting the impact related to COVID-19.

General and administrative. General and administrative expenses increased $2.3 million, or 33.6%, in the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily reflecting increased miscellaneous expenses of $1.4 million, professional fees of $1.0 million, offset by a decrease in acquisition, insurance and computer maintenance cost of $100,000 and the impact related to COVID-19.

Depreciation and amortization. In the three months ended March 31, 2020 compared to the three months ended March 31, 2019, depreciation and amortization expense decreased $881,000, or 9.2%, primarily due to the depreciation of assets at our new clubs, partially offset by a decrease at our mature clubs and the impact of closed locations due to the impact related to COVID-19.

Impairment Charges. Due to the COVID-19 pandemic, we re-measured operating cash flows at all our clubs and conducted an unfavorable impairment test. In the three months ended March 31, 2020 compared to the three months ended March 31, 2019, impairment of right of use assets increased by $62.9 million, or 100%, fixed asset impairment increased by $46.8 million, or 100% and impairment expense related to intangible assets increased by $17.4 million, or 100%.

Property and equipment and lease-related right-of-use assets, along with other long-lived assets, are evaluated for impairment periodically whenever triggering events or indicators exist that the carrying values may not be fully recoverable. As a result of the COVID-19 pandemic, we experienced lower than projected revenues and identified indicators of impairment for certain clubs. We performed undiscounted cash flow analyses over the long-lived assets of certain clubs with impairment indicators and compared it to the carrying value of those assets. Based on these undiscounted cash flow analyses, we determined that certain long-lived assets had carrying values that exceeded their estimated undiscounted cash flows. Fair values of the long-lived assets are estimated using an income approach based on management’s forecast of future cash flows derived from continued retail operations and the fair value of individual operating lease assets determined using estimated market rental rates. Significant estimates are used in determining future cash flows of each club over its remaining lease term including our expectations of future projected cash flows which include revenues, operating expenses, and market conditions. An impairment loss is recorded if the carrying amount of the long-lived asset exceeds its fair value. As a result, we recognized a pre-tax charge of $62.9 million for impairment of our right-of-use assets and a pre-tax charge of $46.8 million for impairment of our club leasehold improvements and furniture and fixtures for the three months ended March 31, 2020. The charges for right-of-use assets were recorded in operating expenses in the consolidated statements of operations.

As a result of the sustained decline in the Company's market capitalization and changes in the Company's long-term projections driven largely by the impacts of the COVID-19 pandemic, we determined a triggering event had occurred that required an interim impairment assessment for all of our reporting units and indefinite lived intangible assets. We determined the fair value of each of our reporting units using a market approach, an income approach, or a combination of both, where appropriate. Relative to the prior assessment, as part of this current assessment, it was determined that an increase in the discount rate applied in the valuation was required to align with market-based assumptions and company-specific risk. This higher discount rate, in conjunction with revised long-term projection resulted in lower fair values of the reporting units. As a result, we recognized impairment charges of $16.4 million for goodwill and $983,000 for other intangible assets during the first quarter of 2020.

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~~training~~(Benefit) ~~payroll~~Provision ~~expenses~~for ~~related~~corporate toincome ~~lower~~taxes ~~personal training revenue in comparable clubs and the impact of club closures and other savings initiatives.~~

~~Club~~We ~~operating.~~recorded ~~Club~~an ~~operating~~income ~~expenses~~tax ~~increased~~provision inclusive of valuation allowance of $~~15.~~(8.6) million, orand ~~10.6%~~$74,000 infor the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 ~~compared~~and to2019, ~~the~~respectively, ~~nine~~reflecting ~~months~~an ~~ended~~effective ~~September~~income ~~30,~~tax ~~2018,~~rate ~~primarily~~of ~~reflecting~~(6)% for the ~~impacts~~three ofmonths ~~both~~ended ~~newly~~March ~~opened~~31, 2020 and ~~closed~~(3)% ~~clubs. The~~for ~~increase from~~ the ~~newly~~three ~~opened~~months ~~clubs~~ended ~~was~~March ~~$15.4 million~~31, ~~including $10~~2019.2 ~~million~~For ~~for~~the ~~rent~~three ~~and~~months ~~occupancy~~ended ~~expenses.~~March ~~This~~31, is2020 ~~offset~~and by2019, ~~the~~we ~~decrease~~calculated atour ~~closed~~income ~~clubs~~tax ofprovision ~~$4.7~~using ~~million,~~the ~~including~~estimated ~~$3.7~~annual ~~million~~effective ~~for~~tax ~~rent~~rate ~~and occupancy expenses~~methodology.

AtOn ~~comparable~~March ~~club~~27, ~~locations~~2020, ~~rent~~the ~~and~~Coronavirus ~~occupancy~~Aid, ~~expenses~~Relief, ~~increased~~and ~~$3.9~~Economic ~~million~~Security atAct ~~comparable~~(“CARES ~~clubs~~Act”) ~~due~~was toenacted ~~rent~~in ~~escalations~~the United States and ~~the~~has ~~impact~~various oftax ~~the~~provisions, ~~adoption~~including ofmodifications to the ~~new~~net ~~lease~~operating ~~standard~~loss (~~Accounting~~NOL) ~~Standards~~limitation, ~~Codification~~which ~~Topic~~provides ~~842),~~for ~~marketing~~a ~~expenses~~5-year ~~increased~~carryback $1for NOLs arising in taxable years beginning in 2018, 2019 and 2020.3 ~~million~~The CARES Act also classifies Qualified Improvement Property (“QIP”) as 15-year property, which was assigned as 39-year property and ~~general~~was ~~club~~not ~~maintenance~~eligible ~~expenses~~for ofbonus ~~$1.0~~depreciation ~~million~~under the Tax Cuts and Jobs Act. ~~Partially~~The ~~offsetting~~Company ~~these~~as ~~increases~~a ~~was~~result of the CARES Act recognized a ~~decline~~benefit of approximately $28.07 million infor ~~utilities~~reclassifying ~~expenses~~QIP ~~primarily~~and ~~due~~other benefits derived from carrying back the losses to ~~certain~~prior ~~utility~~years. ~~adjustments~~The ~~and~~Company ~~lower~~is ~~rates~~also asevaluating ~~compared~~potential opportunities from other tax provisions in the CARES Act, but does not expect the impact to ~~prior~~be ~~year~~material.

General and administrative. General and administrative expenses increased $1.3 million, or 6.8%, in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily reflecting an increase in general liability insurance reserves of $1.1 million and an increase from the newly acquired and opened clubs of $1.7 million, partially offset by decreases in acquisition costs of $1.4 million.

Depreciation and amortization. In the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, depreciation and amortization expense increased $1.2 million, or 4.1%, primarily due to the depreciation of assets at our new clubs, partially offset by a decrease at our mature clubs and the impact of closed locations.

Provision for corporate income taxes

We recorded an income tax provision inclusive of valuation allowance of $146,000 and $605,000 for the nine months ended September 30, 2019 and 2018, respectively, reflecting an effective income tax rate of 1% for the nine months ended September 30, 2019 and an effective income tax rate of 38% for the nine months ended September 30, 2018. For the nine months ended September 30, 2019 and 2018, we calculated our income tax provision using the estimated annual effective tax rate methodology.

Liquidity and Capital Resources

WeOur ~~continue~~sources toof ~~experience~~liquidity ~~revenue~~are ~~pressure~~cash asand ~~the~~cash ~~fitness~~equivalents, ~~industry~~cash isflows ~~highly~~from ~~competitive~~operations inand ~~the~~borrowings ~~areas~~that inwere ~~which~~previously weavailable ~~operate.~~under Wethe ~~continue~~2013 toRevolving ~~strategize~~Loan onFacility. ~~improving~~Our ~~our~~cash ~~financial~~requirements ~~results~~relate ~~and~~primarily ~~focus~~to onworking ~~increasing~~capital ~~membership~~needed to ~~increase~~operate ~~revenue.~~and Wegrow ~~may consider additional actions within~~ our ~~control~~business, including ~~certain~~funding ~~acquisitions,~~operating ~~licensing~~expenses ~~arrangements,~~and ~~the~~capital ~~closure~~expenditures ofto ~~unprofitable~~refresh ~~clubs upon lease expiration~~ and/or ~~the~~renovate ~~sale~~our ~~of certain assets~~clubs.

Our ~~ability~~Term toLoan ~~continue~~Facility tomatures ~~meet~~on ~~our~~November ~~obligations~~15, is2020. ~~dependent~~As onsuch, ~~our~~the ~~ability~~outstanding toprincipal ~~generate~~of ~~positive~~our ~~cash~~2013 ~~flow~~Term ~~from~~Loan aFacility ~~combination~~ of ~~initiatives,~~$177.3 ~~including~~million ~~those~~was ~~mentioned~~classified ~~above.~~as Ita iscurrent ~~also~~liability ~~important~~on ~~for~~our uscondensed toconsolidated ~~generate~~balance ~~positive~~sheet ~~comparable~~as ~~club~~of ~~revenue~~March 31, 2020. ~~Failure~~We todo ~~successfully~~not ~~implement~~have ~~these~~sufficient ~~initiatives~~sources ~~could~~of ~~have~~cash ato ~~material~~satisfy ~~adverse~~this ~~effect~~obligation on date of maturity. Additionally, our ~~liquidity~~2013 ~~and~~Revolving ~~operations~~Loan Facility expired on August 14, ~~and~~2020. weWe ~~would~~are ~~need~~currently working with prospective lenders to ~~implement~~refinance ~~alternative~~our ~~plans~~debt ~~that~~and ~~could~~are ~~include~~pursuing additional ~~asset~~options ~~sales,~~as ~~additional~~described ~~reductions~~below into ~~operating~~address ~~costs~~our liquidity needs, ~~additional~~however, ~~reductions~~there incan ~~working~~be ~~capital,~~no ~~the~~assurance ~~deferral~~that ofwe ~~capital~~will ~~expenditures~~be ~~and~~able to refinance our debt, ~~restructuring.~~or ~~There~~if ~~can~~we beare noable ~~assurance~~to refinance our debt, that such ~~alternatives~~financing ~~would~~will be ~~available~~on terms favorable to us. orThis ~~that~~raises wesubstantial ~~would~~doubt beabout ~~successful~~the inCompany’s ~~their~~ability ~~implementation~~to continue as a going concern within one year after the date the financial statements are issued.

AsIn ~~of September 30~~addition, ~~2019,~~though ~~our~~the ~~cash~~Company ~~balance~~cannot isreasonably ~~$20.9~~estimate ~~million.~~the ~~Our~~severity ~~2013~~of ~~Senior~~COVID-19 ~~Credit~~or ~~Facility~~the isduration ~~due~~of onthe ~~November~~related ~~15,~~orders ~~2020.~~that ~~There~~have ~~can~~closed bemost noof ~~assurance~~its ~~that~~locations weand ~~will~~directed bethe ~~able~~public to ~~refinance~~stay ~~our debt~~ at ~~market~~home, ~~rates~~it ~~and~~currently asanticipates ~~such~~a wematerial ~~may~~adverse ~~have~~impact toon ~~seek~~its ~~alternative~~financial ~~financing~~position, ifresults ~~available.~~of Ifoperations weand ~~cannot~~cash ~~obtain~~flows ~~refinancing,~~during ~~the~~fiscal ~~remaining~~2020. ~~principal~~As ~~balance~~such, of the ~~2013~~Company’s ~~Term~~revenues, ~~Loan~~results of ~~$178.2~~operations ~~million~~and ~~will~~cash ~~become~~flows ~~payable~~have onbeen ~~November~~materially 15adversely impacted, ~~2020.~~which Weraises dosubstantial ~~not~~doubt ~~have~~about the ~~cash~~Company’s onability ~~hand~~to orcontinue ~~other~~as ~~sources~~a ofgoing ~~available liquidity to satisfy this obligation~~concern.

~~Historically,~~As wea ~~have~~result ~~satisfied~~of ~~our~~the ~~liquidity~~Company’s ~~needs~~strained ~~through~~ cash ~~generated~~position ~~from operations~~ and ~~various~~current ~~borrowing~~inability ~~arrangements.~~to ~~Principal~~repay ~~liquidity~~all ~~needs~~amounts ~~have~~outstanding ~~included~~under the ~~acquisition~~2013 Term Loan Facility and ~~development~~2013 ofRevolving ~~new~~Loan ~~clubs~~Facility, ~~debt~~and ~~service~~the ~~requirements~~challenges of COVID-19, ~~debt~~we ~~purchases~~currently anticipate that TSI LLC, Holdings II and certain other ~~capital~~subsidiaries ~~expenditures~~of ~~necessary~~the Company that constitute the Subsidiary Guarantors (as defined in the Credit Agreement) may be forced to ~~upgrade,~~file ~~expand~~a ~~and~~petition ~~renovate~~for ~~existing~~relief ~~clubs~~under the Bankruptcy Code in the near future. WeSuch ~~believe~~a ~~that~~filing ~~our~~would ~~existing~~subject ~~cash~~us to the risks and ~~cash~~uncertainties ~~equivalents~~associated with bankruptcy proceedings and may place equity holders in the Company at significant risk of losing some or all of their investment in TSI LLC, Holdings II, and ~~cash~~such ~~generated~~subsidiaries ~~from~~that ~~operations~~constitute Subsidiary Guarantors (as defined in the Credit Agreement). In addition, ~~will~~it is possible that the Company may be ~~sufficient~~forced to ~~fund~~file ~~capital~~a ~~expenditures~~petition for relief under the Bankruptcy Code, ~~working~~which ~~capital~~may ~~needs~~further exacerbate the risks described herein and ~~other~~further ~~liquidity~~increase ~~requirements~~the ~~associated~~likelihood ~~with~~that our ~~existing~~equity ~~operations~~holders ~~through~~would atlose ~~least~~some ~~the~~or ~~next~~all ~~12 months~~their investment in the Company. ToA bankruptcy filing by such entities, or by the ~~extent~~Company, wecould ~~continue~~cause toa ~~expand~~material adverse effect on our business, ~~through~~financial ~~construction~~condition, results of ~~new~~operations ~~clubs~~and orliquidity. ~~acquisitions~~In the event of such bankruptcy filing, wethe ~~may~~Company expects that it will need to ~~obtain~~raise ~~additional~~up ~~sources~~to ofapproximately $80 million in financing to fund the costs associated with the bankruptcy filing, professional fees in connection with the bankruptcy and to cover operating shortfalls.

34Our ability to continue to meet our obligations is also dependent on our ability to generate positive cash flow from a combination of initiatives, including our ability to close unprofitable clubs upon lease terminations, sell certain assets or restore our revenue streams as government restrictions related to COVID-19 begin to loosen. We anticipate a reduction in sales and profits as a result of the COVID-19 pandemic. Moreover, the recent resurgence of COVID-19 in certain regions of the U.S. has led some state and local governments to delay the implementation of plans to re-open a variety of businesses, including fitness centers, and could lead to new closures in states like Florida where we have been permitted to re-open. Furthermore, re-opening protocols may include restrictions on capacity and activity that make it difficult for us to attract customers and generate revenue. For example, the Governor of New York announced on August 17, 2020 that fitness centers in New York will be permitted to re-open at only 33% capacity and that they must require customers to wear masks indoors at all times.

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~~Operating~~In ~~Activities. Net~~many ~~cash~~cases, ~~provided~~state byand ~~operating~~local ~~activities~~governments ~~for~~have ~~the~~not ~~nine~~provided ~~months~~a ~~ended~~clear ~~September~~timeline ~~30,~~for ~~2019 decreased $20.7 million compared to~~ the ~~nine~~projected ~~months~~further ~~ended~~easing ~~September~~of 30restrictions, ~~2018.~~which ~~Decreases~~creates inuncertainty ~~operating~~for ~~cash~~our ~~included~~customers. ~~the following:~~

•These ~~Cash~~developments ~~paid~~may ~~for~~further ~~occupancy~~hinder ~~increased~~the ~~$20.9~~Company’s ~~million~~ability ~~mainly~~to ~~due~~generate operating revenue going forward. Failure to ~~timing~~successfully ~~differences~~implement ofthese ~~payments~~initiatives could have a material adverse effect on our liquidity and ~~the~~operations, ~~impact~~and ~~from~~we would need to implement alternative plans that could include additional asset sales, additional reductions in operating costs, additional reductions in working capital, the ~~acquired~~deferral of capital expenditures and ~~newly~~debt ~~opened~~restructuring. ~~clubs~~There can be no assurance that such alternatives would be available to us or that we would be successful in their implementation.

•As ~~Cash~~of ~~paid~~March 31, ~~for~~2020, ~~payroll~~our ~~increased~~cash balance is $1424.57 million. ~~mainly~~Our 2013 Senior Credit Facility is due on November 15, 2020. There can be no assurance that we will be able to ~~the~~refinance ~~impact~~our ~~from~~debt ~~the~~at ~~acquired~~market rates and ~~newly~~as ~~opened~~such ~~clubs~~we may have to seek alternative financing, ~~timing~~if available. If we cannot obtain refinancing, the remaining principal balance of ~~bonus~~the ~~payments~~2013 asTerm ~~well~~Loan asof an$177.3 ~~increase~~million inwill ~~minimum~~become ~~wages~~payable ~~requirements~~on November 15, 2020. We do not have the cash on hand or other sources of available liquidity to satisfy this obligation.

•Operating ~~Cash~~Activities. Net ~~collected~~cash provided by operating activities for ~~tax~~the ~~refund~~three months ended March 31, 2020 decreased $47.21 million compared to the three months ended March 31, 2019. Decreases in operating cash included the following:


•	Cash paid for occupancy decreased $9.1 million mainly due to, some timing differences of payments and the impact from the acquired and newly opened clubs.


•	Cash paid for payroll decreased $233,000 mainly due to the impact from the acquired and newly opened clubs, timing of bonus payments as well as an increase in minimum wages requirements.


•	Cash paid for marketing decreased $1.6 million due to less spending during the quarter mainly due to the impact of COVID-19.

Offsetting increases in operating cash included the following:

• Cash collected for membership dues increased $171.83 million, ~~including~~offset ~~increased~~by ~~recurring~~a ~~annual~~decrease ~~fees~~in personal training of $2878,000.~~0 million.~~

Investing Activities. Net cash used in investing activities ~~increased~~decreased $220.10 million in the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019 primarily due to ~~increased~~acquisitions made in 2019 of $21.7 million offset by decreased capital expenditures, ~~mainly~~ for ~~continued~~ enhancements or upgrades to our existing clubs, and the remodeling of ~~several~~ clubs. This increase was partially offset by the decrease in acquisition activity in 2019. Cash paid in connection with the acquisition of businesses, property and other assets, decreased $1.3 million in the 2019 period.

~~The~~Financing ~~Company is in the process of undergoing a club remodel project~~Activities. Net ~~While~~cash ~~each~~used ~~club~~in ~~remodel~~financing isactivities ~~different~~for ~~depending on~~ the ~~needs~~three ofmonths ~~the~~ended ~~respective~~March ~~club~~31, in2020 ~~general~~was ~~the~~$3.2 ~~remodel~~million ~~includes~~compared ~~new~~to ~~flooring,~~net ~~new~~cash ~~fitness~~provided ~~equipment~~by ~~(some~~financing activities of ~~which is leased)~~$756,000 ~~locker~~for ~~room upgrades, a new facade, painting and lighting upgrades. Four clubs were completed in~~ the ~~year~~three months ended ~~December~~March 31, ~~2018 for a total of approximately $2~~2019.0 ~~million~~The ~~and~~increase ~~there~~in ~~are~~financing ~~another~~activities ~~ten~~was ~~clubs~~primarily ~~expected~~due to beproceeds ~~completed~~from inborrowings ~~the~~on ~~years ending December 31, 2019 and 2020. In~~ the ~~nine~~Revolving ~~months~~Loan ~~ended~~Facility ~~September 30, 2019, we spent approximately~~ of $112.07 million, ~~related~~a todecrease ~~this~~in ~~project~~principal ~~and~~payments ~~expect~~on tothe ~~spend~~2013 ~~approximately~~Term ~~$3.0~~Loan ~~million~~Facility ~~and~~of $~~7.0~~47,000, ~~million~~offset inby ~~the~~an ~~fourth~~increase ~~quarter~~in ofprincipal ~~2019~~payments ~~and~~on ~~the~~finance ~~year~~lease ~~ending~~obligations ~~December~~of 31$463, ~~2020, respectively~~000.

~~Financing~~As ~~Activities.~~of March ~~Net~~31, ~~cash~~2020, ~~used~~our intotal ~~financing~~principal ~~activities~~amount ~~for~~of ~~the~~debt ~~nine~~outstanding ~~months~~under ~~ended~~our ~~September~~2013 ~~30,~~Term ~~2019~~Loan Facility was $20177.~~8 million compared to net cash provided by financing activities of $~~3.5 million ~~for the nine months ended September 30, 2018~~. ~~The~~We ~~increase~~paid inno ~~financing activities was primarily due to increased~~ principal payments onin ~~the~~April ~~2013~~2020 ~~Term~~as ~~Loan~~there ~~Facility~~was ofno ~~$18.0~~excess ~~million~~cash ~~and~~flow ~~increased~~for ~~principal~~the ~~payments~~year onending ~~finance~~December ~~lease obligations of $653~~31,~~000.~~ ~~Additionally~~2019, inwith the ~~nine~~remaining ~~months~~debt ~~ended~~balance ~~September~~maturing ~~30,~~on ~~2018~~November 15, ~~financing activities consisted of $5~~2020.5 ~~million~~This insubstantial ~~gross~~amount ~~mortgage~~of ~~and~~debt ~~related~~could ~~Term~~have ~~Note~~significant ~~proceeds.~~consequences, including:

As of September 30, 2019, our total principal amount of debt outstanding under our 2013 Term Loan Facility was $178.2 million. We paid $18.1 million in principal payments in April 2019 associated with the $36.3 million excess cash flow for year ending December 31, 2018, with the remaining debt balance maturing on November 15, 2020. This substantial amount of debt could have significant consequences, including:


•	making it more difficult to satisfy our obligations, including 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 new clubs and other general corporate requirements;

•

requiring a substantial portion of our cash flow from operations for the payment of interest on our debt, which is variable on our 2013 Revolving Loan Facility and on our 2013 Term Loan Facility, and/or principal pursuant to excess cash flow requirements and reducing our ability to use our cash flow to fund working capital, capital expenditures and acquisitions of new clubs and general corporate requirements;


•	increasing our vulnerability to interest rate fluctuations in connection with borrowings under our 2013 Senior Credit Facility at variable interest rates;


•	limiting our ability to refinance our existing indebtedness on favorable terms before the expiration of the current 2013 Term Loan Facility, or at all; and


•	limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.

~~These limitations and consequences may place us at a competitive disadvantage to other less-leveraged competitors.~~42

We believe that we have, or will be able to generate, sufficient funds to finance our current operating plans through the next 12 months. Any material acceleration or expansion of our plans through newly constructed clubs or acquisitions (to the extent such acquisitions include cash payments) may require us to pursue additional sources of financing. There can be no

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~~assurance~~These ~~that~~limitations ~~such~~and ~~financing~~consequences ~~will~~may beplace ~~available,~~us ~~available~~at ona ~~acceptable~~competitive ~~terms,~~disadvantage orto ~~permitted~~other ~~under~~less-leveraged ~~the 2013 Senior Credit Facility (as defined below)~~competitors.

2013 Senior Credit Facility

On November 15, 2013, TSI LLC, an indirect, wholly-owned subsidiary, entered into a $370.0 million senior secured credit facility (“2013 Senior Credit Facility”), pursuant to a credit agreement among TSI LLC, TSI Holdings II, LLC, a newly-formed, wholly-owned subsidiary of the Company (“Holdings II”), as a Guarantor, the lenders party thereto, Deutsche Bank AG, as administrative agent, and Keybank National Association, as syndication agent. The 2013 Senior Credit Facility consists of a $325.0 million term loan facility maturing on November 15, 2020 (“2013 Term Loan Facility”) and a $15.0 million revolving loan facility maturing on August 14, 2020 (“2013 Revolving Loan Facility”). Proceeds from the 2013 Term Loan Facility of $323.4 million were issued, net of an original issue discount (“OID”) of 0.5%, or $1.6 million. The borrowings under the 2013 Senior Credit Facility are guaranteed and secured by assets and pledges of capital stock by Holdings II, TSI LLC, and, subject to certain customary exceptions, the wholly-owned domestic subsidiaries of TSI LLC.

Borrowings under the 2013 Term Loan Facility and the 2013 Revolving Loan Facility, at TSI LLC’s option, bear interest at either the administrative agent’s base rate plus 2.5% or a LIBOR rate adjusted for certain additional costs (the “Eurodollar Rate”) plus 3.5%, each as defined in the 2013 Senior Credit Facility. With respect to the outstanding term loans, the Eurodollar Rate has a floor of 1.00% and the base rate has a floor of 2.00%. Commencing with the last business day of the quarter ended March 31, 2014, TSI LLC is required to pay 0.25% of the principal amount of the term loans each quarter, which may be reduced by voluntary prepayments. During the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020, TSI LLC made a total of $190.65 million in principal payments on the 2013 Term Loan Facility ~~which included the required excess cash flow payment of $18~~.1 ~~million.~~

As of ~~September~~March 3031, ~~2019~~2020, TSI LLC had outstanding letters of credit of $2.51 million under the 2013 Revolving Credit Facility and a total leverage ratio that was below 4.00:1.00. On ~~June~~January 272, ~~2019~~2020, TSI LLC borrowed $98.50 million under the 2013 Revolving Loan Facility to fund TSI LLC working capital and repaid the full amount on ~~July~~January 3, ~~2019~~2020. On March 16, 2020, TSI LLC borrowed $12.5 million under the 2013 Revolving Loan Facility to fund TSI LLC working capital. The Company also had $2.02 million in outstanding letters of credit issued that were not associated with the 2013 Revolving Credit Facility to secure certain lease obligations. The unutilized portion of the 2013 Revolving Loan Facility as of ~~September~~March 3031, ~~2019~~2020 was $~~12.5 million~~353,000, with borrowings under such facility subject to the conditions applicable to borrowings under the Company’s 2013 Senior Credit Facility, which conditions the Company may or may not be able to satisfy at the time of borrowing. In addition, to the financial covenant described above, the 2013 Senior Credit Facility contains certain affirmative and negative covenants, including those that may limit or restrict TSI LLC and Holdings II’s ability to, among other things, incur indebtedness and other liabilities; create liens; merge or consolidate; dispose of assets; make investments; pay dividends and make payments to stockholders; make payments on certain indebtedness; and enter into sale leaseback transactions, in each case, subject to certain qualifications and exceptions. The 2013 Senior Credit Facility also includes customary events of default (including non-compliance with the covenants or other terms of the 2013 Senior Credit Facility) which may allow the lenders to terminate the commitments under the 2013 Revolving Loan Facility and declare all outstanding term loans and revolving loans immediately due and payable and enforce its rights as a secured creditor.

In addition, the 2013 Senior Credit Facility contains provisions that require excess cash flow payments, as defined therein, to be applied against outstanding 2013 Term Loan Facility balances. The excess cash flow is calculated annually for each fiscal year ending December 31 and paid 95 days after the fiscal year end. The applicable excess cash flow repayment percentage is applied to the excess cash flow when determining the excess cash flow payment. Earnings, changes in working capital and capital expenditure levels all impact the determination of any excess cash flow. The applicable excess cash flow repayment percentage is 50% when the total leverage ratio, as defined in the 2013 Senior Credit Facility, exceeds or is equal to 2.50:1.00; 25% when the total leverage ratio is greater than or equal to 2.00:1.00 but less than 2.50:1.00 and 0% when the total leverage ratio is less than 2.00:1.00. TSI LLC may pay dividends in the amount of cumulative retained excess cash flow to TSI Holdings as long as at the time the dividend is made, and immediately after, TSI LLC is in compliance on a pro forma basis with a total leverage ratio of less than 4.00:1.00. For the year ended December 31, ~~2018~~2019, the Company had ~~$36.3~~no ~~million of~~ excess cash flow, as defined in the 2013 Senior Credit Facility, resulting in ano principal ~~payment~~payments ~~of $18.1 million paid~~ in April ~~2019~~2020. In April 2019, TSI LLC paid a dividend of $16.0 million to TSI Holdings using the cumulative retained excess cash flow. ~~The next excess cash flow payment is due in April 2020, if applicable. The Company does not expect such payment will be required.~~

AsLoan ofMaturities: ~~September 30,~~The ~~2019,~~Company’s ~~the~~ 2013 Term Loan Facility ~~has~~is adue ~~gross~~in ~~principal~~its ~~balance~~entirety ofon ~~$178.2~~November ~~million~~15, 2020 and was therefore classified as a current liability on the Company’s consolidated balance sheet as of ~~$176~~March 31, 2020 and December 31, 2019.7 ~~million~~The ~~net~~Company ofdoes ~~unamortized~~not ~~debt~~have ~~discount~~sufficient sources of ~~$1.2~~cash ~~million~~to ~~and~~satisfy ~~unamortized~~this ~~debt~~obligation ~~issuance~~on ~~costs~~the date of ~~$378,000~~maturity. AsThe Company is currently working with prospective lenders to refinance the 2013 Term Loan Facility in advance of ~~September 30~~its maturity date, ~~2019~~however, ~~both~~there can be no assurance that the ~~unamortized~~Company ~~balance~~will ofbe able to refinance its debt, ~~issuance~~or ~~costs~~if ~~and~~it ~~unamortized~~is able to refinance its debt, ~~discount~~that ~~are~~such ~~recorded~~financing aswill abe on terms favorable to the Company.

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As of March 31, 2020, the 2013 Term Loan Facility has a gross principal balance of $177.3 million and a balance of $176.5 million net of unamortized debt discount of $598,000 and unamortized debt issuance costs of $190,000. As of March 31, 2020, both the unamortized balance of debt issuance costs and unamortized debt discount are recorded as a contra-liability and netted with long-term debt on the accompanying condensed consolidated balance sheet and are being amortized as interest expense using the effective interest method. If the Company cannot obtain refinancing, the remaining principal balance of the 2013 Term Loan Facility will become payable on November 15, 2020.

Recent events relating to the COVID-19 pandemic have had a material adverse effect on the Company’s results of operations, cash flows and liquidity and further contribute to conditions that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Under the terms of the 2013 Term Loan Facility, this is considered an event of default which allows the lenders to call the debt in advance of maturity. On March 13, 2020, the Company borrowed $12.5 million from its 2013 Revolving Loan Facility and the Company continues to actively manage its cash flow on a daily basis.

The Company is facing significant debt maturities in the near term. Our 2013 Revolving Loan Facility expired on August 14, 2020 and our 2013 Term Loan Facility is due to mature on November 15, 2020. As a result of the Company’s failure to repay all amounts outstanding under the 2013 Revolving Loan Facility prior to maturity on August 14 2020, the Company is in breach of the terms associated with this facility. Further, the Company is in breach of one of its covenants as of December 31, 2019 and this allows the lenders to call the debt in advance of maturity. Accordingly, the lenders may by written request cause the issuance of a notice of default to the Company and immediately exercise remedies under the 2013 Senior Credit Facility, including without limitation, by declaring the principal of and any accrued interest in respect of all loans, notes, and all obligations owing thereunder to be immediately due and payable. As of September 4,2020, no lender pursuant to the Credit Agreement has commenced any legal action against the Company.

Mortgage and Term Loan

On August 3, 2018, TSI - Donald Ross Realty LLC, a subsidiary of TSI Group, entered into a mortgage note for $3.2 million with BankUnited, N.A. (the “Lender”). This mortgage note bears interest at a fixed rate of 5.36% and is payable in 120 monthly payments of principal and interest based on a 25 year amortization period. The first payment was due and paid on September 3, 2018. The entire principal balance of this mortgage note is due and payable in full on its maturity date of August 3, 2028. As of ~~September~~March 3031, ~~2019~~2020, this mortgage note had an outstanding principal balance of $3.1 million, net of principal payments of $6698,000.

On April 24, 2018, Dixie Highway Realty, LLC, a subsidiary of TSI Group, entered into promissory notes for $1.9 million (the “Mortgage Note”) and $500,000 (the “Term Note”) with the Lender. The Mortgage Note bears interest at a fixed rate of 5.46% and is payable in 120 monthly payments of principal and interest based on a 25 year amortization period. The first payment was due and paid on May 24, 2018. The entire principal balance of the Mortgage Note is due and payable in full on its maturity date of April 24, 2028.

The Term Note bears interest at a fixed rate of 5.30% and is payable in 60 payments of principal and interest. The first payment was due and paid on May 24, 2018 and the final payment will be due to the Lender on the maturity date of April 24, 2023 for all principal and accrued interest not yet paid. In connection with the above mortgage and term loan notes, TSI Group or TSI Holdings must maintain a minimum relationship liquidity balance with the Lender of $500,000 in the form of an operating account. As of September 30, 2019, the Mortgage Note and Term Note had an outstanding principal balance of $1.8 million and $372,000, respectively, reflecting net of principal payments of $51,000 for the Mortgage Note and $128,000 for the Term Note.

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As of March 31, 2020, the Mortgage Note and Term Note had an outstanding principal balance of $1.8 million and $324,000, respectively, reflecting net of principal payments of $71,000 for the Mortgage Note and $176,000 for the Term Note.

Recent Changes in or Recently Issued Accounting Pronouncements

See Note 2 - Recent Accounting Pronouncements to the condensed consolidated financial statements.

Use of Estimates and Critical Accounting Policies

Other than as disclosed below, management believes there have been no other material changes during the period covered by this Quarterly Report to the items that we disclosed as our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019.

Long-lived assets. Fixed assets are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, which are 30 years for building and improvements, five years for club equipment, furniture, fixtures and computer equipment and three to five years for computer software. Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining period of the related lease. Payroll costs directly related to the construction or expansion of the Company’s locations are capitalized with leasehold improvements. Expenditures for maintenance and repairs are charged to operations as incurred. The cost and related accumulated depreciation of assets retired or sold, is removed from the respective accounts and any gain or loss is recognized in operations. The costs related to developing web applications, developing web pages and installing or enhancing developed applications on the web servers are capitalized and classified as computer software. Website hosting fees and maintenance costs are expensed as incurred.

Long-lived assets, including fixed assets and operating lease right of use assets are evaluated for impairment periodically whenever events or changes in circumstances indicate that related carrying amounts may not be recoverable from undiscounted cash flows in accordance with the FASB guidance. The Company’s long-lived assets and liabilities are grouped at the individual club level, which is the lowest level for which there are identifiable cash flows. To the extent that estimated future undiscounted net cash flows attributable to the assets are less than the carrying amount, an impairment charge equal to the difference between the carrying value of such asset and their fair values is recognized. Due to the COVID-19 pandemic, impairment charges of $46.8 million for fixed assets and $62.9 million for right of use assets, were recorded for the period ended March 31, 2020.

Goodwill. Goodwill was allocated to reporting units that closely reflect the regions served by the Company: New York, Boston, ~~Washington~~California, ~~D.C., Philadelphia,~~ Florida, ~~California,~~ Puerto Rico and Switzerland. The Company ~~has~~ acquired several clubs in 2018 and the first half of 2019 and ~~has~~ recorded goodwill as applicable to the appropriate regions. ~~For~~Goodwill ~~more~~for ~~information~~all onacquisitions ~~these~~was recorded at fair value at the time of such acquisitions, ~~refer~~and may have changes to ~~Note~~the 13balances -up ~~Acquisitions~~to one year after acquisition. ~~Goodwill~~As ~~for~~of ~~all~~March 31, ~~acquisitions~~2020, ~~was~~the ~~recorded~~New atYork, ~~fair~~Boston ~~value~~and atSwitzerland regions have a goodwill balance. Due to the COVID-19 pandemic, impairment charges of $16.4 million were recorded for the period ended March 31, 2020.

37The Company’s annual goodwill impairment test is performed on August 1, or more frequently, should circumstances change which would indicate the fair value of goodwill is below its carrying amount. Due to the COVID-19 pandemic, the Goodwill impairment test was conducted for the period ended March 31, 2020. The test was performed by comparing the fair value of the Company’s reporting units with carrying amounts and recognizing an impairment charge, as necessary, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The estimated fair value was determined by using an income approach. The income approach was based on discounted future cash flows and required significant assumptions, including estimates regarding revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions.

Leases: The Company’s operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term. The Company’s lease liabilities represent the Company’s obligation to make lease payments arising from the lease. At the lease commencement date, the Company’s operating lease right-of-use assets and liabilities are recognized on the Condensed Consolidated Balance Sheets, based on the present value of the remaining lease payments over the lease term. In measuring the Company’s lease liabilities, the remaining lease payments are discounted to present value using a discount rate. For the period ended March 31, 2020, an impairment charge of $62.9 million for right-of-use assets was recorded.

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time of such acquisitions and may have changes to the balances up to one year after acquisition. As of September 30, 2019, the New York, Boston, California, Florida, Puerto Rico and Switzerland regions have a goodwill balance.

The Company’s annual goodwill impairment test is performed on August 1, or more frequently, should circumstances change which would indicate the fair value of goodwill is below its carrying amount. The test was performed by comparing the fair value of the Company’s reporting units with carrying amounts and recognizing an impairment charge, as necessary, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The estimated fair value was determined by using an income approach. The income approach was based on discounted future cash flows and required significant assumptions, including estimates regarding revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. The August 1, 2019 annual impairment tests supported the goodwill balance and as such, no impairment of goodwill was required. The goodwill carrying amounts associated with two of the Company’s reporting units, which had excess fair value over its carrying amount of less than 20% based on the results of our 2019 annual impairment assessment, were $12.7 million for Florida and $2.6 million for Puerto Rico as of the impairment test date.

Business Combinations. In connection with an acquisition of a business, the Company records all assets acquired and liabilities assumed, if any, of the acquired business at their acquisition date fair value, including the recognition of contingent consideration at fair value on the acquisition date. These fair value determinations require judgment and may involve the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items. We may utilize independent third-party valuation firms to assist in making these fair value determinations.

~~Forward-Looking Statements~~46

This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding future financial results and performance, potential sales revenue, potential club closures, results of cost-savings initiatives, legal contingencies and tax benefits and contingencies, future declarations and payments of dividends, and the existence of adverse litigation and other risks, uncertainties and factors set forth under Item 1A, entitled “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and in our other reports and documents filed with the Securities and Exchange Commission ("SEC"). You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,” “could,” or the negative version of these words or other comparable words. These statements are subject to various risks and uncertainties, many of which are outside our control, including, among others, the level of market demand for our services, economic conditions affecting our business, the success of our pricing model, the geographic concentration of our clubs, competitive pressure, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, outsourcing of certain aspects of our business, environmental matters, the application of federal and state tax laws and regulations, any security and privacy breaches involving customer data, the levels and terms of the Company’s indebtedness, and other specific factors discussed herein and in other SEC filings made by us. We believe that all forward-looking statements are based on reasonable assumptions when made; however, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that, accordingly, one should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update these statements in light of subsequent events or developments. Actual results may differ materially from anticipated results or outcomes discussed in any forward-looking statement.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures: We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired controls.

AsWe ofmaintain ~~September 30,~~disclosure ~~2019,~~controls weand ~~carried~~procedures ~~out~~(as ansuch ~~evaluation,~~term ~~under~~is ~~the~~defined ~~supervision~~in Rules 13a-15(e) and ~~with~~15d-15(e) under the ~~participation~~Securities ofExchange ~~our~~Act ~~management~~of 1934, ~~including~~as amended (the ~~Chief~~“Exchange ~~Executive~~Act”)) ~~Officer~~that ~~and~~are designed to ensure that the ~~Chief~~information ~~Financial~~required ~~Officer,~~to ofbe disclosed by us in the ~~effectiveness~~reports offiled or submitted by us under the ~~design~~Exchange Act is recorded, processed, summarized and ~~operation~~reported ofwithin ~~our~~the ~~disclosure~~time ~~controls~~periods specified in the SEC’s rules and ~~procedures~~forms ~~defined~~and ~~above.~~such ~~Based~~information ~~upon~~is ~~that~~accumulated ~~evaluation~~and communicated to management, ~~our~~including the Chief Executive Officer and the Chief Financial Officer, ~~have~~as ~~concluded that~~appropriate, asto ofallow ~~September 30,~~timely ~~2019,~~decisions ~~our~~regarding required disclosure. Disclosure controls and procedures, ~~were~~no ~~effective~~matter athow ~~the~~well designed and operated, can provide only reasonable ~~assurance~~assurances ~~level~~of achieving the desired controls.

~~Changes~~As inof ~~Internal~~March 31, ~~Control~~2020, ~~over~~we ~~Financial~~carried ~~Reporting:~~out ~~There~~an ~~have~~evaluation, ~~been~~under nothe ~~changes~~supervision inand with the participation of our ~~internal~~management, ~~control~~including ~~over~~the ~~financial~~Chief ~~reporting~~Executive ~~during~~Officer and the ~~quarter~~Chief ~~ended~~Financial ~~September 30~~Officer, ~~2019~~of ~~that~~the ~~have~~effectiveness ~~materially~~of ~~affected~~the design and operation of our disclosure controls and procedures defined above. Based upon that evaluation, orour ~~are~~Chief ~~reasonably~~Executive ~~likely~~Officer toand ~~materially~~Chief ~~affect~~Financial Officer have concluded that, as of March 31, 2020, our ~~internal~~disclosure ~~control~~controls ~~over~~and ~~financial~~procedures ~~reporting~~were not effective at the reasonable assurance level and that a material weakness existed.

39Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We identified a material weakness whereby we did not design and maintain an effective control environment with a sufficient complement of resources with an appropriate level of accounting knowledge, expertise and training to evaluate the accounting for and disclosure of complex or non-routine impairments commensurate with our financial reporting requirements. This was exacerbated by the closure of clubs and corporate facilities and reduction of employee workforce as a result of COVID-19, as well as the intensive coordination with external and internal parties required to account for complex or non-routine impairments. This material weakness resulted in significant delays in the accounting for certain impairments, which resulted in delays in filing our first quarter 10-Q as of and for the three-month period ended March 31, 2020.

Remediation Activities

We are currently in the process of remediating the material weakness and have taken and continue to take steps that we believe will address the underlying causes of the material weakness, which resulted from an insufficient complement of resources with an appropriate level of accounting knowledge, expertise and training to evaluate the accounting for and disclosure of complex or non-routine impairments commensurate with our financial reporting requirements. Steps we are taking include increasing the use of qualified internal and third-party technical resources with accounting expertise on complex or non-routine impairments who are providing accounting interpretation guidance to assist us in identifying and addressing any issues that affect our consolidated financial statements.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

On February 7, 2007, in an action styled White Plains Plaza Realty, LLC v. TSI LLC et al., the landlord of one of TSI LLC’s former health and fitness clubs filed a lawsuit in the Appellate Division, Second Department of the Supreme Court of the State of New York against it and two of its health club subsidiaries alleging, among other things, breach of lease in connection with the decision to close the club located in a building owned by the plaintiff and leased to a subsidiary of TSI LLC, the tenant, and take additional space in a nearby facility leased by another subsidiary of TSI LLC. Following a determination of an initial award, which TSI LLC and the tenant have paid in full, the landlord appealed the trial court’s award of damages, and on August 29, 2011, an additional award (amounting to approximately $900,000) (the “Additional Award”), was entered against the tenant, which has recorded a liability. Separately, TSI LLC is party to an agreement with a third-party developer, which by its terms provides indemnification for the full amount of any liability of any nature arising out of the lease described above, including attorneys’ fees incurred to enforce the indemnity. As a result, the developer reimbursed TSI LLC and the tenant the amount of the initial award in installments over time and also agreed to be responsible for the payment of the Additional Award, and the tenant has recorded a receivable related to the indemnification for the Additional Award. The developer and the landlord are currently litigating the payment of the Additional Award and judgment was entered against the developer on June 5, 2013, in the amount of approximately $1.0 million, plus interest, which judgment was upheld by the appellate court on April 29, 2015. TSI LLC does not believe it is probable that TSI LLC will be required to pay for any amount of the Additional Award.

In ~~June~~April, ~~2019~~2020, athe ~~consultant~~Company ofcharged members their monthly charges pursuant to and in accordance with the ~~Company~~terms ~~commenced~~of antheir ~~arbitration~~Membership ~~seeking~~Agreements. toThe ~~recover~~Attorney General’s offices for the states of Massachusetts, ~~inter~~New ~~alia~~York, ~~consulting~~Pennsylvania, ~~fees~~Washington, ~~under~~DC ~~his~~and ~~Consulting~~Maryland ~~Agreement~~had ~~which~~taken ~~expires~~the position that charging members in ~~October~~April 2020 at the time of the Governmental Ordered closure violated State Consumer Protection laws. ~~This~~The ~~case~~Company isresolved inthe ~~its~~matter ~~infancy~~with ~~stages~~the Attorney General’s office by offering members upgrades to Elite status, by offering those members who were already Elite members with a three month guest pass, by permitting members during the periods of club closures to cancel their memberships without a cancellation fee and providing free access to members for the ~~Company~~period ~~having~~charged ~~had~~when the ~~benefit~~clubs ofwere ~~discovery~~not open, and, asby ~~such,~~freezing all memberships during the ~~outcome~~periods isof ~~uncertain~~club closures free of charge. ~~The~~Any ~~Company~~member ~~intends~~who wished to ~~vigorously~~cancel ~~defend~~or ~~this~~freeze ~~matter~~their ~~and~~memberships ~~believes~~after itthe ~~has~~clubs ~~meritorious~~reopened ~~defenses~~were charged with cancellation or freeze fees, as applicable, pursuant to the ~~claims~~terms ~~asserted~~of their membership agreements. These resolutions are not expected in the aggregate to have a material impact on the Company’s financial statements.

InBy ~~addition~~reason toof the ~~litigations discussed above, the~~ Company’s isfailure ~~involved in various other lawsuits, claims, investigations and proceedings incidental~~ to ~~the~~pay ~~ordinary~~rent ~~course of business, including personal injury, landlord tenant disputes, construction matters, employee and member relations, and Telephone Consumer Protection Act claims (a number of which purport~~ to ~~represent~~many ~~a class and one~~ of ~~which~~our ~~was~~commercial ~~brought~~landlords bywhile the ~~Washington,~~closure ~~D.C.~~orders ~~Attorney~~were General’s Office and the New York City Department of Consumer Affairs). The results of litigation are inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time consuming, result in ~~costly~~effect ~~litigation, require significant amounts of management time~~ (and ~~result~~ in ~~diversion~~some ofcases ~~significant~~after ~~resources.~~locations ~~The~~were ~~results~~opened) ofwe ~~these~~have ~~other~~received ~~lawsuits, claims and proceedings cannot be predicted with certainty. The Company establishes accruals for loss contingencies when it has determined that~~ a ~~loss~~number ~~is probable and that the amount~~ of ~~loss,~~Landlord ordefault ~~range of loss~~notices, ~~can~~lease beterminations ~~reasonably~~and ~~estimated. Any such accruals are adjusted thereafter as appropriate to reflect changes~~ in ~~circumstances.~~some Wecases ~~currently believe that the ultimate outcome of such~~ lawsuits, ~~claims~~to ~~and~~collect ~~proceedings~~outstanding ~~will~~rent ~~not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, depending on the amount~~ and ~~timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations in a particular period~~evictions.

We have asserted defenses to the defaults, terminations and suits consisting of force majeure, impossibility of performance, compliance with governmental mandates and frustration of purpose. It is uncertain whether we will prevail on these defenses. However should the Company or certain of its subsidiaries file for bankruptcy protection, many of the leases subject to such bankruptcy proceedings are likely to be rejected and or renegotiated in bankruptcy.

The Company assigned its interest, and is contingently liable, under a real estate lease. This lease expired in June 2020. As of the expiration of the lease, the undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee is approximately $1,336. The Company has not recorded a liability with respect to this guarantee obligation as of March 31, 2020 as it was concluded that payment under this lease guarantee was not probable.

In addition, the Company is involved in various other lawsuits, claims, investigations and proceedings incidental to the ordinary course of business, including personal injury, landlord tenant disputes, construction matters, employee and member relations (including charging members April dues during the Governmental Ordered closure, and Telephone Consumer Protection Act claims (a number of which purport to represent a class and one of which was brought by the Washington, D.C. Attorney General’s Office and the New York City Department of Consumer Affairs). The results of litigation are inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. The results of these other lawsuits, claims and proceedings cannot be predicted with certainty. The Company establishes accruals for loss contingencies when it has determined that a loss is probable and that the amount of loss, or range of loss, can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances. We currently believe that the ultimate outcome of such lawsuits, claims and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations in a particular period.

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ITEM 1A. Risk Factors

~~There~~Except ~~have~~as ~~not~~otherwise set forth below, there have been ~~any~~no material ~~changes~~developments to alter the ~~information~~risk factors related to the ITEM 1A. “Risk Factors” ~~disclosure~~as disclosed in ~~the~~our ~~Company’s~~ Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 and our Quarterly Report for the fiscal quarter ended March 31, 2020.

1. Our business and results of operations have been and are expected to continue to be materially impacted by the ongoing COVID-19 pandemic.

The recent outbreak of disease caused by COVID-19, which has been declared a pandemic by the World Health Organization, has spread across the globe and is impacting worldwide economic activity. A public health pandemic such as COVID-19 poses the risk that we or our employees, members, suppliers and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns, travel restrictions, social distancing requirements, stay at home orders and advisories and other restrictions that may be suggested or mandated by governmental authorities. The COVID-19 pandemic may also have the effect of heightening many of the other risks described in the ‘‘Risk Factors’’ section of our 2019 Form 10-K, such as those relating to our growth strategy, our ability to attract and retain members, our supply chain, health and safety risks to our members, loss of key employees and changes in consumer preferences, as well as risks related to our significant indebtedness, including our ability to generate sufficient cash and comply with the terms of and restrictions under the agreements governing such indebtedness. The extent of the impact of the COVID-19 pandemic is highly uncertain and difficult to predict. However, the continued spread of the virus and the measures taken in response to it have disrupted our operations and have adversely impacted our business, financial condition and results of operations. For example, in response to the COVID-19 pandemic, we proactively closed all of our clubs system-wide in mid-March 2020 terminated a majority of our employees while clubs remain closed, and suspended billing membership fees to members. A majority of our clubs remain closed due to COVID-19. The significance of the ultimate operational and financial impact to us will depend on how long and widespread the disruptions caused by COVID-19, and the corresponding response to contain the virus and treat those affected by it, prove to be.

2. We currently anticipate that TSI LLC, Holdings II and certain subsidiaries of the Company that constitute the Subsidiary Guarantors (as defined in the Credit Agreement) may be forced to file a petition for relief under the Bankruptcy Code in the near future, which would subject us to the risks and uncertainties associated with bankruptcy proceedings and may place equity holders in the Company at significant risk of losing some or all of their investment in TSI LLC, Holdings II, and such subsidiaries that constitute Subsidiary Guarantors (as defined in the Credit Agreement). In addition, it is possible that the Company may be forced to file a petition for relief under the Bankruptcy Code, which may further exacerbate the risks described herein and further increase the likelihood that our equity holders would lose some or all their investment in the Company.

If TSI LLC, Holdings II and some or all of the subsidiaries of the Company that constitute the Subsidiary Guarantors (as defined in the Credit Agreement) file for bankruptcy, our operations and our ability to continue as a going concern will be subject to the risks and uncertainties associated with bankruptcy. A bankruptcy filing by such entities, or by the Company, could cause a material adverse effect on our business, financial condition, results of operations and liquidity. Our management would be required to spend considerable time attending to the demands of a bankruptcy case instead of focusing solely on operations and the challenges posed to the business by the COVID-19 pandemic. We may also have difficulty retaining management and other key personnel necessary to the operation of the business.

Other significant risks include the following:


•	our ability to devise, confirm and consummate a plan of reorganization satisfactory to our creditors and the bankruptcy court;


•	the high costs of bankruptcy and related fees;


•	our ability to obtain sufficient financing to allow the Company to operate during a bankruptcy proceeding;


•	our ability to maintain our relationships with our suppliers, service providers, lessors, members, employees and other third parties; and


•	the actions and decisions of our creditors and other third parties who have interests in such a bankruptcy proceeding that may be inconsistent with the Company’s plans.

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3. NASDAQ has issued deficiency notices to us for failure to maintain a minimum closing bid price of $1.00 per share and failure to meet the minimum stockholders’ equity value requirement of $15,000,000. If either our common stock cannot maintain the required minimum closing bid price or we fail to maintain stockholders’ equity of at least $15,000,000 within any provided cure period, our common stock may be involuntarily delisted from NASDAQ.

On April 28, 2020, the Company received a notification letter from the Listing Qualifications department of NASDAQ notifying the Company that, because the closing bid price for the Company’s common stock listed on the NASDAQ Global Market was below $1.00 for 30 consecutive business days, the Company no longer meets the minimum bid price requirement for continued listing on the NASDAQ Global Market under NASDAQ Marketplace Rule 5450(a)(1), requiring a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”). In addition, on April 28, 2020, the Company received a notification letter from the Listing Qualifications department of NASDAQ notifying the Company that the Market Value of Publicly Held Shares (“MVPHS”) of its common stock had been below the minimum of $15,000,000 for the last 30 consecutive business days, and that consequently the Company no longer meets the continued listing requirement of the NASDAQ Global Market under NASDAQ Marketplace Rule 5450(b)(3)(C), requiring that the Company maintain a minimum MVPHS of $15,000,000 (the “Market Value Requirement”, and collectively with the Minimum Bid Price Requirement, the “Listing Requirements”).

The notifications regarding the Listing Requirements have no immediate effect on the listing of the Company’s common stock. In accordance with NASDAQ Marketplace Rules 5810(c)(3)(A) and 5810(c)(3)(D) and the rule change filed by NASDAQ with the SEC on April 16, 2020, the Company has a period of 180 calendar days from July 1, 2020 (or until December 28, 2020) to regain compliance with the Listing Requirements. If at any time before December 28, 2020 the bid price of the Company’s common stock closes at or above $1.00 per share for at least ten consecutive business days, NASDAQ will provide written notification that the Company has regained compliance with the Minimum Bid Price Requirement and the matter will be deemed closed. If at any time before December 28, 2020 the MVPHS of the Company’s common stock closes at $15,000,000 or more for a minimum of ten consecutive business days, NASDAQ will provide written notification that the Company has regained compliance with the Market Value Requirement and the matter will be deemed closed.

In the event that the Company does not regain compliance with the Minimum Bid Price Requirement by December 28, 2020, the Company may be eligible for additional time. To qualify for additional time, the Company would be required to meet the Market Value Requirement and all other initial listing standards (with the exception of the Minimum Bid Price Requirement), and submit a transfer application with written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. NASDAQ staff would review the Company’s application and make a determination of whether or not the Company will be able to cure the deficiency. Should NASDAQ staff conclude that the Company will not be able to cure the deficiency, or should the Company not submit a transfer application or make the required representation, NASDAQ will provide notice that the Company’s common stock will be subject to delisting.

In the event that the Company does not regain compliance with the Market Value Requirement by December 28, 2020, it will receive notice that its common stock is subject to delisting. Alternatively, the Company may apply to transfer its common stock to the NASDAQ Capital Market, provided that the Company meets the NASDAQ Capital Market’s continued listing requirements.

If the Company receives a notice that its common stock is subject to delisting in respect of either of the Listing Requirements, the Company would be entitled to appeal the NASDAQ staff’s determination to delist its common stock and request a hearing.

The Company intends to monitor both the closing bid price and MVPHS of the Company’s common stock and consider its available options to resolve its non-compliance with the Listing Requirements. No determination regarding the Company’s response to either notification has been made at this time. There can be no assurance that the Company will be able to regain compliance with either of the Listing Requirements or that it will otherwise be in compliance with other NASDAQ listing criteria.

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4. NASDAQ has issued two letters to the Company notifying us of our non-compliance with the continued listing requirements of NASDAQ Listing Rule 5250(c)(1) for our failure to timely file periodic reports on Form 10-Q for the Quarterly Periods ended March 31, 2020 and June 30, 2020. If we are unable to present a satisfactory plan to NASDAQ for regaining compliance with NASDAQ’s continued listing criteria within any applicable cure period, our common stock may be involuntarily delisted from NASDAQ.

The Company was not able to timely file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “First Quarterly Report”) due to disruptions resulting from the unprecedented interruption in its business caused by the COVID-19 pandemic. The Company had availed itself of a valid extension of the original deadline to file the First Quarterly Report which rendered the report due on June 29, 2020. The Company also filed a Notification of Late Filing on Form 12b-25 which would allow the Company until July 6, 2020 to timely file the First Quarterly Report. However, despite substantial effort by the Company and its representatives to complete the First Quarterly Report, the First Quarterly Report was not timely filed.

On July 7, 2020, the Company received a notification letter from the Listing Qualifications Department of NASDAQ indicating that as a result of the Company’s failure to timely file the First Quarterly Report, the Company no longer complied with the continued listing requirements as set forth in NASDAQ Listing Rule 5250(c)(1).

On August 18, 2020, the Company received an additional notification letter from the Listing Qualifications Department of NASDAQ indicating that as a result of the Company’s failure to timely file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (the “Second Quarterly Report” and together with the First Quarterly Report, the “Reports”), and because the Company had been delinquent in filing the First Quarterly Report, the Company remained in non-compliance with the continued listing requirements as set forth in NASDAQ Listing Rule 5250(c)(1).

The Company has until September 8, 2020 to submit a plan to regain compliance with NASDAQ’s continued listing requirements with respect to its delinquent Reports. If NASDAQ accepts the plan, NASDAQ can grant an exception of up to 180 calendar days from the filing due date of the First Quarterly Report, or until December 28, 2020, during which the Company can regain compliance. If NASDAQ does not accept the plan, the Company will have the opportunity to appeal that decision to a Nasdaq Hearings Panel.

5. We have suffered a major interruption in the operation of our business as a result of emergency shutdowns of our clubs mandated by state and local governments across the United States in response to the outbreak of COVID-19. Mandatory closures and other related effects of the COVID-19 pandemic may cause a material adverse effect to our business.

As previously reported in its Current Report on Form 8-K filed on March 19, 2020, the Company was forced to close approximately 95% of its locations on March 16, 2020 pursuant to state and local government stay-at-home orders enacted in response to the outbreak of COVID-19. By the end of March 2020, the Company was forced to close 100% of its locations. We currently have 55 clubs open / operating in Florida, Connecticut, Washington D.C., Massachusetts, Pennsylvania and Switzerland, and the Company is actively developing plans and procedures that will enable safe use of its facilities when and as its locations are permitted to re-open. Furthermore, in reliance on recent announcements from state and local authorities, the Company plans to re-open additional clubs in the next several weeks as and when closure orders applicable to gyms and health clubs are lifted. However, re-opening protocols may include restrictions on capacity and activity that make it difficult for us to attract customers and generate revenue. For example, the Governor of New York announced on August 17, 2020 that fitness centers in New York will be permitted to re-open at only 33% capacity and that they must require customers to wear masks indoors at all times. In many cases, state and local governments have not provided a clear timeline for the projected further easing of restrictions, which creates uncertainty for our customers. These developments may further hinder the Company’s ability to generate operating revenue going forward.

The scope and duration of the interruption to our operations has substantially reduced our cash flow. Moreover, as disclosed in the Company’s Annual Report on Form 10-K, the Company is facing significant debt maturities in the near term. Our 2013 Revolving Loan Facility expired on August 14, 2020 and our 2013 Term Loan Facility is due to mature on November 15, 2020. Further, the Company is in breach of one of its covenants as of December 31, 2019 and this allows the lenders to call the debt in advance as the Company is in default. As of (filing date to be inserted), no lender pursuant to the Credit Agreement has commenced any legal action against the Company. The Company currently does not have adequate sources of cash to repay the amounts outstanding thereunder. In the event that certain of the Company’s subsidiaries party to the Credit Agreement file for bankruptcy, the Company expects that it will need to raise up to approximately $80 million in financing to fund the costs associated with the bankruptcy filing, professional fees in connection with the bankruptcy and to cover operating shortfalls.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

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ITEM 6. Exhibits



Exhibit No.		Description of Exhibit

31.1		Certification of Chief Executive Officer pursuant to Rule 13a – 14(a) and Rule 15d – 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a – 14(a) and Rule 15d – 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

From time to time the Company may use its website as a channel of distribution of material company information. Financial and other material information regarding the Company is routinely posted on and accessible at https://www.townsportsinternational.com. In addition, you may automatically receive email alerts and other information about the Company by enrolling through the “Email Alerts” section at https://www.townsportsinternational.com.

The foregoing information regarding the Company website and its content is for convenience only. The content of its website is not deemed to be incorporated by reference into this report nor should it be deemed to have been filed with the Securities and Exchange Commission.

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SIGNATURES

Pursuant to requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			TOWN SPORTS INTERNATIONALHOLDINGS, INC.
DATE:	~~November~~September 54, ~~2019~~2020
		By:	/s/ ~~Carolyn~~Phillip ~~Spatafora~~Juhan
			Carolyn Spatafora
			Phillip Juhan
			Chief Financial Officer (Duly Authorized Officer)

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