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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K




|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

OR



|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
|- | --------------------------------------------------------------------------------

For the transition period from ___________to __________

Commission File Number: 1-13290



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The Sports Club Company,
Inc.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 95-4479735                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

|                                                            |  |           
|----------------------------------------------------------- |  | ----------
|11100 Santa Monica Blvd.,
Suite 300
Los Angeles, California |  | 90025     
|(Address of registrants
principal executive offices)       |  | (Zip Code)

|                                                    |  | 
|--------------------------------------------------- |  | 
|Registrants telephone number,
including area code: |  | 
|(310) 479-5200                                      |  | 

|                                                            |  |                               
|----------------------------------------------------------- |  | ------------------------------
|Securities registered pursuant to
Section 12(b) of the Act: |  | Name of each exchange on which
|Title of each
class                                         |  | registered                    

|                                                            |  |                        
|----------------------------------------------------------- |  | -----------------------
|Common Stock $.01 par
value                                 |  | American Stock Exchange
|                                                           
|Securities registered pursuant to
Section 12(g) of the Act: |  | None                   



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Indicate by check mark whether
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 period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x    No o

Indicate by check mark if disclosure of delinquent filers pursuant to
Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 25, 2002 was $12,549,309. The number of shares of the
Common Stock, par value $ .01 per share, outstanding (the only class of Common
Stock of the registrant outstanding) was 18,095,953 on March 25, 2002.



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TABLE OF CONTENTS



|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | ITEM 1. BUSINESS                                                                             
|              | ITEM 2. PROPERTIES                                                                           
|              | ITEM 3. LEGAL PROCEEDINGS                                                                    
|              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS                                
|PART II      
|              | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED MATTERS                            
|              | ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA                                                 
|              | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|              | ITEM 8. FINANCIAL STATEMENTS                                                                 
|              | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
|PART III     
|              | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|              | ITEM 11. EXECUTIVE COMPENSATION                                                              
|              | ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                    
|              | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|PART IV      
|              | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|SIGNATURES   
|Exhibit 10.67
|Exhibit 10.70
|Exhibit 10.71
|Exhibit 10.72
|Exhibit 10.73
|Exhibit 21.1 
|Exhibit 23.1 



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##### Table of Contents






PART I




ITEM 1. BUSINESS

General

We were organized in 1994 to consolidate the ownership of several sports
and fitness clubs (Clubs). We currently operate six Clubs under The Sports
Club/LA name in Los Angeles, Washington D.C., Boston, San Francisco and at
Rockefeller Center and the Upper East Side in New York City. We also operate
The Sports Club/Irvine and Reebok Sports Club/NY. Our Clubs offer a wide range
of fitness and recreation options and amenities, and are marketed to affluent,
health conscious individuals who desire a service-oriented, state-of-the-art
club. Our Clubs are widely recognized as being among the finest sports and
fitness clubs in the country.

Our Clubs are conveniently located and are spacious, modern facilities
that typically include fitness centers, swimming pools and basketball courts.
Our Clubs are designed as urban country clubs, and range in size from 90,000
to 140,000 square feet. Initiation fees and monthly membership dues at Sports
Clubs are higher than those charged by most other sports and fitness clubs,
which we believe do not provide comparable services. Income from ancillary
services and products, including private training, food and beverage and spa
services, also constitutes a significant portion of our revenues. Our
subsidiary, The SportsMed Company (SportsMed), operates physical therapy
facilities in some Clubs and at other locations.

Our strategy is to expand The Sports Club/LA brand in major metropolitan
markets and to increase revenues and profitability at existing Clubs, through
regular increases in monthly membership dues and expanded ancillary services
and products. We will continue to investigate other sites for new Club
developments and acquisitions.

According to the International Health, Racquet & Sportsclub
Association
(IHRSA), the industrys leading trade organization, it is estimated that 29.9
million Americans were members of more than 15,300 sports and fitness clubs in
2000. Revenues generated by the United States sports and fitness club industry
increased at a compound annual rate of 8.6% from $5.5 billion in 1991 to $10.6
billion in 1999. The industry has benefited from the general publics
increasing awareness of the importance of physical exercise. Among other
groups, we target members age 35 and older who, according to IHRSA, represent
52% of all memberships and are the fastest growing segment of the industry.

The Sports Clubs

The Sports Clubs are 90,000 to 140,000 square foot multi-purpose
facilities, which generally include the following features:



| |  |  | large, fully equipped gyms with state-of-the-art fitness equipment,
including weight training, cardio-vascular equipment and
flexibility/balance centers,                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | basketball, volleyball, racquetball, squash, tennis and paddle tennis
courts,                                                                                                                   
|
| |  |  | aerobics/group exercise studios featuring classes throughout the day
and evening, seven days a week, including aerobics, dance, muscle
conditioning, boxing, martial arts, pilates and bodymind,
|
| |  |  | group cycling studios,                                                                                                                                                                          
|
| |  |  | rock climbing walls,                                                                                                                                                                            
|
| |  |  | boxing studios,                                                                                                                                                                                 
|
| |  |  | swimming pools, sundecks, golf practice nets and running tracks,                                                                                                                                



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| |  |  | destination city spa offering massage, facials and full body treatments,                                                                    
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | mens and womens locker rooms featuring wood lockers,                                                                                      
|
| |  |  | steam rooms, saunas and jacuzzis,                                                                                                           
|
| |  |  | restaurants, sports bars, private dining/conference rooms and media
centers,                                                                
|
| |  |  | valet parking, pro shops, hair salons and childcare services,                                                                               
|
| |  |  | sports medicine and physical therapy facilities,                                                                                            
|
| |  |  | personal trainers to develop and supervise members exercise
routines,                                                                      
|
| |  |  | registered dietitians for nutritional consultations,                                                                                        
|
| |  |  | FitLab assessment centers,                                                                                                                  
|
| |  |  | PTS Private Trainer System nutritional programs and products,                                                                               
|
| |  |  | interactive childrens classes, as well as supervised age-specific
junior recreation rooms and junior programs such as gymnastics,          
|
| |  |  | instruction in racquet sports, golf, swimming, boxing, martial arts
and rock climbing,                                                      
|
| |  |  | full-time activities directors responsible for social and media
events for members, including organizing trips, lectures and charity
events,
|
| |  |  | sports instructors who present sports tournaments, leagues and classes,
and                                                                 
|
| |  |  | wellness protocols such as exercise regimens designed for specific groups of
members.                                                       

We currently have eight Sports Clubs in operation. The original Sports
Club/LA opened in 1987 in west Los Angeles, California, near the affluent
communities of Santa Monica, Brentwood, Beverly Hills, Pacific Palisades,
Westwood and Century City. The Sports Club/Irvine opened in 1990 near Newport
Beach in Orange County, California. Reebok Sports Club/NY opened in 1995 on
Manhattans upper west side, and was developed in partnership with a subsidiary
of Reebok International, Ltd. (Reebok) and Lincoln Metrocenter Partners, L.P.
(collectively with its affiliates Millennium). We manage the operations of
this Club and own a controlling 60% interest in the partnership that owns this
Club. Reebok and Millennium have each retained an interest in the partnership.

We opened The Sports Club/LA at two locations in New York City in 2000.
The Sports Club/LA  Rockefeller Center was opened in February 2000. This Club
was designed to service the executive business community in midtown Manhattan.
The Sports Club/LA  Upper East Side in New York City was opened in September
2000. This site is the location of the former Vertical Club, which was closed
in February 1999 for major renovation and conversion to The Sports Club/LA.

We also recently opened The Sports Club/LA at three sites developed by
Millennium. The Sports Club/LA  Washington D.C. opened in October 2000. This
100,000 square foot Club is located at 22nd and M Streets between Washington
D.C.s business district and Georgetown. The Sports Club/LA  Boston opened in
September 2001. This Club overlooks the historic Boston Common and is located
a short distance from the citys financial district. Both of these Clubs are
co-located with a five star Ritz Carlton Hotel. Our newest Club, The Sports
Club/LA  San Francisco, has been open since October 2001. This Club is located
in the Four Seasons Hotel and Residences in the emerging South of Market Area
in San Francisco.



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The SportsMed Company, Inc.

Our SportsMed subsidiary operates physical therapy facilities within The
Sports Club/LA in Los Angeles, The Sports Club/Irvine, the Spectrum Club  Valencia and the Spectrum Club  Thousand Oaks. SportsMed also operates in a
stand-alone facility in Calabasas, California. The clinics are staffed by
exercise physiologists, physical therapists and registered dietitians who
provide services to members and others. We believe that SportsMed provides
valuable services, which are complementary to the other services provided by
the Clubs, and are considering placing physical therapy facilities in other
Clubs in the future.

Development of New Clubs

Recent New Club Developments.In 2000 and 2001, we completed the
development of five new Sports Club/LA sites. Two of these Clubs are located
in New York City and, when combined with our Reebok Sports Club/NY site, form a
trio of Clubs located in residential areas on the East and West sides and the
central midtown business district. Three of the new Clubs were developed with
Millennium, with whom we developed Reebok Sports Club/NY. Millennium is a
developer of premier multi-use projects and is funded by Quantum Realty Fund, a
member of the Quantum Group of Funds, which are off-shore investment funds
managed by Soros Fund Management, a management firm headed by George Soros; and
Millennium Entertainment Partners L.P., a consortium of German insurance
companies. These Clubs are located in projects developed by Millennium in
prime, metropolitan locations which, like Reebok Sports Club/NY, include
commercial, retail, entertainment and residential space. In addition, each of
these developments include either a Ritz Carlton or Four Seasons five star
hotel. These Clubs are approximately 100,000 square feet and offer services
typically found at our other Sports Club sites. We believe that such projects
offer ideal locations for The Sports Club/LA and would consider additional
Sports Club developments with Millennium or other developers in other major
metropolitan areas.

Performance of Newly Developed and Acquired Clubs.Based on our
experience, a newly developed Club tends to achieve significant increases in
revenues until a mature membership level is reached. In the past, recently
opened Clubs which have not yet achieved mature membership levels have operated
at a loss or at only a slight profit during the first two years of
operation as a result of fixed expenses that, together with variable operating
expenses, approximate or exceed membership fees and other revenues. We expect
this trend to continue at the five Clubs we opened in 2000 and 2001 as the
membership levels at three of these Clubs are now approaching a break even
operating level and the membership levels at two of the Clubs are still below
that level. We believe that our revenues from these Clubs will significantly
increase as membership levels mature.

Future New Club Developments.The completion of the five new
Clubs has
required significant financial resources. In addition, our current
financing arrangements and level of operating cash flow make it difficult to
secure the required financing to develop additional new sites. Therefore, our
focus is now on improving the operating performance of our five new Clubs. We
would pursue additional new Club developments if they were financially
structured in a way that would not require us to make a significant capital
investment. We would consider entering into joint ventures, partnership
agreements or management agreements for the purpose of developing new Clubs.

Sales and Marketing

Strategy.The Sports Clubs are marketed as urban country
clubs offering
personalized attention and multiple amenities and services. We believe that the
image of The Sports Clubs as the leader in the sports and fitness industry
justifies charging a premium. Our members include professionals, sports and
entertainment personalities and business people. Our Sports Clubs emphasize
personalized service and instruction and the creation of an urban country
club atmosphere in which members can relax and socialize. Our marketing
efforts at older, more seasoned Sports Clubs emphasize maintaining existing
members, replacing members who leave with new members and increasing ancillary
revenues such as private training, spa services and retail sales. Our focus at
the newer Sports Clubs is on attracting additional members.



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Referrals, Endorsements and Advertising.Word-of-mouth referrals
and
endorsements by existing members are the Sports Clubs most important source of
new members. In addition, all Sports Clubs utilize targeted marketing programs
which include advertisements, promotions, public relations and community
events. The principal marketing media for the Clubs are direct mail with use of
print advertisements. Special events and special membership programs supplement
the print advertisements. The Sports Clubs host corporate parties and charity
benefits and often donate free or discounted memberships to charitable
organizations. We also conduct periodic membership drives whereby referring
members are entitled to receive special gifts and other incentives. We believe
that we will be able to continue to utilize these marketing strategies.

Targeted Members.The largest segment of the membership base for
the
Sports Clubs consists of health-conscious individuals. We target four other
groups in order to expand membership: corporate members, medical referrals,
families, and seniors. Each of these groups requires specialized
exercise/fitness programs, and we have developed specific programs to attract
members of these groups.

Corporate Programs. We believe the corporate market is a significant
source of new members, due to the proximity of the Sports Clubs to business
centers and the use of the Clubs to conduct business and to develop and
maintain business contacts. We employ several Corporate Membership Directors
whose principal responsibilities are to solicit corporate memberships from
businesses operating in the vicinity of the Clubs. The Sports Clubs offer
corporate group-discounted initiation fees depending upon the number of new
members involved. Our SportsMed subsidiary has developed several corporate
wellness programs to fit the needs of this particular market. We believe that
corporations are favorably disposed to Sports Clubs and the SportsMed programs
because of the positive impact regular exercise and overall fitness can have on
employee absenteeism, morale and productivity.

Medical Referrals. We target members from the medical referral market
through our SportsMed subsidiary by offering specific rehabilitation and
exercise protocols to complement other forms of physical therapy recommended by
a physician or medical group. We also offer a next-step program for
SportsMed patients who complete their physical therapy programs and are looking
for an option to complete their rehabilitations.

Family Programs. We believe that the children/family market has
considerable potential, as younger members grow older, marry and have children,
and seek recreational activities in which the entire family can participate. To
attract the family market, we have implemented Fun-N-Fit programs which
target children between the ages of 6 months and 15 years and involve youth
sports camps and clinics, fitness programs, art classes and birthday parties.
The Clubs weight-training, basketball and swimming pool facilities are made
available to children and their parents during Family Day, and
specially-designed movement classes utilizing a variety of fitness equipment
are offered to younger children. The Clubs offer a summer sports camp, provide
individualized sports instruction and offer multiple fitness activities such as
gymnastics, martial arts and dance that are age appropriate.

Senior Programs. We anticipate that as the current core membership group
ages, we will meet the changing fitness needs of seniors and attract additional
members from the senior population. We maintain training and exercise protocol
manuals for the senior market (which we generally define as members who are
over 60 years old) which include a description of exercise and fitness programs
specifically designed for seniors. These manuals also contain discussions of
the biological, psychological and medical aspects of aging and the benefits of
regular exercise. We believe this market will expand as the baby boomers
mature.



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Employee Training

We believe that a key component of our operating strategy is a
well-trained and knowledgeable staff. We have comprehensive training programs
to enhance the effectiveness of our personnel. All newly hired employees are
required to attend an orientation seminar, which is led by members of our
management and a personnel instructor. Topics include our history and
philosophy, Club policies and procedures, member service, interaction skills
and product knowledge. These orientation seminars are held weekly.

To aid in the development and continuing education of our management
staff, we offer a workshop entitled Introduction to Management, for newly
hired management personnel and other employees demonstrating management skills.
The workshop is intended to educate managers in the areas of instilling the
Company philosophy, policies and procedures, safety, workers compensation,
managing people, communication, group problem solving, training, coaching,
motivation, feedback, recognition, counseling, evaluations, as well as time and
stress management. Topics are added periodically to reflect new management
techniques or operating issues. These seminars, generally consisting of three
eight-hour sessions, are held six times a year or as needed for new employees.
Additionally, our management personnel are required to participate in our
Manager on Duty Program and other management and sales seminars to maintain and
develop their skills.

We provide additional seminars specifically designed for targeted
employee
groups. Seminars providing specialized instruction for program directors,
private trainers, group exercise instructors and sales/marketing personnel are
offered at various times during the year, for which attendance on the part of
newly-hired personnel is mandatory. We place particular emphasis on our
sales/marketing training seminars, which are given once every two months by a
personnel instructor. In these seminars, all new membership directors complete
20 hours of participation and all other membership directors are expected to
complete four hours of participation every two months. Our fitness instructors
are trained to assist in the sales function and to implement fitness testing
and individually-tailored exercise programs. Most instructors are
college-educated. Our group exercise instructors hold nationally recognized
certifications and must have at least one year of teaching experience before
they are permitted to teach at our Clubs. They are also required to
participate in ongoing training and periodic re-evaluation.

Lastly, all line staff can voluntarily participate in quarterly
workshops
that are offered through our human resources department. Workshop topics
include conflict resolution, communication and member service; however, topics
vary depending on the Clubs current training needs.

Membership Programs

Sports Club memberships require an initiation fee plus monthly
membership
dues. Unlike many other clubs, we do not offer financing for memberships.
Members are currently required to pay their dues on a monthly basis by
Electronic Funds Transfer (EFT), by which each member is automatically
debited each month for dues either through a checking account or credit card.
At established Sports Clubs, the average life of a membership is four to five
years.

Sports Clubs offer three types of memberships: executive, health and
racquet. Sports Club initiation fees and monthly membership dues vary depending
on the location of the Club. The Sports Clubs initiation fees range from $400
to $2,400 and monthly membership dues range from $100 to $300. Corporate,
bicoastal and spousal memberships are also available.

Executive Membership. Executive membership offers the greatest number of
amenities and services, including unlimited use of all facilities, racquet
sports privileges, personal locker assignments within an executive locker room,
laundry service, free valet parking and charge privileges for dining and other
Club services. Executive membership entitles a member to use all Sports Clubs.

Health Membership. Health membership is the basic membership offering
unlimited use of the facility excluding those privileges associated with a
racquet membership; courts are available to holders of



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health memberships for an additional fee. We also offer a bi-coastal
membership that entitles a member to use all Sports Clubs throughout the
country.

Racquet Membership. Racquet memberships are currently offered at The
Sports Club/Irvine, The Sports Club/LA  Boston and The Sports Club/LA  Washington D.C. In addition to use of the Clubs facilities, this membership
includes the unlimited use of racquetball, squash, paddle tennis and tennis
courts, depending upon the individual Clubs facilities.

Competition

Although the sports and fitness industry is still fragmented, the
industry
has experienced significant consolidation in recent years and certain of our
competitors are significantly larger and have greater financial and operating
resources than we do. In addition, a number of individual and regional
operators compete with us in our existing markets. Many of these sports and
fitness clubs attract the same types of members we target. We also compete with
recreational facilities established by governments and businesses, the YMCA and
YWCA, country clubs and weight-reducing salons, as well as products and
services that can be used in the home. As the general public becomes
increasingly aware of the benefits of regular exercise, we expect that
additional sports and fitness businesses will emerge. We believe that there
will continue to exist a market for our Clubs and that our operating
experience, our highly visible image, the professionalism of our staff and our
state-of-the-art equipment and exercise facilities afford us an advantage over
our competitors. However, we may be unable to maintain our membership fees or
membership levels in areas where another sports and fitness club offers
competitive facilities and services at a lower cost to members.

Trademarks and Tradenames

The Sports Club name is generally not protectable under
federal or state
trademark laws. We have registered our flying lady logo as a stand-alone
design and in combination with The Sports Club/LA and The Sports
Club/Irvine names under federal trademark laws. Internationally, we have
registered The Sports Club/LA name and logo in Japan, Australia and
throughout Europe under a joint European Community trademark.

We have also obtained federal protection for our food and nutritional
products which are marketed under the tradenames of Private Trainer System and
PTS.

Additionally, we are awaiting final trademark approval for our SportsMed
subsidiary name and several of our fitness programs, including For Kids Only,
BodyArt, REV and others.

Government Regulation

Our operations and business practices are subject to regulation at the
federal, state and, in some cases, local levels. State and local consumer
protection laws and regulations govern our advertising, sales and other trade
practices.

Statutes and regulations affecting the fitness industry have been
enacted
or proposed in California and New York, states in which we currently operate
Clubs. Many other states into which we may expand have or likely will adopt
similar legislation. Typically, these statutes and regulations prescribe
certain forms and provisions of membership contracts, limit the amount of
prepaid revenues we can collect, afford members the right to cancel the
contract within a specified time period after signing, require an escrow of
funds received from pre-opening sales or the posting of a bond or proof of
financial responsibility, and may impose numerous limitations on the terms of
membership contracts. In addition, we are subject to numerous other types of
federal and state regulations governing the sale of memberships. These laws and
regulations are subject to varying interpretations by a number of state and
federal enforcement agencies and courts. We maintain internal review procedures
in order to comply with these requirements, and believe that our activities are
in substantial compliance with all applicable statutes, rules and decisions.



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Under so-called state cooling-off statutes, a member has the
right to
cancel his or her membership for a period of three to ten days (depending on
the applicable state law) and, in such event, is entitled to a refund of any
down payment. In addition, our membership contracts provide that a member may
cancel his or her membership at any time upon death, disability or relocation
beyond a certain distance from our nearest Club. The specific procedures for
cancellation in these circumstances vary due to differing state laws. In each
instance, the canceling member is entitled to a refund of prepaid amounts only.
Furthermore, where permitted by law, a cancellation fee is due to us upon
cancellation and we may offset such amount against any refunds owed.

Employees

At February 15, 2002, we had 2,375 employees, most of whom are
employed on
a part-time basis in Club operating activities such as aerobics, private
training and food and beverage services. At February 15, 2002 we employed 1,076
full-time employees, 996 of whom were involved in Club operations such as
sales, management, private training or support staff, and 80 of whom were in
general and administrative functions. We are not a party to any collective
bargaining agreement with our employees. Although we experience high turnover
of non-management personnel, we have never experienced any labor shortages nor
had any difficulty in obtaining adequate replacements for departing employees.
We consider our relations with our employees to be good.




ITEM 2. PROPERTIES

We own the real estate at The Sports Club/Irvine and The Sports Club/LA
in
Los Angeles (subject to a minority interest held by our Co-Chief Executive
Officer D. Michael Talla). We own land in Houston, Texas on which we had
planned to develop a Sports Club. The Houston property is currently listed for
sale. All other premises on which the Clubs are located are leased.

The following table provides certain information concerning our Clubs:

|                                        |  |             |         |           |  |                 |        |                |  |     |          |  |     |                       |  | 
|--------------------------------------- |  | ----------- | ------- | --------- |  | --------------- | ------ | -------------- |  | --- | -------- |  | --- | --------------------- |  | 
|                                        |  | Approximate |         | Open Date |  | Own or Lease    |        |                |  |    
|Club                                    |  | Square Feet |         | (1)       |  | Expiration Date |        | Renewal Option
|                                        |  |             |         |           |  |                 |        |               
|The Sports Club/LA-Los Angeles
(2)      |  |             | 100,000 |           |  |                 | 1994 A |                |  | Own |          |  | N/A |                      
|The Sports Club/Irvine                  |  |             | 130,000 |           |  |                 | 1994 A |                |  | Own |          |  | N/A |                      
|Reebok Sports Club/NY(3)                |  |             | 140,000 |           |  |                 | 1995 O |                |  |     | 4/17/15  |  |     | Three 14-year options
|The Sports Club/LA  Rockefeller
Center |  |             | 90,000  |           |  |                 | 2000 O |                |  |     | 1/31/13  |  |     | Two 5-year options   
|The Sports Club/LA  Upper East
Side    |  |             | 140,000 |           |  |                 | 2000 O |                |  |     | 12/31/20 |  |     | Two 5-year options   
|The Sports Club/LA  Washington
D.C.(4) |  |             | 100,000 |           |  |                 | 2000 O |                |  |     | 10/31/20 |  |     | Three 14-year options
|The Sports Club/LA 
Boston(4)          |  |             | 100,000 |           |  |                 | 2001 O |                |  |     | 8/31/21  |  |     | Three 14-year options
|The Sports Club/LA  San
Francisco(5)   |  |             | 90,000  |           |  |                 | 2001 O |                |  |     | 9/30/21  |  |     | Three 14-year options



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|(1) |  | Date of acquisition (A), opening (O).                                                                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | D. Michael Talla, our Chairman and Co-CEO, has the right to 49.9% of the
first $300,000 of annual operating income from the partnership which owns
The Sports Club/LA in Los Angeles.                                                                                            
|   
|   
|   
|   
|(3) |  | We have entered into a lease agreement with Millennium with respect to
this property. We are entitled to certain priority distributions from the
partnership that owns this Club. After payment of such priority
distributions, we are entitled to 60% of all additional profits.
|   
|   
|   
|   
|(4) |  | We have entered into a lease agreement with Millennium for this Club.
The lease provides that Millennium is to receive 25% of cash flows as
additional rent after we earn certain priority distributions.                                                                        
|   
|   
|   
|   
|(5) |  | We have entered into a lease agreement with Millennium for this Club.
The lease provides that Millennium is to receive 60% of cash flows as
additional rent after we earn certain priority distributions.                                                                        



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We remain obligated under lease agreements for seven of our former
Spectrum Club locations. We have subleased each of these properties to the
buyer of these Clubs under sublease agreements which provide that all operating
costs of these facilities be assumed by the new owners.

All of the Clubs maintain comprehensive casualty, liability and business
interruption insurance and Clubs located in California maintain a blanket $35
million earthquake insurance policy. We believe that our insurance coverage is
in accordance with or above industry standards. There are, however, certain
types of losses which may be either uninsurable or not economically insurable,
and insurance proceeds may not adequately compensate for all economic
consequences of any loss. Should a loss occur, we could lose both our invested
capital and our anticipated profits from the affected Clubs. Any such event
could have a material adverse effect on our operations.




ITEM 3. LEGAL PROCEEDINGS

Garrick-Aug Associates Store Leasing, Inc. v. Hirschfeld Realty Club
Corporation, 328 E. 61 Corp., The Sports Club Company, Inc. and Elie
Hirschfeld, Index No. 601276/99 (New York Supreme Court, County of New York).
On March 15, 1999, Garrick-Aug Associates Store Leasing, Inc. (Plaintiff)
filed a Summons and Complaint (Original Complaint) commencing an action to
recover brokerage commissions in the Supreme Court of the State of New York,
against Hirschfeld Realty Club Corporation and 328 E. 61 Corp. Under the
Original Complaint, Plaintiff sought damages in excess of $3,625,000 for breach
of contract, declaratory relief, quantum meruit and unjust enrichment. On
February 1, 2000, Plaintiff filed and served an Amended Complaint containing
the same causes of action in the Original Complaint and adding additional
claims against us and Elie Hirschfeld. Under the Amended Complaint, Plaintiff
seeks damages from us in excess of $3,625,000 for tortious interference with
contract and conspiracy. On July 12, 2001, after a six-day bench trial, the
court granted us a directed verdict dismissing the Amended Complaint with
prejudice. To date, Plaintiff has not exercised or indicated a willingness to
exercise any post-trial or appellate remedies.

336 Spa Park Inc. v. Abraham Hirschfeld, Hirschfeld Realty Club
Corp., 328
E. 61 Club Corp. and The Sports Club Company, Inc., Index No. 602609/00 (New
York Supreme Court, County of New York).On June 20, 2000, 336 Spa Park Inc.
(Plaintiff) filed a Summons and Complaint (Complaint) commencing an action
against us for tortious interference with a contract for the lease of parking
facilities entered into between Plaintiff and Hirschfeld Realty Club Corp. and
328 E. 61 Club Corp. On January 2, 2001, Plaintiff filed and served its Second
Amended Complaint. Plaintiff is seeking damages against us in an amount to be
determined at trial, but not less than $100,000. We intend to contest this
action vigorously and discovery is now proceeding. As a result, we are unable,
at this time, to estimate the likelihood that Plaintiff will prevail in this
matter.

Other Matters. We are involved in various claims and lawsuits
incidental
to our business, including claims arising from accidents. However, in the
opinion of management, we are adequately insured against such claims and
lawsuits involving personal injuries, and any ultimate liability arising out of
any such proceedings will not have a material adverse effect on our financial
condition, cash flow or results of operations.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

Not applicable



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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED MATTERS

Our Common Stock is traded on the American Stock Exchange
(AMEX) under
the symbol SCY. The following table sets forth the quarterly high and low
sale prices for the Common Stock for the periods indicated, as reported by the
AMEX.

|                              |                                    |                             |      |       |     |  |   |       | 
|----------------------------- | ---------------------------------- | --------------------------- | ---- | ----- | --- |  | - | ----- | 
|Calendar Quarter              |                                    | Price Range of Common Stock
|                              |                                    |                            
|                              |                                    |                             | High |       | Low
|                              |                                    |                             |      |       |    
|Year Ended December 31,
2000: |                                    |                             |      |       |     |  |   |      
|                              | First Quarter                      |                             | $    | 4.500 |     |  | $ | 3.375 | 
|                              | Second Quarter                     |                             |      | 3.750 |     |  |   | 2.750 | 
|                              | Third Quarter                      |                             |      | 4.000 |     |  |   | 3.125 | 
|                              | Fourth Quarter                     |                             |      | 4.500 |     |  |   | 2.813 | 
|Year Ended December 31,
2001: |                                    |                             |      |       |     |  |   |      
|                              | First Quarter                      |                             |      | 3.188 |     |  |   | 2.550 | 
|                              | Second Quarter                     |                             |      | 3.300 |     |  |   | 2.860 | 
|                              | Third Quarter                      |                             |      | 4.000 |     |  |   | 3.125 | 
|                              | Fourth Quarter                     |                             |      | 3.350 |     |  |   | 2.350 | 
|Year Ended December 31,
2002: |                                    |                             |      |       |     |  |   |      
|                              | First Quarter (through
March 22nd) |                             |      | 2.900 |     |  |   | 2.660 | 

As of March 22, 2002 we had 62 stockholders of record and
approximately
629 beneficial owners. The closing price of our Common Stock as reported by
the AMEX on March 22, 2002, was $2.90.

Dividend Policy

We have never declared or paid any dividends on our Common Stock and we
do
not anticipate doing so in the foreseeable future. It is our present policy to
retain earnings for use in our operations and the expansion of our business.
In addition, our ability to pay cash dividends is limited by our current
financing agreements and may be similarly limited by future financing
agreements.



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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents our summary financial and operating data
for
the fiscal years ended December 31, 1997 through 2001 and have been derived
from our consolidated financial statements, which have been audited by KPMG
LLP, independent certified public accountants. The summary financial and
operating data should be read in conjunction with, and is qualified in its
entirety by reference to, Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated financial statements
and the notes thereto appearing elsewhere in this Form 10-K.

|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |         |         |       |         |  
|----------------------------- | ------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | -------------------- | --------------------------------------------------------------------------------------------------------------- | ------ | --------------------------------------------- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------- | ------- | ------- | ----- | ------- | -
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        | Fiscal Year Ended December 31,               
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                              
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        | 1997                                          |        | 1998   |        | 1999  |        | 2000   |        | 2001 
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |      
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        | (Dollars in thousands, except per share
data)
|Statement of Operations
Data: |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |        
|                              | Revenues                                                                                    |                                                            | $                    | 61,154                                                                                                          |        |                                               | $      | 81,923 |        |       | $      | 87,325 |        |       | $      | 76,869 |        |       | $       | 102,044 |        
|                              | Operating expenses:                                                                         |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |         |        
|                              |                                                                                             | Direct                                                     |                      |                                                                                                                 | 43,517 |                                               |        |        | 56,746 |       |        |        | 60,528 |       |        |        | 59,116 |       |         |         | 88,219  |      
|                              |                                                                                             | General and
administrative                                 |                      |                                                                                                                 | 4,972  |                                               |        |        | 6,018  |       |        |        | 6,626  |       |        |        | 7,298  |       |         |         | 8,938   |      
|                              |                                                                                             |                                                            | Selling              |                                                                                                                 |        | 1,635                                         |        |        |        | 2,538 |        |        |        | 2,608 |        |        |        | 2,915 |         |         |         | 3,880 |        
|                              |                                                                                             | Depreciation and
amortization                              |                      |                                                                                                                 | 3,919  |                                               |        |        | 5,282  |       |        |        | 6,147  |       |        |        | 7,408  |       |         |         | 11,809  |      
|                              |                                                                                             |                                                            | Pre-opening
expenses |                                                                                                                 |        |                                              |        |        |        |      |        |        |        | 3,090 |        |        |        | 9,589 |         |         |         | 5,884 |        
|                              |                                                                                             |                                                            | Impairment charge    |                                                                                                                 |        |                                              |        |        |        |      |        |        |        |      |        |        |        |      |         |         |         | 5,250 |        
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |        
|                              |                                                                                             |                                                            |                      | Total operating expenses                                                                                        |        |                                               | 54,043 |        |        |       | 70,584 |        |        |       | 78,999 |        |        |       | 86,326  |         |         |       | 123,980 |  
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |        
|                              |                                                                                             |                                                            |                      | Income (loss) from
operations                                                                                   |        |                                               | 7,111  |        |        |       | 11,339 |        |        |       | 8,326  |        |        |       | (9,457  | )       |         |       | (21,936 | )
|                              | Other income
(expense):                                                                     |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |         |        
|                              |                                                                                             | Interest                                                   |                      |                                                                                                                 | (3,206 | )                                             |        |        | (1,629 | )     |        |        | (5,991 | )     |        |        | (6,478 | )     |         |         | (13,001 | )    
|                              |                                                                                             | Minority interests                                         |                      |                                                                                                                 | (22    | )                                             |        |        | (150   | )     |        |        | (150   | )     |        |        | (150   | )     |         |         | (150    | )    
|                              |                                                                                             | Equity interest in net income of
unconsolidated subsidiary |                      |                                                                                                                 | 696    |                                               |        |        | 880    |       |        |        | 931    |       |        |        |       |       |         |         |        |      
|                              |                                                                                             | Non-recurring items                                        |                      |                                                                                                                 | (2,025 | )                                             |        |        | (314   | )     |        |        | 553    |       |        |        | (3,242 | )     |         |         | 397     |      
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |        
|                              |                                                                                             |                                                            |                      | Total other income (expense)                                                                                    |        |                                               | (4,557 | )      |        |       | (1,213 | )      |        |       | (4,657 | )      |        |       | (9,870  | )       |         |       | (12,754 | )
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |        
|                              |                                                                                             |                                                            |                      | Income (loss) before income taxes,
extraordinary charge and
cumulative effect of change in accounting principle |        |                                               | 2,554  |        |        |       | 10,126 |        |        |       | 3,669  |        |        |       | (19,327 | )       |         |       | (34,690 | )
|                              | Provision (benefit) for income
taxes                                                        |                                                            |                      | 1,014                                                                                                           |        |                                               |        | 3,971  |        |       |        | 1,460  |        |       |        | (6,940 | )      |       |         | 3,370   |        
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |        
|                              |                                                                                             |                                                            |                      | Income(loss) before extraordinary charge and
cumulative
effect of change in accounting principle                |        |                                               | 1,540  |        |        |       | 6,155  |        |        |       | 2,209  |        |        |       | (12,387 | )       |         |       | (38,060 | )
|                              | Extraordinary charge from early
extinguishment of debt, net of
income tax benefit of $1,331 |                                                            |                      |                                                                                                                |        |                                               |        | 2,173  |        |       |        |       |        |       |        |       |        |       |         |        |        
|                              | Cumulative effect of change in
accounting principle,
net of income tax benefit of $600      |                                                            |                      |                                                                                                                |        |                                               |        |       |        |       |        | 899    |        |       |        |       |        |       |         |        |        
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |        
|                              |                                                                                             |                                                            |                      | Net income (loss)                                                                                               |        | $                                             | 1,540  |        |        | $     | 3,982  |        |        | $     | 1,310  |        |        | $     | (12,387 | )       |         | $     | (38,060 | )
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |        
|                              | Net income (loss) per
share:                                                                |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |         |        
|                              |                                                                                             | Basic and Diluted                                          |                      | $                                                                                                               | 0.12   |                                               |        | $      | 0.21   |       |        | $      | 0.07   |       |        | $      | (0.70  | )     |         | $       | (2.12   | )    
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |        
|                              | Weighted average number of common
shares outstanding:                                       |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |         |        
|                              |                                                                                             | Basic                                                      |                      |                                                                                                                 | 12,524 |                                               |        |        | 18,603 |       |        |        | 18,114 |       |        |        | 17,773 |       |         |         | 17,939  |      
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |        
|                              |                                                                                             | Diluted                                                    |                      |                                                                                                                 | 12,683 |                                               |        |        | 18,829 |       |        |        | 18,290 |       |        |        | 17,773 |       |         |         | 17,939  |      
|                              |                                                                                             |                                                            |                      |                                                                                                                 |        |                                               |        |        |        |       |        |        |        |       |        |        |        |       |         |        

|                    |                                               |  |                        |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------- | --------------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                    |                                               |  | At December 31,       
|                    |                                               |  |                       
|                    |                                               |  | 1997                   |         | 1998 |  | 1999 |         | 2000 |  | 2001
|                    |                                               |  |                        |         |      |  |      |         |      |  |     
|                    |                                               |  | (Dollars in thousands)
|Balance Sheet
Data: |                                               |  |                        |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        
|                    | Cash and cash equivalents                     |  | $                      | 1,581   |      |  | $    | 2,233   |      |  | $    | 36,107  |  |  | $ | 11,059  |  |  | $ | 1,482   | 
|                    | Current assets                                |  |                        | 4,926   |      |  |      | 7,043   |      |  |      | 41,952  |  |  |   | 20,819  |  |  |   | 8,281   | 
|                    | Restricted cash                               |  |                        |        |      |  |      |        |      |  |      | 41,389  |  |  |   | 6,996   |  |  |   |        | 
|                    | Property and equipment, net                   |  |                        | 106,791 |      |  |      | 135,269 |      |  |      | 118,959 |  |  |   | 169,927 |  |  |   | 170,893 | 
|                    | Total assets                                  |  |                        | 131,561 |      |  |      | 163,757 |      |  |      | 223,553 |  |  |   | 222,000 |  |  |   | 197,208 | 
|                    | Deferred membership revenue                   |  |                        | 9,936   |      |  |      | 9,953   |      |  |      | 9,712   |  |  |   | 12,019  |  |  |   | 13,670  | 
|                    | Current liabilities                           |  |                        | 26,844  |      |  |      | 26,199  |      |  |      | 23,833  |  |  |   | 27,736  |  |  |   | 39,500  | 
|                    | Long-term debt including current
installments |  |                        | 50,798  |      |  |      | 37,441  |      |  |      | 103,887 |  |  |   | 110,331 |  |  |   | 115,491 | 
|                    | Stockholders equity                          |  |                        | 58,477  |      |  |      | 104,539 |      |  |      | 97,687  |  |  |   | 85,791  |  |  |   | 48,084  | 



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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
|------- | ---------------------------------------------------------------------------------------------

Overview

The following discussion should be read in conjunction with our
consolidated financial statements and notes thereto appearing elsewhere herein.
The Spectrum Club  Manhattan Beach was accounted for under the equity method
of accounting until December 1999, when we sold all of our Spectrum Clubs.

In January 1999 the Spectrum Club  Fountain Valley was leased to
another
health and fitness operator and in April 1999 the Spectrum Club  Santa Ana was
sold. The remaining Spectrum Clubs were sold in December 1999. The Sports
Club/LA  Rockefeller Center, The Sports Club/LA  Upper East Side in New York
and The Sports Club/LA  Washington D.C., opened in February 2000, September
2000 and October 2000, respectively. The Sports Club/LA  Boston and The Sports
Club/LA  San Francisco opened in September 2001 and October 2001,
respectively. Seasonal factors have not had a significant effect on our
operating results.

As a result of the sale of the Spectrum Clubs in 1999, the opening of
The
Sports Club/LA at five new locations during 2000 and 2001 and the high level of
pre-opening expenses associated with these new Clubs, results for the years
ended December 31, 2001, 2000 and 1999, are not necessarily indicative of
results we expect in future periods.

Results of Operations

Fiscal 2001 compared to fiscal 2000.Our revenues for the year
ended
December 31, 2001, were $102.0 million, compared to $76.9 million in 2000, an
increase of $25.1 million or 32.8%. Revenue increased by $5.6 million as a
result of the opening of The Sports Club/LA  Boston in September 2001 and The
Sports Club/LA  San Francisco in October 2001. Revenue increased by $20.2
million as a result of membership growth and a full twelve months of operating
activities at the three new Sports Clubs opened in 2000. Revenue decreased by
$663,000 at our existing Sports Clubs and SportsMed subsidiary. The revenue
decrease at our existing Sports Clubs and SportsMed was the result of
a $1.0
million decrease in our retail product sales. During 2001 we decided to exit
the retail business and have now sublet these spaces to outside operators. We
also experienced a decrease in our food and beverage revenues due to curtailing
the restaurant operating hours at Reebok Sports Club/NY. These decreases were
offset by higher membership dues because of rate increases. Existing Club
revenues also decreased by $381,000 due to decreased rent revenue resulting
from the sale of the Spectrum Club  Fountain Valley real estate in December
2000 and by $282,000 due to decreases in other miscellaneous revenues.

Our direct operating expenses increased by $29.1 million to
$88.2 million
in the year ended December 31, 2001, versus $59.1 million for the year ended
December 31, 2000. Direct operating expenses increased by $6.5 million, due to
the opening of The Sports Club/LA  Boston and The Sports Club/LA  San
Francisco, by $21.6 million as a result of membership growth and a full twelve
months of operating activities at the three new Sports Club/LA Clubs opened in
2000 and by $1.0 million at our existing Sports Clubs and SportsMed. The
increase in direct expenses at our existing Sports Clubs and SportsMed was due
to increased payroll and payroll related expenses of $1.0 million, increased
utility expenses of $254,000 and a decrease in other operating expenses of
$263,000. Direct operating expenses as a percent of revenue for the year ended
December 31, 2001 increased to 86.4% from 76.9% for the year ended December 31,
2000. The increase in the direct operating expense percentage was due to the
impact of significant fixed costs at our five new Clubs opened in 2000 and
2001. As membership levels and revenue ramp up at the new Clubs opened in
2000 and 2001, the direct operating expense percentage should decrease.

Our general and administrative expenses were $8.9 million for the
year
ended December 31, 2001, compared to $7.3 million for the year ended December
31, 2000, an increase of $1.6 million or 22.5%. Our general and administrative
costs increased by $1.0 million due to increased legal fees incurred



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regarding the various legal matters we were involved in during 2001.
Several of these legal matters settled during 2001 and legal fees should
decrease significantly in 2002. General and administrative costs increased by
$1.4 million due to a decrease in support service reimbursements we received in
2000 for managing the Spectrum Clubs and lower capitalization of salaries and
wages on Clubs under development. General and administrative costs decreased
by $556,000 due to a decrease in corporate office salaries and payroll related
costs and by $254,000 due to a decrease in travel and entertainment costs.
General and administrative costs increased by $238,000 due to an increase in
our corporate office rent and decreased by $183,000 primarily due to decreases
in our supplies and outside service costs. General and administrative costs
decreased as a percentage of revenue to 8.8% in 2001 from 9.5% in 2000. We
believe that general and administrative costs should continue to decrease as a
percentage of future revenues, as we expand and achieve economies of scale.
There is no assurance, however, that said expansion or economies of scale will
be achieved.

Our selling costs were $3.9 million in the year ended
December 31, 2001,
compared to $2.9 million in the year ended December 31, 2000, an increase of
$1.0 million or 33.1%. The increase in selling costs was the result of
increased advertising and promotion efforts at the five new Clubs opened in
2000 and 2001. Selling costs as a percentage of revenue stayed flat at 3.8% in
2000 and 2001. We believe that selling costs as a percentage of future
revenues will decrease as we expand and achieve economies of scale. There is
no assurance, however, that said expansion or economies of scale will be
achieved.

Our depreciation and amortization expenses were $11.8 million for
the year
ended December 31, 2001, versus $7.4 million for the year ended December 31,
2000. Depreciation and amortization increased by $3.5 million, at the three
Sports Clubs opened in 2000, primarily due to a full twelve months of operating
activity at these new Clubs in 2001. Depreciation and amortization increased
by $276,000 as a result of the opening of The Sports Club/LA  Boston and The
Sports Club/LA  San Francisco in 2001. Depreciation increased by $209,000 at
our existing Sports Clubs and SportsMed as a result of capital additions made
at these facilities in 2000 and 2001 and by $458,000 due to the start of
depreciation related to our recently installed membership accounting software.

Pre-opening expenses were $5.9 million for the year ended
December 31,
2001, versus $9.6 million for the year ended December 31, 2000. Pre-opening
expenses by Club during the year ended December 31, 2001 were $2.9 million at
The Sports Club/LA  San Francisco, $2.6 million at The Sports Club/LA  Boston
and $400,000 related to a potential Club site in Lake Success, New York.
Pre-opening expenses by Club during the year ended December 31, 2000 were $3.6
million at The Sports Club/LA  Upper East Side, $3.2 million at The Sports
Club/LA  Washington D.C., $1.8 million at The Sports Club/LA  Rockefeller
Center, $725,000 at The Sports Club/LA  Boston, $155,000 at The Sports Club/LA
 San Francisco and $125,000 at other possible Sports Clubs in the
pre-development stage.

We incurred impairment charges in 2001 of $5.3 million. These
charges
consisted of a $3.3 million impairment charge related to the write down of
fixed assets at The Sports Club/Las Vegas and a $2.0 million impairment charge
related to the write down of goodwill at our SportsMed subsidiary. The fair
value of the fixed assets at The Sports Club/Las Vegas was based upon the
actual value received for the Club when it was sold on January 31, 2002. The
estimated fair value of SportsMeds goodwill is based upon managements
estimate of the value of this subsidiary.

We had net interest expense of $13.0 million in the year ended
December 31, 2001, versus $6.5 million in the year ended December 31, 2000, an
increase of $6.5 million. Net interest expense increased by $3.3 million due
to a reduction in interest capitalized on Sports Clubs under development, by
$2.3 million due to a reduction in interest earned on invested cash balances,
by $362,000 due to increased interest expense on new equipment financing loans,
by $254,000 due to interest expense incurred on prior years sales tax audits
and by $279,000 due to increased interest expense related to advances on our
bank credit facility.

We had non-recurring income of $397,000 in the year ended December
31, 2001, versus non-recurring charges of $3.2 million for the year ended
December 31, 2000. The non-recurring income in 2001 is the result of the
reversal of accrued interest expense related to the settlement of the Park
Place



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##### Table of Contents



Entertainment Corporation litigation. As part of the settlement we are no
longer required to pay the accrued interest due on the note payable. The
non-recurring charges in 2000 consisted of a $1.5 million charge for attorneys
fees and settlement costs related to a class action lawsuit against The Sports
Club/LA  Los Angeles, a $1.0 million charge to reflect the loss on the sale of
the former Spectrum Club  Fountain Valley real estate and a $749,000 charge to
adjust the carrying value of our real estate located in Houston, Texas that is
currently for sale.

We chose not to record any income tax benefit in 2001. The income tax
provision of $3.4 million for 2001 is related to the establishment of a
valuation allowance against our deferred tax assets that were recorded prior to
January 1, 2001 and an accrual for any current state income taxes due. After
the 2001 income tax provision of $3.4 million, our net loss was $38.1 million
or $2.12 per basic and diluted share. Our effective federal and state income
tax rate was 35.9% for the year ended December 31, 2000, resulting in a net tax
benefit of $6.9 million and in a net loss of $12.4 million or $0.70 per basic
and diluted share. In the fourth quarter of 2001, we determined, based on year
to date operating results and projections for the next three years, that it is
more likely than not that future taxable income will be insufficient to utilize
our deferred tax assets. As a result of this determination, we
ceased recording any deferred tax benefit related to our taxable losses and, in
the fourth quarter of 2001, we recorded a valuation allowance of $17,381,000 to
offset our net deferred tax assets.

Fiscal 2000 compared to fiscal 1999.Our revenues for the year
ended
December 31, 2000, were $76.9 million, compared to $87.3 million in 1999, a
decrease of $10.4 million or 12.0%. Revenue decreased by $25.2 million as a
result of the sale of the Spectrum Clubs and increased by $9.4 million as a
result of the opening of The Sports Club/LA  Rockefeller Center, The Sports
Club/LA  Upper East Side and The Sports Club/LA  Washington D.C. Revenue
increased by $5.4 million at our existing Sports Clubs and SportsMed due to
increases in membership dues and ancillary services, and to the increase of the
membership base at Reebok Sports Club/NY.

Our direct operating expenses decreased by $1.4 million to
$59.1 million
in the year ended December 31, 2000, versus $60.5 million for the year ended
December 31, 1999. Direct operating expenses decreased by $18.8 million as a
result of the sale of the Spectrum Clubs and increased by $13.9 million as a
result of the opening of The Sports Club/LA  Rockefeller Center, The Sports
Club/LA  Upper East Side and The Sports Club/LA  Washington D.C. Direct
operating expenses increased by $3.5 million at our existing Sports Clubs and
SportsMed primarily due to variable expenses associated with the revenue
increase at these Clubs and our SportsMed subsidiary. Direct operating
expenses as a percent of revenue for the year ended December 31, 2000 increased
to 76.9% from 69.3% for the year ended December 31, 1999. The increase in the
direct operating expense percentage was due to significant fixed costs at our
new Clubs and the lower membership levels at opening. As revenue ramps up at
the three new Sports Clubs/LA opened in 2000, the direct operating expense
percentage at these Clubs should decrease. Direct operating expenses as a
percent of revenue on a mature same Club basis for the year ended December 31,
2000 was 67.4%, compared to 67.6% for the year ended December 31, 1999.

Our general and administrative expenses were $7.3 million in the
year
ended December 31, 2000, compared to $6.6 million for the year ended December
31, 1999, an increase of $672,000 or 10.1%. The increase in general and
administrative expenses is associated with the opening of The Sports Club/LA 
Rockefeller Center, The Sports Club/LA  Upper East Side and The Sports Club/LA 
Washington D.C. and to increases in our corporate infrastructure related to our
planned expansion of the Sports Clubs/LA in 2000 and in 2001. General and
administrative costs increased as a percentage of revenue to 9.5% in 2000 from
7.6% in 1999.

Selling costs increased by $307,000 to $2.9 million in the year
ended
December 31, 2000, versus $2.6 million for the year ended December 31, 1999.
There was a $1.2 million decrease in selling expenses as a result of the sale
of the Spectrum Clubs and a $1.1 million increase in selling expenses
associated with the opening of The Sports Club/LA  Rockefeller Center, The
Sports Club/LA  Upper East Side and The Sports Club/LA  Washington D.C.
Selling expenses increased by $400,000 at our existing Sports Clubs



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and
SportsMed due to increased marketing efforts. Selling costs increased as a
percentage of revenue to 3.8% in 2000 from 3.0% in 1999.

Our depreciation and amortization expenses were $7.4 million for
the year
ended December 31, 2000, versus $6.1 million for the year ended December 31,
1999. A decrease of $2.0 million resulted from the sale of the Spectrum Clubs
and an increase of $3.0 million resulted from the opening of The Sports Club/LA
 Rockefeller Center, The Sports Club/LA  Upper East Side and The Sports
Club/LA  Washington D.C. An increase of $242,000 occurred at our other Sports
Clubs and SportsMed as a result of capital additions made at these facilities
in 1999 and 2000.

Pre-opening expenses were $9.6 million for the year ended
December 31,
2000, versus $3.1 million for the year ended December 31, 1999. Pre-opening
expenses by Club during the year ended December 31, 2000 were $1.8 million at
The Sports Club/LA  Rockefeller Center, $3.6 million at The Sports Club/LA -
Upper East Side, $3.2 million at The Sports Club/LA  Washington D.C., $725,000
at The Sports Club/LA  Boston, $155,000 at The Sports Club/LA  San Francisco
and $125,000 at other possible Sports Clubs in the pre-development stage.
Pre-opening expenses by Club during the year ended December 31, 1999 were $1.3
million at The Sports Club/LA  Upper East Side, $1.1 million at The Sports
Club/LA  Rockefeller Center and $724,000 at Spectrum Clubs in the pre-opening
stage.

We incurred net interest expense of $6.5 million in the year ended
December 31, 2000, versus $6.0 million in the year ended December 31, 1999, an
increase of $487,000. Net interest expense increased by $3.1 million as a
result of the issuance of $100.0 million of Senior Secured Notes on April 1,
1999. Net interest expense decreased by $1.1 million due to interest
capitalized on Sports Clubs under development and by $672,000 due to interest
earned on cash balances. Net interest expense also decreased by $818,000 due
to the retirement of debt with a portion of the proceeds from the issuance of
the Senior Secured Notes and the sale of the Spectrum Clubs.

Equity interest in net income of an unconsolidated subsidiary was
$931,000
in the year ended December 31, 1999. This amount reflected our investment in
the Spectrum Club-Manhattan Beach, which was sold in December 1999.

We incurred non-recurring charges of $3.2 million in the year ended
December 31, 2000, versus a non-recurring gain of $553,000 for the year ended
December 31, 1999. The non-recurring charges in 2000 consisted of a $1.5
million charge for attorneys fees and settlement costs related to a class
action lawsuit against The Sports Club/LA  Los Angeles, a $1.0
million charge to reflect the loss on the sale of the former Spectrum Club -
Fountain Valley real estate and a $749,000 charge to adjust the carrying value
of our real estate located in Houston, Texas that is currently for sale. The
non-recurring gain in 1999 relates to the disposition of the Spectrum Clubs.

In the year ended December 31, 1999, we incurred a charge from a
cumulative effect of change in accounting principle, net of applicable taxes,
of $899,000. This charge is associated with the write-off of pre-opening
expenses incurred and capitalized prior to January 1, 1999.

Our effective federal and state income tax rate was 35.9% for the year
ended December 31, 2000 and 39.8% for the year ended December 31, 1999,
resulting in a net loss of $12.4 million for the year ended December 31, 2000,
and in net income of $1.3 million for the year ended December 31, 1999. Basic
and diluted net income/(loss) per share was ($0.70) in 2000 and $.07 in 1999.

Pro forma fiscal 2000 compared to fiscal 1999.During the fiscal
year
ended December 31, 1999, we sold or disposed of all of our Spectrum Clubs (See
Note 3 to Consolidated Financial Statements). Below is a discussion of the
results of operations for the year ended December 31, 2000, versus the
unaudited pro forma results of operations for the year ended December 31, 1999,
assuming the sale of the Spectrum Clubs occurred on January 1, 1999. The
purpose of the pro forma condensed consolidated statement of operations is to
present what our operating results might have been for the year ended December
31, 1999, had the sale of the Spectrum Clubs occurred on January 1, 1999.
However, the pro



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forma condensed consolidated statement of operations for the
year ended December 31, 1999, does not purport to and does not represent what
our actual results of operations would have been had the Spectrum
Club sale been completed on January 1, 1999. Moreover, the pro forma
consolidated condensed statement of operations for the year ended December 31,
1999, does not purport to be a projection of our results of operations either
for the current period or for any future periods and therefore should not be
relied upon to project future operating results. Operating results can be
affected by a number of circumstances the nature and effect of which cannot be
predicted.

Our revenues for the year ended December 31, 2000, were
$76.9 million
compared to pro forma revenues of $62.2 million for the year ended December 31,
1999, an increase of $14.7 million. Revenue for the year ended December 31,
2000 increased by $9.4 million due to the opening of The Sports Club/LA -
Rockefeller Center in February 2000, The Sports Club/LA  Upper East Side in
September 2000 and The Sports Club/LA  Washington D.C. in October 2000. The
remaining increase in revenue for the year ended December 31, 2000 is due to
increases in membership dues and ancillary services at the other Sports Clubs
and SportsMed, and the maturation of the membership base at Reebok Sports
Club/NY.

Operating expenses for the year ended December 31, 2000, were $86.3
million compared to pro forma operating expenses of $56.0 million for the year
ended December 31, 1999, an increase of $30.3 million. Operating expenses for
the year ended December 31, 2000 increased by $18.0 million due to the opening
of The Sports Club/LA  Rockefeller Center in February 2000, the opening of The
Sports Club/LA  Upper East Side in September 2000 and the opening of The
Sports Club/LA  Washington D.C. in October 2000; $7.2 million due to the
recognition of pre-opening expenses at The Sports Club/LA Clubs under
development at several locations; $4.4 million due to increased operating
expenses associated with our increased revenues at existing Sports Clubs and
SportsMed; and $700,000 as a result of increased selling, general and
administrative expenses associated with the necessary increase in our corporate
infrastructure related to our planned development of additional Sports
Club/LA Clubs in 2000 and 2001.

Other expenses for the year ended December 31, 2000 were
$9.9 million
compared to pro forma other expenses of $2.3 million for the year ended
December 31, 1999. The increase in other expenses of $7.6 million was due to
increased net interest expense of $4.3 million, mainly associated with our
$100.0 million Senior Secured Notes issued in April 1999, and to non-recurring
charges of $3.3 million. The non-recurring charges in 2000 consisted of a $1.5
million charge for attorneys fees and settlement costs related to a class
action lawsuit against The Sports Club/LA  Los Angeles, a $1.0
million charge to reflect the loss on the sale of the former Spectrum Club -
Fountain Valley real estate and a $749,000 charge to adjust the carrying value
of our real estate located in Houston, Texas that is currently for sale.

In the year ended December 31, 1999, we incurred a pro forma charge
from a
cumulative effect of change in accounting principle, net of applicable taxes,
of $221,000. This charge is associated with the write off of pre-opening
expenses incurred and capitalized prior to January 1, 1999. Our net loss for
the year ended December 31, 2000 was $12.4 million, or $.70 per diluted share,
compared to pro forma net income of $2.0 million, or $.11 per diluted share for
the year ended December 31, 1999.

Liquidity and Capital Resources

Cash and Credit Availability. On December 31, 2001, our cash balance was
$1.5 million. Our bank credit facility is a $15.0 million credit agreement
with a maturity date of May 31, 2002. Advances under our credit facility bear
interest at a variable rate of LIBOR plus 21/4% or the Banks
prime rate (43/4% at December 31, 2001). Under the terms of the Indenture (defined
below), we are currently allowed to increase our existing bank facility by $5.0
million. At December 31, 2001, $8.5 million of cash advances were outstanding
under this credit facility and $6.2 million was utilized in the form of
outstanding letters of credit, leaving $300,000 available for future
borrowings. The credit agreement requires us to maintain certain Tangible Net
Worth, Total Liabilities to Tangible Net Worth and EBITDA covenants. At
December 31, 2001, we were not in compliance with some of these covenants. Our
bank has issued a waiver of these covenants through May 31, 2002. We are in
discussions with the bank to renew the credit facility through May 31, 2003 and
revise the covenants.



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On April 1,
1999, we issued in a private placement $100 million of
113/8%
Senior Secured Notes due in March 2006 (the Senior Secured Notes), with
interest due semi-annually. The Senior Secured Notes were issued pursuant to
the terms of the indenture dated April 1, 1999 (the Indenture). The Senior
Secured Notes are secured by substantially all of our assets, other than
certain excluded assets. The Indenture includes certain covenants that
restrict our ability to: (i) incur additional indebtedness; (ii) pay dividends
or other distributions, or repurchase capital stock or other equity interests
or subordinated indebtedness; and (iii) make certain investments. The
Indenture also limits our ability to: (i) enter into transactions with
affiliates; (ii) create liens on or sell certain assets; and (iii) enter into
mergers and consolidations.

The Indenture allows us to incur up to $10.0 million of equipment
financing obligations. At December 31, 2001, we had $6.0 million outstanding
and would be allowed to finance an additional $4.0 million with our equipment
serving as collateral. We have recently been able to secure only $300,000 of
new equipment financing.

In January 2002, we sold The Sports Club/Las Vegas which brought us net
proceeds of $6.2 million. In March 2002, we completed the sale of $10.5
million in Preferred Stock. The terms of the Preferred Stock issuance are
discussed in Note 15. We currently own real estate in Houston, Texas. The
Houston property was acquired in 1998 with the intention of building The Sports
Club/LA  Houston on the site. We have decided to sell the Houston property,
which is currently in escrow. Escrow was scheduled to close on March 29, 2002,
with the remaining purchase price of $2.5 million to be paid to us at that
time. The buyer was unable to complete the transaction on that date and we are
currently negotiating with the buyer to extend the closing date. The buyers
ability to close this transaction is dependent upon its receiving debt or
equity financing. In the 4th quarter of 2000 we wrote down the value of the
real estate to its net realizable value and at December 31, 2001, there had
been no further impairment of the value of this real estate.

Operating Cash Flow.During the year ended December 31, 2001, our
operations generated $12.0 million of cash flow before pre-opening expenses and
interest payments. We incurred $5.9 million in pre-opening expenses for The
Sports Club/LA  Boston and The Sports Club/LA  San Francisco and made
interest payments of $12.1 million, resulting in a net $6.0 million of cash
used in operating activities.

All our mature Sports Clubs (Clubs open at least three years) currently
generate positive cash flow from operations. Newly developed Clubs tend to
achieve significant increases in revenues until a mature membership level is
reached. In the past, recently opened Clubs that have not yet achieved mature
membership levels have operated at a loss or at only a slight profit as a
result of fixed expenses that, together with variable operating expenses,
approximate or exceed membership fees and other revenue. As a result of
opening three Clubs in 2000 and two Clubs in 2001, our consolidated operating
cash flows, for the years ended December 31, 2001 and 2000, were negative. We
expect this trend to continue until the newly opened Clubs generate positive
cash flows. The time period necessary to achieve positive cash flows is
dependent upon the membership levels and amount of fixed costs. Historically,
it may take two years before a new Club achieves positive cash flow.
Our ability to generate positive cash flow from



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operating activities is dependent
upon increasing membership levels at these Clubs and we cannot offer any
assurance that we will be successful in these efforts.

New Club Developments.In 2000 we completed construction of The Sports
Club/LA at three new sites. As of December 31, 2001, approximately $757,000 of
construction costs remain unpaid on these developments.

We have entered into lease agreements with Millennium Entertainment
Partners and/or its affiliates (collectively Millennium) with respect to the
development of The Sports Club/LA locations in San Francisco and Boston.
Millennium owns approximately 29.7% of our outstanding Common Stock. Our
portion of the remaining aggregate development and equipment costs for these
Clubs is currently estimated to be approximately $2.5 million. The Sports
Club/LA in Boston and San Francisco opened in September 2001 and October 2001,
respectively.

Other Capital Requirements.In connection with our acquisition of the
rights to develop The Sports Club/LA  Upper East Side, we issued a note for
$2.7 million to the seller. The note required two equal principal payments in
April 1999 and April 2000. These payments were not made because we believed
that we had various claims against the seller relating to the repair and
refurbishing of the property, which offset the money owed on the note.We
reached an agreement in April 2001, with the holder to pay an aggregate of
$2,350,000. Six remaining monthly installments of $112,000 are required through
June 2002 with a final payment of $294,000 due in July 2002. As of December
31, 2001, we have made all scheduled payments required by the settlement and
have a remaining balance due of $963,000.

In addition to the development projects described above, we incur capital
expenditures for normal replacement of fitness equipment and updating Clubs.
Equipment financing and operating cash flow have historically funded these
expenditures. While capital expenditures may fluctuate from time to time, we
generally expect to spend approximately 2% to 4% of revenues on facility and
equipment upgrades and replacements. We expect to soon start construction of a
restaurant/café at The Sports Club/LA  Upper East Side at an estimated cost of
approximately $500,000. We also expect to spend approximately $828,000 during
the next 12 months to upgrade our management information systems and enhance
our disaster recovery capabilities.

Our net proceeds from the sale of the Spectrum Clubs were approximately
$38.0 million. To the extent the net proceeds were not reinvested in assets
related to our business before December 3, 2000, the Indenture requires us to
make an excess proceeds offer and apply the unused net proceeds to retire
Senior Secured Notes, unless the remaining net proceeds are less than $10.0
million. At December 3, 2000, the remaining excess proceeds were below the
$10.0 million threshold and therefore no excess proceeds offer under the
Indenture was required to be made. To the extent we sell additional assets,
such as our real estate in Houston, the proceeds from those sales would also be
subject to the excess proceeds provision of the Indenture. We do not expect to
be required to make an excess proceeds offer after the sale of The Sports
Club/Las Vegas and the Houston real estate.

Summary.During 2001, we incurred significant operating losses that have
impacted our liquidity. Our EBITDA during 2001 was approximately $1.0 million.
This amount was significantly lower than the cash required to pay our annual
interest costs and to fund routine capital expenditures. We also incurred
large capital expenditures during 2001 to complete construction of our new
Clubs. As a result, our cash balance decreased by $9.6 million and our net
borrowings increased by $5.5 million during the year. We are projecting
significantly higher EBITDA levels in 2002 and beyond as our newer Clubs
mature, but there can be no assurance that the EBITDA at these newer Clubs will
increase to a level sufficient to cover the cost structure associated with
operating the Clubs.

We sold The Sports Club/Las Vegas in January 2002 which generated net
proceeds of $6.2 million. We also completed the sale of $10.5 million in
Preferred Stock. We are in discussions with the bank to renew the credit
facility that expires on May 31, 2002 for another year. As part of the
negotiation process, new covenants will be established that, in our estimation,
we will be in compliance with as of the date of the renewal. Comerica Bank has
waived our breach of the covenants that were in default as of



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December 31, 2001 through the date of the renewal. The terms of the Comerica
Bank agreement are described in Note 6. If we are unable to renew the Comerica
Bank facility, we would seek replacement financing.

We are currently in the process of disposing of other assets that are not
within the core operations of our strategy to operate high-end sports and
fitness Clubs that are described as urban country clubs. As part of this
strategy, we are currently negotiating for the sale of undeveloped land in
Houston originally acquired for a Sports Club site. The estimated net proceeds
of approximately $2.5 million will be added to working capital.

We operate in a highly capital intensive industry and are heavily
leveraged. Our Clubs are upscale and capital improvements are regularly needed
to retain the upscale nature and presentation of the Clubs. A deterioration in
the quality of the Clubs can lead to reduction in membership levels and lower
revenues. We estimate that expenditures of between 2% and 4% of revenues,
depending on the age of the Club, will be necessary to maintain the quality of
the Clubs to our satisfaction.

Our debt position is also significant. Semi-annual interest payments on
the Senior Secured Notes are approximately $5.6 million with the Notes maturing
in March 2006.

In addition to amounts necessary to pay for our operating expenses, $11.4
of annual interest costs on our Senior Secured Notes and routine capital
expenditures we have the following capital commitments in 2002:

|                                          |  |                  |       | 
|----------------------------------------- |  | ---------------- | ----- | 
|                                          |  | $'s in thousands
|                                          |  |                 
|Remaining construction
costs of new Clubs |  | $                | 3,757 | 
|Information system upgrades               |  |                  | 828   | 
|Principal payments on long-term debt      |  |                  | 2,944 | 
|                                          |  |                  |       | 
|                                          |  | $                | 7,529 | 
|                                          |  |                  |       | 

Although no assurances can be given, we expect that the actions taken to
date with the sale of The Sports Club/Las Vegas, the Preferred Stock sale, the
anticipated renewal of the Comerica Bank facility or replacement financing and
the proposed divestitures of other assets will enable us to successfully meet
our obligations through December 31, 2002.

Until such time as our new Clubs are generating sufficient cash flows to
finance anticipated operating expenses and until we (i) make the final
construction payments on recently opened Clubs, (ii) fund capital expenditures
and (iii) meet our debt service obligations, we will need to renew and utilize
our bank credit facility, sell additional assets or offer equity securities
(subject to the restriction and limitations on such transactions in the
Indenture). We are in discussions with the bank to renew the credit facility
and, although we believe we will be able to do so, there is no assurance that
we will successfully complete these negotiations or be able to find replacement
financing. There is also no assurance that we will be able to raise additional
funds through an equity offering, asset sale or other transactions, or that any
such transaction or arrangement would be on terms reasonable to us. Any
restructuring of our Company may have a material adverse effect on our
operations and financial results.

Additional funds will be required to undertake any future acquisitions or
the development of additional new Clubs. We would consider entering into joint
ventures, partnership agreements or management agreements (subject to the
restrictions and limitations on such transactions in the Indenture) for the
purpose of developing new Clubs, but only if such arrangements would generate
additional cash flow or further enhance The Sports Club/LA brand name in the
market place.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make estimates and assumptions that affect the reported amounts of the assets
and liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. We base these estimates and assumptions
upon historical experience and existing, known circumstances. Actual results
could differ from those estimates. Specifically, we must make estimates in the
following areas:

Revenue
Recognition.We receive initiation fees and monthly membership
dues from our members. Substantially all of our members join on a
month-to-month basis and can therefore cancel their membership at any
time. Initiation fees and related direct expenses, primarily sales
commissions, are deferred and recognized, on a straight line basis,
over an estimated membership period of between two and one half and
three years. Dues that are received in advance are recognized on a
pro-rata basis over the periods in which services are to be provided.
Reserves are recorded against the receivables of our SportsMed
subsidiary at the time the services are provided.

Allowance for doubtful accounts.We provide a reserve against our
receivables for estimated losses that may result from our customers inability
to pay. We determine the amount of the reserve by analyzing known
uncollectible accounts, economic conditions and historical losses and the
customers creditworthiness. Our policy is to reserve for all accounts with
aged balances greater than one year. The likelihood of a material loss from
this area is minimal due to our limited exposure to credit risk.

Valuation of goodwill, intangible and other long-lived assets.We
periodically assess the impairment of our long-lived assets which require us to
make assumptions and judgments regarding the carrying value of these assets.
The assets are considered to be impaired if we determine that the carrying
value may not be recoverable based upon our assessment of the following events
or changes in circumstances:



| |  |  | The assets ability to continue to generate income from operations
and positive cash flow in future periods,
| | - |  | ------------------------------------------------------------------------------------------------------------



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| |  |  | Any volatility or significant decline in our stock price and market
capitalization compared to our net book value,
| | - |  | ------------------------------------------------------------------------------------------------------------------
|
| |  |  | Significant changes in our strategic business objectives and utilization of the
assets, or                        
|
| |  |  | The impact of significant negative industry or economic trends.                                                   

If the assets are considered to be impaired, the impairment we recognize
is the amount by which the carrying value of the assets exceeds the fair value
of the assets. In addition, we base the useful lives and related amortization
or depreciation expense on our estimate of the period that the assets will
generate revenues or otherwise be used by us. If a change were to occur in any
of the above mentioned factors or estimates, the likelihood of a material
change in our reported results would increase.

Litigation reserves.Estimated amounts for claims that are
probable and
can be reasonably estimated are recorded as liabilities in the consolidated
balance sheets. The likelihood of a material change in these estimated
reserves would be dependent on new claims as they may arise and the favorable
or unfavorable outcome of the particular litigation. Both the amount and range
of loss on the remaining pending litigation is uncertain. As such, we are
unable to make a reasonable estimate of the liability that could result from
unfavorable outcomes in litigation. As additional information becomes
available, we will assess the potential liability related to our pending
litigation and revise our estimates. Such revisions in our estimates of the
potential liability could materially impact our results of operations and
financial position.

Valuation of deferred income taxes.Valuation allowances are
established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized. The likelihood of material change in our expected realization of
these assets depends on future taxable income, our ability to deduct tax loss
carry forwards against future taxable income, the effectiveness of our tax
planning and strategies among the various tax jurisdictions in which we
operate and any significant changes in the tax laws. In March 2002, a new law
was passed enabling net operating loss carry forwards incurred during 2001 to
be carried back to the tax years 1995, 1996 and 1997. This will
result in our
receiving up to approximately $900,000 in refunds of prior taxes paid. These
amounts will be recorded in the first quarter of fiscal 2002.

Forward Looking Statements

From time to time we make forward-looking statements within
the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934. Forward-looking statements include the words may, will,
estimate, continue, believe, expect or anticipate and other
similar
words. The forward-looking statements generally appear in the material set
forth under the heading Managements Discussion and Analysis of Financial
Condition and Results of Operations but may be found in other locations as
well. Forward-looking statements may also be found in our other reports filed
with the Securities and Exchange Commission and in our press releases and other
statements. These forward-looking statements generally relate to our plans and
objectives for future operations and are based upon managements reasonable
estimates of future results or trends. Although we believe that our plans and
objectives reflected in or suggested by such forward-looking statements are
reasonable, such plans or objectives may not be achieved. Actual results may
differ from projected results due to unforeseen developments, including
developments relating to the following:



| |  |  | the availability and adequacy of our cash flow and financing
facilities for our requirements, including payment of the Senior
Secured Notes,                                                                                                                                
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to attract and retain members, which depends on
competition, market acceptance of new and existing sports and fitness
clubs and services, demand for sports and fitness club services
generally and competitive pricing trends in the sports and fitness
market,
|
| |  |  | our ability to successfully develop new sports and fitness clubs,                                                                                                                                                                                                           
|
| |  |  | disputes or other problems arising with our development partners or
landlords,                                                                                                                                                                                              



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| |  |  | changes in economic, competitive, demographic and other
conditions in the geographic areas in which we operate, including
business interruptions resulting from earthquakes or other causes,
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | competition,                                                                                                                                                                                
|
| |  |  | changes in personnel or compensation, and                                                                                                                                                   
|
| |  |  | changes in statutes and regulations or legal proceedings and rulings.                                                                                                                       

We will not update forward-looking statements even though our situation
may change in the future.



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ITEM 8. FINANCIAL STATEMENTS

Index to Consolidated Financial Statements

|                                                                                                                       |  |      |      | 
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                       |  | PAGE
|                                                                                                                       |  |     
|Independent Auditors
Report                                                                                           |  |      | F-1  | 
|Consolidated Balance Sheets as of
December 31, 2000 and 2001                                                           |  |      | F-2  | 
|Consolidated Statements of Operations for each of
the Years in the Three-Year Period
ended December 31, 2001           |  |      | F-3  | 
|Consolidated Statements of Stockholders
Equity for each of the Years in the Three-Year Period
ended December 31, 2001 |  |      | F-4  | 
|Consolidated Statements of Cash Flows for each of
the Years in the Three-Year Period
ended December 31, 2001           |  |      | F-5  | 
|Notes to Consolidated Financial
Statements                                                                             |  |      | F-6  | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Consolidated Financial Statement
Schedule                                                                             
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Valuation and Qualifying
Accounts                                                                                      |  |      | F-21 | 

All other schedules are omitted because they are not applicable or the
required information is shown in the Companys consolidated financial
statements or notes thereto.






|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES
|------- | ---------------------------------------------------------------------------------------------

Not applicable



22



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders
The Sports Club Company, Inc.:

We have audited the accompanying consolidated financial statements of The
Sports Club Company, Inc. and subsidiaries (the Company) as listed in the
accompanying index. In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedule as
listed in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Sports
Club Company, Inc. and subsidiaries as of December 31, 2000 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.



| | KPMG LLP
| | --------

Los Angeles, CaliforniaFebruary 23, 2002, except as to
          Note 15 which is as of
          March 18, 2002.



F-1



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##### Table of Contents



THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 2001
(in thousands, except share amounts)
 ASSETS

|                                                                                                                                       |                                                                                                                                                 |                           |         |         |         |      |         |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | 
|                                                                                                                                       |                                                                                                                                                 |                           |         | 2000    |         | 2001
|                                                                                                                                       |                                                                                                                                                 |                           |         |         |         |     
|Current assets:                                                                                                                        |                                                                                                                                                 |                           |         |         |         |      |         |        
|                                                                                                                                       | Cash and cash equivalents                                                                                                                       |                           | $       | 11,059  |         |      | $       | 1,482   |        
|                                                                                                                                       | Accounts receivable, net of allowance for doubtful accounts of $671 and $318 at
December 31, 2000 and 2001, respectively                        |                           |         | 3,625   |         |      |         | 4,840   |        
|                                                                                                                                       | Inventories                                                                                                                                     |                           |         | 2,854   |         |      |         | 1,225   |        
|                                                                                                                                       | Other current assets                                                                                                                            |                           |         | 3,281   |         |      |         | 734     |        
|                                                                                                                                       |                                                                                                                                                 |                           |         |         |         |      |         |        
|                                                                                                                                       |                                                                                                                                                 | Total current assets      |         |         | 20,819  |      |         |         | 8,281   | 
|Property and equipment, net                                                                                                            |                                                                                                                                                 |                           | 169,927 |         |         |      | 170,893 |        
|Costs in excess of net assets acquired, less accumulated amortization of
$2,037 and $2,531 at December 31, 2000 and 2001, respectively |                                                                                                                                                 |                           | 15,296  |         |         |      | 12,794  |        
|Restricted cash                                                                                                                        |                                                                                                                                                 |                           | 6,996   |         |         |      |        |        
|Other assets, net                                                                                                                      |                                                                                                                                                 |                           | 8,962   |         |         |      | 5,240   |        
|                                                                                                                                       |                                                                                                                                                 |                           |         |         |         |      |         |        
|                                                                                                                                       |                                                                                                                                                 | $                         | 222,000 |         |         | $    | 197,208 |        
|                                                                                                                                       |                                                                                                                                                 |                           |         |         |         |      |         |        
|                                                                                                                                      
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                  
|                                                                                                                                      
|Current liabilities:                                                                                                                   |                                                                                                                                                 |                           |         |         |         |      |         |        
|                                                                                                                                       | Current installments of notes payable and capitalized lease obligations                                                                         |                           | $       | 4,742   |         |      | $       | 11,449  |        
|                                                                                                                                       | Accounts payable                                                                                                                                |                           |         | 1,926   |         |      |         | 3,028   |        
|                                                                                                                                       | Accrued liabilities                                                                                                                             |                           |         | 9,049   |         |      |         | 11,353  |        
|                                                                                                                                       | Deferred membership revenues                                                                                                                    |                           |         | 12,019  |         |      |         | 13,670  |        
|                                                                                                                                       |                                                                                                                                                 |                           |         |         |         |      |         |        
|                                                                                                                                       |                                                                                                                                                 | Total current liabilities |         |         | 27,736  |      |         |         | 39,500  | 
|Notes payable and capitalized lease obligations, less current installments                                                             |                                                                                                                                                 |                           | 105,589 |         |         |      | 104,042 |        
|Deferred lease obligations                                                                                                             |                                                                                                                                                 |                           | 2,284   |         |         |      | 4,982   |        
|Minority interest                                                                                                                      |                                                                                                                                                 |                           | 600     |         |         |      | 600     |        
|                                                                                                                                       |                                                                                                                                                 |                           |         |         |         |      |         |        
|                                                                                                                                       |                                                                                                                                                 | Total liabilities         |         |         | 136,209 |      |         |         | 149,124 | 
|Commitments and contingencies                                                                                                          |                                                                                                                                                 |                           |         |         |         |      |         |        
|Stockholders equity:                                                                                                                  |                                                                                                                                                 |                           |         |         |         |      |         |        
|                                                                                                                                       | Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares
issued or outstanding                                                   |                           |         |        |         |      |         |        |        
|                                                                                                                                       | Common stock, $.01 par value, 40,000,000 shares authorized;
21,052,717 and 21,060,717 shares issued at
December 31, 2000 and 2001, respectively |                           |         | 211     |         |      |         | 211     |        
|                                                                                                                                       | Additional paid-in capital                                                                                                                      |                           |         | 102,743 |         |      |         | 102,764 |        
|                                                                                                                                       | Accumulated deficit                                                                                                                             |                           |         | (1,421  | )       |      |         | (39,481 | )      
|                                                                                                                                       | Treasury stock, at cost, 3,156,074 and 3,045,360 shares at
December 31, 2000 and 2001, respectively                                             |                           |         | (15,742 | )       |      |         | (15,410 | )      
|                                                                                                                                       |                                                                                                                                                 |                           |         |         |         |      |         |        
|                                                                                                                                       |                                                                                                                                                 | Net stockholders equity  |         |         | 85,791  |      |         |         | 48,084  | 
|                                                                                                                                       |                                                                                                                                                 |                           |         |         |         |      |         |        
|                                                                                                                                       |                                                                                                                                                 | $                         | 222,000 |         |         | $    | 197,208 |        
|                                                                                                                                       |                                                                                                                                                 |                           |         |         |         |      |         |        

See accompanying notes to consolidated financial statements.



F-2



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##### Table of Contents



THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Year Period ended December 31, 2001
(in thousands, except per share amounts)

|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |         |         |         |         |  
|-------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------ | ----------------------------------------------------------------------------------------- | ----------------------------- | ------ | ----- | ------ | ------ | ------ | ------- | ------- | ------- | ------- | ------- | ------- | -
|                                                                                       |                                                            |                          |                                                                                           |                               |        | 1999  |        | 2000   |        | 2001   
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |        
|Revenues                                                                               |                                                            | $                        | 87,325                                                                                    |                               |        | $     | 76,869 |        |        | $       | 102,044 |        
|Operating expenses:                                                                    |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       | Direct                                                     |                          |                                                                                           | 60,528                        |        |       |        | 59,116 |        |         |         | 88,219  |        
|                                                                                       | General and administrative                                 |                          |                                                                                           | 6,626                         |        |       |        | 7,298  |        |         |         | 8,938   |        
|                                                                                       | Selling                                                    |                          |                                                                                           | 2,608                         |        |       |        | 2,915  |        |         |         | 3,880   |        
|                                                                                       | Depreciation and amortization                              |                          |                                                                                           | 6,147                         |        |       |        | 7,408  |        |         |         | 11,809  |        
|                                                                                       | Pre-opening expenses                                       |                          |                                                                                           | 3,090                         |        |       |        | 9,589  |        |         |         | 5,884   |        
|                                                                                       | Impairment charges                                         |                          |                                                                                           |                              |        |       |        |       |        |         |         | 5,250   |        
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       |                                                            | Total operating expenses |                                                                                           |                               | 78,999 |       |        |        | 86,326 |         |         |         | 123,980 |        
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       |                                                            |                          |                                                                                           | Income (loss) from operations |        |       | 8,326  |        |        |         | (9,457  | )       |         |         | (21,936 | )
|Other income (expense):                                                                |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       | Interest, net                                              |                          |                                                                                           | (5,991                        | )      |       |        | (6,478 | )      |         |         | (13,001 | )      
|                                                                                       | Minority interests                                         |                          |                                                                                           | (150                          | )      |       |        | (150   | )      |         |         | (150    | )      
|                                                                                       | Equity interest in net income of unconsolidated subsidiary |                          |                                                                                           | 931                           |        |       |        |       |        |         |         |        |        
|                                                                                       | Non-recurring items                                        |                          |                                                                                           | 553                           |        |       |        | (3,242 | )      |         |         | 397     |        
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       |                                                            |                          | Income (loss) before income taxes and
cumulative effect of change in accounting
principle |                               |        | 3,669 |        |        |        | (19,327 | )       |         |         | (34,690 | )      
|Provision (benefit) for income taxes                                                   |                                                            |                          | 1,460                                                                                     |                               |        |       | (6,940 | )      |        |         | 3,370   |        
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       |                                                            |                          | Income (loss) before cumulative effect of
change in accounting principle                  |                               |        | 2,209 |        |        |        | (12,387 | )       |         |         | (38,060 | )      
|Cumulative effect of change in accounting principle,
net of income tax benefit of $600 |                                                            |                          | 899                                                                                       |                               |        |       |       |        |        |         |        |        
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       |                                                            |                          | Net income (loss)                                                                         |                               | $      | 1,310 |        |        | $      | (12,387 | )       |         | $       | (38,060 | )      
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|Income (loss) per share before cumulative effect of change in
accounting principle:    |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       | Basic and Diluted                                          |                          | $                                                                                         | 0.12                          |        |       | $      | (0.70  | )      |         | $       | (2.12   | )      
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|Effect of cumulative effect of change in accounting principle:                         |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       | Basic and Diluted                                          |                          | $                                                                                         | (0.05                         | )      |       | $      |       |        |         | $       |        |        
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|Net income (loss) per share:                                                           |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       | Basic and Diluted                                          |                          | $                                                                                         | 0.07                          |        |       | $      | (0.70  | )      |         | $       | (2.12   | )      
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|Weighted average number of common shares outstanding:                                  |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       | Basic                                                      |                          |                                                                                           | 18,114                        |        |       |        | 17,773 |        |         |         | 17,939  |        
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        
|                                                                                       | Diluted                                                    |                          |                                                                                           | 18,290                        |        |       |        | 17,773 |        |         |         | 17,939  |        
|                                                                                       |                                                            |                          |                                                                                           |                               |        |       |        |        |        |         |         |        

See accompanying notes to consolidated financial statements.



F-3



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##### Table of Contents



THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Three-Year Period ended December 31, 2001
(in thousands)

|                           |                                                       |  |              |     |            |   |          |   |                |   |         |     |        |   |          |         |   |  |       |       |   |   |         |        |  
|-------------------------- | ----------------------------------------------------- |  | ------------ | --- | ---------- | - | -------- | - | -------------- | - | ------- | --- | ------ | - | -------- | ------- | - |  | ----- | ----- | - | - | ------- | ------ | -
|                           |                                                       |  |              |     |            |   |          |   |                |   |         |     |        |   | Retained |         |   |  |       |       |   |   |        
|                           |                                                       |  | Common Stock |     | Additional |   | Earnings |   | Treasury Stock
|                           |                                                       |  |              |     | Paid-in    |   | (Accum.) |   |               
|                           |                                                       |  | Shares       |     | Amount     |   | Capital  |   | (Deficit)      |   | Shares  |     | Amount
|                           |                                                       |  |              |     |            |   |          |   |                |   |         |     |       
|Balance, January 1, 1999   |                                                       |  | 20,897       |     |            | $ | 209      |   |                | $ | 102,361 |     |        | $ | 9,656    |         |   |  | 1,259 |       |   | $ | (7,687  | )     
|                           | Net income                                            |  |              |    |            |   |          |  |                |   |         |    |        |   |          | 1,310   |   |  |       |      |   |   |         |       |  
|                           | Treasury stock repurchased                            |  |              |    |            |   |          |  |                |   |         |    |        |   |          |        |   |  |       | 1,975 |   |   |         | (8,357 | )
|                           | Reissuance of treasury stock
for employee stock plans |  |              |    |            |   |          |  |                |   |         |    |        |   |          |        |   |  |       | (39   | ) |   |         | 153    |  
|                           | Exercise of employee stock options                    |  |              | 2   |            |   |          |  |                |   |         | 7   |        |   |          |        |   |  |       |      |   |   |         |       |  
|                           | Issuance of common stock to
outside directors         |  |              | 8   |            |   |          |  |                |   |         | 35  |        |   |          |        |   |  |       |      |   |   |         |       |  
|                           |                                                       |  |              |     |            |   |          |   |                |   |         |     |        |   |          |         |   |  |       |       |   |   |         |       
|Balance, December 31, 1999 |                                                       |  | 20,907       |     |            |   | 209      |   |                |   | 102,403 |     |        |   | 10,966   |         |   |  | 3,195 |       |   |   | (15,891 | )     
|                           | Net loss                                              |  |              |    |            |   |          |  |                |   |         |    |        |   |          | (12,387 | ) |  |       |      |   |   |         |       |  
|                           | Reissuance of treasury stock
for employee stock plans |  |              |    |            |   |          |  |                |   |         |    |        |   |          |        |   |  |       | (39   | ) |   |         | 149    |  
|                           | Exercise of employee stock options                    |  |              | 25  |            |   |          |  |                |   |         | 61  |        |   |          |        |   |  |       |      |   |   |         |       |  
|                           | Issuance of common stock to
outside directors         |  |              | 6   |            |   |          |  |                |   |         | 20  |        |   |          |        |   |  |       |      |   |   |         |       |  
|                           | Issuance of common stock for 1997
business acquisiton |  |              | 115 |            |   |          | 2 |                |   |         | 259 |        |   |          |        |   |  |       |      |   |   |         |       |  
|                           |                                                       |  |              |     |            |   |          |   |                |   |         |     |        |   |          |         |   |  |       |       |   |   |         |       
|Balance, December 31, 2000 |                                                       |  | 21,053       |     |            |   | 211      |   |                |   | 102,743 |     |        |   | (1,421   | )       |   |  | 3,156 |       |   |   | (15,742 | )     
|                           | Net loss                                              |  |              |    |            |   |          |  |                |   |         |    |        |   |          | (38,060 | ) |  |       |      |   |   |         |       |  
|                           | Reissuance of treasury stock
for employee stock plans |  |              |    |            |   |          |  |                |   |         |    |        |   |          |        |   |  |       | (65   | ) |   |         | 181    |  
|                           | Reissuance of treasury stock
for loan guarantee fee   |  |              |    |            |   |          |  |                |   |         |    |        |   |          |        |   |  |       | (46   | ) |   |         | 151    |  
|                           | Exercise of employee stock options                    |  |              | 2   |            |   |          |  |                |   |         | 5   |        |   |          |        |   |  |       |      |   |   |         |       |  
|                           | Issuance of common stock to
outside directors         |  |              | 6   |            |   |          |  |                |   |         | 16  |        |   |          |        |   |  |       |      |   |   |         |       |  
|                           |                                                       |  |              |     |            |   |          |   |                |   |         |     |        |   |          |         |   |  |       |       |   |   |         |       
|Balance, December 31, 2001 |                                                       |  | 21,061       |     |            | $ | 211      |   |                | $ | 102,764 |     |        | $ | (39,481  | )       |   |  | 3,045 |       |   | $ | (15,410 | )     
|                           |                                                       |  |              |     |            |   |          |   |                |   |         |     |        |   |          |         |   |  |       |       |   |   |         |       

See accompanying notes to consolidated financial statements.



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##### Table of Contents



THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-year Period ended December 31, 2001
(in thousands)

|                                                  |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |         |        |        |  
|------------------------------------------------- | ------------------------------------------------------------------------------------ | ---------------------------------------------------------- | ---------------------------------------------------- | ------- | ----- | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------ | -
|                                                  |                                                                                      |                                                            |                                                      |         | 1999  |         | 2000   |         | 2001  
|                                                  |                                                                                      |                                                            |                                                      |         |       |         |        |         |       
|Cash flows from operating activities:             |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        
|                                                  | Net income (loss)                                                                    |                                                            | $                                                    | 1,310   |       |         | $      | (12,387 | )      |         | $      | (38,060 | )     
|                                                  | Adjustments to reconcile net income (loss) to cash provided by
(used in) operations: |                                                            |                                                      |         |       |         |        |         |        |         |        |         |       
|                                                  |                                                                                      | Cumulative effect of change in accounting principle        |                                                      |         | 899   |         |        |         |       |         |        |         |       |       
|                                                  |                                                                                      | (Gain)/loss on disposition of real estate                  |                                                      |         | (783  | )       |        |         | 1,766  |         |        |         | 282    |       
|                                                  |                                                                                      | Impairment charges                                         |                                                      |         |      |         |        |         |       |         |        |         | 5,250  |       
|                                                  |                                                                                      | Depreciation and amortization                              |                                                      |         | 6,147 |         |        |         | 7,408  |         |        |         | 11,809 |       
|                                                  |                                                                                      | Deferred taxes                                             |                                                      |         |      |         |        |         | (2,526 | )       |        |         | 2,526  |       
|                                                  |                                                                                      | Equity interest in net income of unconsolidated subsidiary |                                                      |         | (931  | )       |        |         |       |         |        |         |       |       
|                                                  |                                                                                      | (Increase) decrease in:                                    |                                                      |         |       |         |        |         |        |         |        |         |        |       
|                                                  |                                                                                      |                                                            | Accounts receivable, net                             |         |       | (59     | )      |         |        | (1,476  | )      |         |        | (1,215 | )
|                                                  |                                                                                      |                                                            | Inventories                                          |         |       | (131    | )      |         |        | (1,499  | )      |         |        | 1,629  |  
|                                                  |                                                                                      |                                                            | Other current assets                                 |         |       |        |        |         |        | (1,088  | )      |         |        | 2,547  |  
|                                                  |                                                                                      |                                                            | Other assets, net                                    |         |       | (1,087  | )      |         |        | (1,854  | )      |         |        | 1,164  |  
|                                                  |                                                                                      | Increase (decrease) in:                                    |                                                      |         |       |         |        |         |        |         |        |         |        |       
|                                                  |                                                                                      |                                                            | Accounts payable                                     |         |       | (285    | )      |         |        | (126    | )      |         |        | 1,102  |  
|                                                  |                                                                                      |                                                            | Accrued liabilities                                  |         |       | 3,024   |        |         |        | 946     |        |         |        | 2,652  |  
|                                                  |                                                                                      |                                                            | Deferred membership revenues                         |         |       | 650     |        |         |        | 2,307   |        |         |        | 1,651  |  
|                                                  |                                                                                      |                                                            | Deferred lease obligations                           |         |       | (409    | )      |         |        | 1,015   |        |         |        | 2,698  |  
|                                                  |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        
|                                                  |                                                                                      |                                                            | Net cash provided by (used in) operating activities  |         |       | 8,345   |        |         |        | (7,514  | )      |         |        | (5,965 | )
|Cash flows from investing activities:             |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        
|                                                  | Capital expenditures                                                                 |                                                            |                                                      | (45,025 | )     |         |        | (62,173 | )      |         |        | (16,122 | )     
|                                                  | Distributions from unconsolidated subsidiary                                         |                                                            |                                                      | 1,106   |       |         |        |        |        |         |        | 32      |       
|                                                  | Business acquisitions, net of cash acquired                                          |                                                            |                                                      | (902    | )     |         |        |        |        |         |        |        |       
|                                                  | Decrease in due from affiliates                                                      |                                                            |                                                      | 76      |       |         |        | 148     |        |         |        |        |       
|                                                  | Purchase of other assets                                                             |                                                            |                                                      | (124    | )     |         |        |        |        |         |        |        |       
|                                                  | Proceeds from sale of Spectrum Clubs                                                 |                                                            |                                                      | 60,778  |       |         |        | 3,593   |        |         |        |        |       
|                                                  | (Increase) decrease in restricted cash                                               |                                                            |                                                      | (41,389 | )     |         |        | 34,393  |        |         |        | 6,996   |       
|                                                  | Treasury stock acquired                                                              |                                                            |                                                      | (8,357  | )     |         |        |        |        |         |        |        |       
|                                                  |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        
|                                                  |                                                                                      |                                                            | Net cash used for investing activities               |         |       | (33,837 | )      |         |        | (24,039 | )      |         |        | (9,094 | )
|Cash flows from financing activities:             |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        
|                                                  | Exercise of employee stock options                                                   |                                                            |                                                      | 7       |       |         |        | 61      |        |         |        | 5       |       
|                                                  | Proceeds from Senior Secured Notes  net of costs and discount                       |                                                            |                                                      | 93,713  |       |         |        |        |        |         |        |        |       
|                                                  | Proceeds from notes payable and equipment financing loans                            |                                                            |                                                      | 37,263  |       |         |        | 7,681   |        |         |        | 24,588  |       
|                                                  | Repayments of notes payable and equipment financing loans                            |                                                            |                                                      | (71,617 | )     |         |        | (1,237  | )      |         |        | (19,111 | )     
|                                                  |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        
|                                                  |                                                                                      |                                                            | Net cash provided by financing activities            |         |       | 59,366  |        |         |        | 6,505   |        |         |        | 5,482  |  
|                                                  |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        
|                                                  |                                                                                      |                                                            | Net increase (decrease) in cash and cash equivalents |         |       | 33,874  |        |         |        | (25,048 | )      |         |        | (9,577 | )
|Cash and cash equivalents at beginning of year    |                                                                                      |                                                            | 2,233                                                |         |       |         | 36,107 |         |        |         | 11,059 |        
|                                                  |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        
|Cash and cash equivalents at end of year          |                                                                                      | $                                                          | 36,107                                               |         |       | $       | 11,059 |         |        | $       | 1,482  |        
|                                                  |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        
|Supplemental disclosure of cash flow information: |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        
|                                                  | Cash paid during the year for interest                                               |                                                            | $                                                    | 6,389   |       |         | $      | 11,605  |        |         | $      | 12,118  |       
|                                                  |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        
|                                                  | Cash paid during the year for income taxes                                           |                                                            | $                                                    | 2,010   |       |         | $      | 977     |        |         | $      | 533     |       
|                                                  |                                                                                      |                                                            |                                                      |         |       |         |        |         |        |         |        |        

See accompanying notes to consolidated financial statements.



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THE SPORTS CLUB COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 2000 and 2001

1. Organization

The Sports Club Company, Inc. (the Company) operates sports and fitness
Clubs (Clubs), under the Sports Club and, until December 1999, the
Spectrum Club names. Sports Clubs have been developed as urban country
clubs offering a full range of services including numerous fitness and
recreation options, diverse facilities and other amenities. Spectrum Clubs
were designed as smaller-scale Clubs with an extensive range of services. Both
Sports Clubs and Spectrum Clubs are marketed to affluent, health
conscious
individuals who desire a premier Club. In December 1999, the Company sold the
Spectrum Clubs to an investment group (See Note 3).

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.

Revenue Recognition

The Company receives initiation fees and monthly membership dues from its
members. Substantially all of the Companys members join on a month-to-month
basis and can therefore cancel their membership at any time. Initiation fees
and related direct expenses, primarily sales commissions, are deferred and
recognized, on a straight-line basis, over an estimated membership period of
between two and one half and three years. Dues that are received in advance
are recognized on a pro-rata basis over the periods in which services are to be
provided. Reserves are recorded against the receivables of the Companys
SportsMed subsidiary at the time the services are provided.

Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At December 31,
2000 and 2001, cash and cash equivalents were $11.1 million and $1.5 million,
respectively.

The Company considers cash, cash equivalents and other short-term
investments that are specifically designated for the development of new Clubs
as restricted cash. At December 31, 2000, the restricted cash balance was $7.0
million.



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Inventories

Inventories are stated at the lower of cost or market using the average
cost method. Inventories consist of retail merchandise, sold at our retail
stores and our spas, PTS products, uniforms and food and beverage supplies.

Depreciation and Amortization

Depreciation is computed primarily using the straight-line method over the
estimated useful lives of the assets, ranging from five to seven years for
equipment to forty years for buildings. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or the
estimated useful life of the improvements. Loan costs, including the debt
discount on the Senior Notes, are amortized over the terms of the related
loans. Through December 31, 2001, costs in excess of net assets of acquired
businesses were being amortized on a straight-line basis over forty years.
Statement of Financial Accounting Standards No. 142 requires that, effective
January 1, 2002, goodwill no longer be amortized to earnings, but instead be
reviewed for impairment on an annual basis.

Start-up Costs

The Company adopted Statement of Position 98-5, Accounting for Start-Up
Costs (SOP 98-5) effective January 1, 1999. SOP 98-5 provides that all
costs related to the development of new sports and fitness clubs, except for
real estate related costs, be expensed as incurred. This is a change from the
Companys previous accounting policy, whereby many of these costs were
capitalized and charged to expense upon the Club opening. As a result, the
Company recorded a one-time charge equal to the unamortized balance of all
capitalized start-up costs as of January 1, 1999. This charge was recorded as
a cumulative effect of a change in accounting principle net of the related
income tax effect. The amount of this charge before income taxes was
approximately $1.5 million.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

The Company reviews its long-lived assets and certain identifiable
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net undiscounted operating cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.

In June 1998, the Company acquired undeveloped land in Houston, Texas with
the intention of developing a Club on the site. In 2000, the Company decided
not to develop this site and to dispose of the property. An impairment loss of
$749,000 was recorded in December 2000 to reduce the carrying value of the
asset to its estimated fair value less costs to sell. The Company is still in
the process of disposing of this property and as of December 31, 2001, no
additional impairment charge was necessary.

In January 2002, the Company sold The Sports Club/Las Vegas to another
club operator (see Note 15  Subsequent Events). An impairment loss of
$3,243,000 was recorded in December 2001 to reduce the carrying value of The
Sports Club/LasVegas to its fair value less costs to sell. The fair value and
costs to sell The Sports Club/Las Vegas were based upon the actual fair value
received and selling costs incurred when the Club was sold.

In December 2001, the Company also recorded an impairment loss of
$2,007,000 related to its SportsMed subsidiary. The estimated fair value and
costs to sell SportsMed were based upon managements estimate.



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Income Taxes

The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be applied to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.

In the fourth quarter of 2001, the Company determined, based on year to
date operating results and projections for the next three years, that it is
more likely than not that future taxable income will be insufficient to utilize
its deferred tax assets. As a result of this determination,
the Company ceased recording any deferred tax benefit related to its taxable
loss incurred in 2001 and, in the fourth quarter of 2001, the Company recorded
a valuation allowance of $17,381,000 to offset its net deferred tax asset (see
Note 9  Income Taxes). The Company will continue to evaluate its projected
future taxable operating income and reconsider its current determination when
appropriate.

Earnings per Share

The Company presents Basic and Diluted earnings per share. Basic earnings
reflects the actual weighted average shares of common stock outstanding during
the period. Diluted earnings per share includes the effects of all dilutive
options, warrants and other securities and utilizes the treasury stock method.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions. These affect the
reporting of assets and liabilities, the disclosure of any contingent assets
and liabilities and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The carrying amounts related to cash equivalents, short-term investments,
accounts receivable, other current assets and accounts payable approximate fair
value due to the relatively short maturity of such instruments. The fair value
of long-term debt is estimated by discounting the future cash flows of each
instrument at rates currently available to the Company for similar debt
instruments of comparable maturities by the Companys bankers. The fair value
of long-term debt was estimated to be $90 million.

Segment Reporting

Management has
determined that the Company has one principal operating
segment, the operation of sports and fitness Clubs.

New Accounting Standards

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (SFAS 141), Business
Combinations,and Statement of Financial Accounting Standards No. 142 (SFAS
142), Goodwill and Other Intangible Assets.SFAS 141 requires that the
purchase method be used for all business combinations initiated after June 30,
2001. SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized to earnings, but instead be reviewed for
impairment in accordance with the provisions of SFAS 142. The amortization of
goodwill and intangible assets with indefinite useful lives ceases upon
adoption of SFAS 142 which is



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effective for fiscal years starting after December 15, 2001. The Company
expects the implementation of SFAS 142 will not have a material impact upon the
Companys financial position or results of operations.

In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of
Long-Lived Assets,which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. While SFAS 144 supersedes
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,it
retains many of the fundamental provisions of that statement. The standard is
effective for fiscal years beginning after December 15, 2001. The Company
expects that the adoption of SFAS 144 will not have a material impact on its
financial position or results of operations.

3. Dispositions

Spectrum Clubs Dispositions

In September of 1999, the Company completed the sale and leaseback of the
real estate at the Spectrum Club  Thousand Oaks for approximately $12.0
million. On December 3, 1999, the Company completed the sale of the Spectrum
Clubs, a group of ten sports and fitness clubs located in Southern California,
to an investment group for approximately $48.4 million. The Company recorded a
pre-tax gain of approximately $783,000 and an after tax gain of approximately
$470,000 ($0.03 per diluted share after tax) on the sale of the Spectrum Clubs.
The 1999 consolidated financial statements and accompanying notes reflect the
operating results of the Spectrum Clubs as a continuing operation. Pro-forma
consolidated operating results for the fiscal year ended December 31, 1999 are
presented below. The pro-forma statement presents the unaudited results of
operations as if the Spectrum Clubs had been sold at the beginning of 1999.



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|                                                                |                                                                                    |   |                                       |       | 
|--------------------------------------------------------------- | ---------------------------------------------------------------------------------- | - | ------------------------------------- | ----- | 
|                                                                |                                                                                    |   | Pro-Forma                            
|                                                                |                                                                                    |   | Year Ended                           
|                                                                |                                                                                    |   | December 31,                         
|                                                                |                                                                                    |   | 1999                                 
|                                                                |                                                                                    |   |                                      
|                                                                |                                                                                    |   | (in thousands, except per share data)
|Revenues                                                        |                                                                                    | $ | 62,229                                |      
|Operating expenses                                              |                                                                                    |   | 55,963                                |      
|                                                                |                                                                                    |   |                                       |      
|                                                                | Income from operations                                                             |   |                                       | 6,266 | 
|Other income (expense)                                          |                                                                                    |   | (2,314                                | )    
|                                                                |                                                                                    |   |                                       |      
|                                                                | Income before income taxes and cumulative effect
of change in accounting principle |   |                                       | 3,952 | 
|Income tax provision                                            |                                                                                    |   | 1,724                                 |      
|                                                                |                                                                                    |   |                                       |      
|                                                                | Income before cumulative effect of change
in accounting principle                  |   |                                       | 2,228 | 
|Cumulative effect of change in accounting principle,
net of tax |                                                                                    |   | 221                                   |      
|                                                                |                                                                                    |   |                                       |      
|Net income                                                      |                                                                                    | $ | 2,007                                 |      
|                                                                |                                                                                    |   |                                       |      
|Net income per share
Basic and Diluted                          |                                                                                    | $ | 0.11                                  |      
|                                                                |                                                                                    |   |                                       |      

On December 28, 2000, the Company completed the sale of the land and
building at the former Spectrum Club  Fountain Valley location for $3,700,000
in cash. In December 2000, the Company recorded a pre-tax loss of
approximately $1,017,000 related to the sale of the Fountain Valley property
(See Note 10).

4. Property and Equipment

Property and equipment is carried at cost, less accumulated depreciation
and amortization, which is summarized as follows:

|                                               |  |                 |         |      |  |   |         | 
|---------------------------------------------- |  | --------------- | ------- | ---- |  | - | ------- | 
|                                               |  | At December 31,
|                                               |  |                
|                                               |  | 2000            |         | 2001
|                                               |  |                 |         |     
|                                               |  | (in thousands) 
|Land                                           |  | $               | 16,082  |      |  | $ | 16,082  | 
|Building and improvements                      |  |                 | 146,911 |      |  |   | 145,735 | 
|Furniture, fixtures and equipment              |  |                 | 26,310  |      |  |   | 39,635  | 
|                                               |  |                 |         |      |  |   |         | 
|                                               |  |                 | 189,303 |      |  |   | 201,452 | 
|Less accumulated depreciation and amortization |  |                 | 19,376  |      |  |   | 30,559  | 
|                                               |  |                 |         |      |  |   |         | 
|Net property and equipment                     |  | $               | 169,927 |      |  | $ | 170,893 | 
|                                               |  |                 |         |      |  |   |         | 

Equipment secured by equipment financing loans was $11,341,000 and
$8,219,000 and related accumulated amortization was $3,677,000 and $2,196,000
at December 31, 2000 and 2001, respectively.



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5. Notes Payable and Capitalized Lease Obligations

Notes payable and capitalized lease obligations are summarized as follows:

|                                                       |  |                 |         |      |  |   |         | 
|------------------------------------------------------ |  | --------------- | ------- | ---- |  | - | ------- | 
|                                                       |  | At December 31,
|                                                       |  |                
|                                                       |  | 2000            |         | 2001
|                                                       |  |                 |         |     
|                                                       |  | (in thousands) 
|Senior secured notes (a)                               |  | $               | 100,000 |      |  | $ | 100,000 | 
|Equipment financing loans (b)                          |  |                 | 7,664   |      |  |   | 6,023   | 
|Other note payable (c)                                 |  |                 | 2,667   |      |  |   | 963     | 
|Bank credit facility (see Note 6-Bank Credit Facility) |  |                 |        |      |  |   | 8,505   | 
|                                                       |  |                 |         |      |  |   |         | 
|                                                       |  |                 | 110,331 |      |  |   | 115,491 | 
|Less current installments                              |  |                 | 4,742   |      |  |   | 11,449  | 
|                                                       |  |                 |         |      |  |   |         | 
|                                                       |  | $               | 105,589 |      |  | $ | 104,042 | 
|                                                       |  |                 |         |      |  |   |         | 

(a)  On April 1, 1999, the Company issued in a private placement $100.0 million
of 11 3/8% Senior Secured Notes due in March 2006 (the Senior Notes) with
interest due semi-annually. In May 1999, the Senior Notes were exchanged for
registered Series B Senior Secured Notes (the Senior Secured Notes).

The Senior Secured Notes are secured by substantially all assets, other
than certain excluded assets. In connection with the issuance of the Senior
Secured Notes, the Company entered into an indenture dated as of April 1, 1999
(the Indenture) which includes certain covenants that restrict the Companys ability, subject to certain exceptions, to: (i)
incur additional indebtedness; (ii) pay dividends or other distributions, or
repurchase capital stock or other equity interests or subordinated indebtedness
and (iii) make certain investments. The Indenture also limits the Companys
ability to: (i) enter into transactions with affiliates; (ii) create liens or
sell certain assets and (iii) enter into mergers and consolidations. Under
the terms of the Indenture, after March 15, 2003, the Company may, at its
option, redeem all or some of the Senior Secured Notes at a redemption price
that will decrease over time from 105.688% to 100% of their face amount, plus
interest. If the Company undergoes a change in control, as defined in the
Indenture, it must give holders of the Senior Secured Notes the opportunity to
sell their Senior Secured Notes to the Company at 101% of their face amount,
plus interest. At December 31, 2001, the estimated fair value of the Senior
Secured Notes was $90.0 million.

(b)  The equipment financing loans are secured by furniture, fixtures and
equipment. The amounts are generally repayable in monthly payments over four
or five years with effective interest rates between 8.5% and 10.5%.

(c)  This note was issued in connection with the acquisition of The Sports
Club/LA  Upper East Side. The note required two equal principal payments in
April 1999 and April 2000. The Company defaulted on this entire note believing
it had various claims against the seller relating to the repair and
refurbishing of the property, which offset the money owed on the note. The
Company and the seller settled this dispute in April 2001 and the Company
agreed to pay an aggregate of $2,350,000 with $600,000 paid in May 2001 and
$112,000 payable each month through June 2002 with a final payment of $294,000
due in July 2002.

Future minimum annual principal payments at December 31, 2001, are as
follows (in thousands):

|     |  |   |         | 
|---- |  | - | ------- | 
|2002 |  | $ | 11,449  | 
|2003 |  |   | 2,160   | 
|2004 |  |   | 1,784   | 
|2005 |  |   | 98      | 
|2006 |  |   | 100,000 | 
|     |  |   |         | 
|     |  | $ | 115,491 | 
|     |  |   |         | 



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6. Bank Credit Facility

At December 31, 2001, the Company had a $15.0 million bank credit facility
with Comerica Bank-California. The facility terminates on May 31, 2002, and
bears interest at a variable rate of LIBOR plus 21/4% or the Banks prime
rate (4 3/4% at December 31, 2001). At December 31, 2001, $8.5 million of
cash advances were outstanding under this credit facility and $6.2 million was
utilized in the form of letters of credit, leaving $300,000 available for
future borrowings. At December 31, 2001, the loans were secured by all the
assets of The Sports Club/Irvine and The Sports Club/Las Vegas and were
guaranteed by the Companys three major shareholders. The bank credit facility
also requires the Company to maintain certain Tangible Net Worth, Total
Liabilities to Tangible Net Worth and EBITDA covenants. At December 31, 2001,
the Company was not in compliance with some of these covenants. The Bank has
waived these defaults through May 31, 2002. The Company and the Bank are
in discussions regarding a renewal of the credit facility through May 31, 2003
with revised convenants.

7. Commitments and Contingencies

Lease Commitments

The Company leases certain facilities pursuant to various operating lease
agreements. Club facility leases are generally long-term and noncancelable
triple-net leases (requiring the Company to pay all real estate taxes,
insurance and maintenance expenses), and have an average remaining term of 48.5
years, including renewal options which are expected to be exercised, with the
earliest Sports Club lease expiration date of January 31, 2013. The Company is
also obligated under lease agreements for seven of its former Spectrum Club
locations. The Company has subleased each of these properties to the buyer of
these Clubs under sublease agreements which provide that all operating costs of
these facilities be assumed by the new owners. Future minimum noncancelable
operating lease payments as of December 31, 2001 are as follows (in thousands):

|                         |            |                              |   |             |         |         |   |             |        |        |   |         |         | 
|------------------------ | ---------- | ---------------------------- | - | ----------- | ------- | ------- | - | ----------- | ------ | ------ | - | ------- | ------- | 
|                         |            |                              |   |             |         |         |   |             |        |        |   | Net    
|                         |            |                              |   |             |         |         |   | Sublease    |        | Rental
|                         |            |                              |   | Commitments |         | Rentals |   | Commitments
|                         |            |                              |   |             |         |         |   |            
|Year ending December 31: |            |                              |   |             |         |         |   |             |        |        |   |        
|                         | 2002       |                              | $ | 27,764      |         |         | $ | 5,425       |        |        | $ | 22,339  |        
|                         | 2003       |                              |   | 28,318      |         |         |   | 5,498       |        |        |   | 22,820  |        
|                         | 2004       |                              |   | 28,540      |         |         |   | 5,712       |        |        |   | 22,828  |        
|                         | 2005       |                              |   | 28,260      |         |         |   | 5,917       |        |        |   | 22,343  |        
|                         | 2006       |                              |   | 28,298      |         |         |   | 5,917       |        |        |   | 22,381  |        
|                         | Thereafter |                              |   | 311,339     |         |         |   | 41,721      |        |        |   | 269,618 |        
|                         |            |                              |   |             |         |         |   |             |        |        |   |        
|                         |            | Total minimum lease payments |   | $           | 452,519 |         |   | $           | 70,190 |        |   | $       | 382,329 | 
|                         |            |                              |   |             |         |         |   |             |        |        |   |        

Rent expense for facilities and equipment aggregated $8,440,000,
$10,675,000 and $18,657,000 for the years ended December 31, 1999, 2000 and
2001, respectively.

Litigation

Garrick-Aug Associates Store Leasing, Inc. v. Hirschfeld Realty Club
Corporation, 328 E. 61 Corp., The Sports Club Company, Inc. and Elie
Hirschfeld, Index No. 601276/99 (New York Supreme Court, County of New York).
On March 15, 1999, Garrick-Aug Associates Store Leasing, Inc. (Plaintiff)
filed a Summons and Complaint (Original Complaint) commencing an action to
recover brokerage commissions in the Supreme Court of the State of New York,
against Hirschfeld Realty Club Corporation and 328 E. 61 Corp. Under the
Original Complaint, Plaintiff sought damages in excess of $3,625,000 for breach
of contract, declaratory relief, quantum meruit and unjust enrichment. On
February 1, 2000, Plaintiff filed and served an Amended Complaint containing
the same causes of action in the Original Complaint and adding additional
claims against the Company and Elie Hirschfeld. Under the Amended Complaint,
Plaintiff seeks damages from the Company in excess of $3,625,000 for tortious
interference



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with contract and conspiracy. On July 12, 2001, after a six-day bench trial,
the court granted the Company a directed verdict dismissing the Amended
Complaint with prejudice. To date, Plaintiff has not exercised or indicated a
willingness to exercise any post-trial or appellate remedies.

336 Spa Park Inc. v. Abraham Hirschfeld, Hirschfeld Realty Club Corp., 328
E. 61 Club Corp. and The Sports Club Company, Inc., Index No. 602609/00 (New
York Supreme Court, County of New York).On June 20, 2000, 336 Spa Park Inc.
(Plaintiff) filed a Summons and Complaint (Complaint) commencing an action
against the Company for tortious interference with a contract for the lease of
parking facilities entered into between Plaintiff and Hirschfeld Realty Club
Corp. and 328 E. 61 Club Corp. On January 2, 2001, Plaintiff filed and served
its Second Amended Complaint. Plaintiff is seeking damages against the Company
in an amount to be determined at trial, but not less than $100,000. The
Company intends to contest this action vigorously and discovery is now
proceeding. As a result, the Company is unable, at this time, to estimate the
likelihood that Plaintiff will prevail in this matter.

Other Matters. The Company is involved in various claims and lawsuits
incidental to its business, including claims arising from accidents. However,
in the opinion of management, the Company is adequately insured against such
claims and lawsuits involving personal injuries, and any ultimate liability
arising out of any such proceedings will not have a material adverse effect on
the Companys financial condition, cash flow or results of operations.

Employment Agreements

At December 31, 2001, the Company did not have any employment agreements
with any employees.

8. Income per Share

The following is a reconciliation of the basic and diluted income per
share computations for the years 1999, 2000 and 2001:

|                                                              |                                                      |   |                                       |        |      |   |         |        |   |   |         |        |  
|------------------------------------------------------------- | ---------------------------------------------------- | - | ------------------------------------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                              |                                                      |   | Year ended December 31,              
|                                                              |                                                      |   |                                      
|                                                              |                                                      |   | 1999                                  |        | 2000 |   | 2001   
|                                                              |                                                      |   |                                       |        |      |   |        
|                                                              |                                                      |   | (in thousands, except per share data)
|Net income (loss) used for basic and
diluted income per share |                                                      | $ | 1,310                                 |        |      | $ | (12,387 | )      |   | $ | (38,060 | )     
|                                                              |                                                      |   |                                       |        |      |   |         |        |   |   |         |       
|Shares of Common Stock and
Common Stock equivalents:          |                                                      |   |                                       |        |      |   |         |        |   |   |         |       
|                                                              | Weighted average shares used
in basic computation    |   |                                       | 18,114 |      |   |         | 17,773 |   |   |         | 17,939 |  
|                                                              | Weighted average stock options                       |   |                                       | 176    |      |   |         |       |   |   |         |       |  
|                                                              |                                                      |   |                                       |        |      |   |         |        |   |   |         |       
|                                                              | Weighted average shares used
in dilutive
computation |   |                                       | 18,290 |      |   |         | 17,773 |   |   |         | 17,939 |  
|                                                              |                                                      |   |                                       |        |      |   |         |        |   |   |         |       
|Income (loss) per share:                                      |                                                      |   |                                       |        |      |   |         |        |   |   |         |       
|                                                              | Basic and Diluted                                    |   | $                                     | 0.07   |      |   | $       | (0.70  | ) |   | $       | (2.12  | )
|                                                              |                                                      |   |                                       |        |      |   |         |        |   |   |         |       



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##### Table of Contents



9. Income Taxes

The provision for income taxes consists of the following:

|                                                                         |         |   |                         |       |      |   |        |        |   |   |       |       | 
|------------------------------------------------------------------------ | ------- | - | ----------------------- | ----- | ---- | - | ------ | ------ | - | - | ----- | ----- | 
|                                                                         |         |   | Year ended December 31,
|                                                                         |         |   |                        
|                                                                         |         |   | 1999                    |       | 2000 |   | 2001  
|                                                                         |         |   |                         |       |      |   |       
|                                                                         |         |   | (in thousands)         
|Current:                                                                 |         |   |                         |       |      |   |        |        |   |   |       |      
|                                                                         | Federal |   | $                       | 2,126 |      |   | $      | (1,701 | ) |   | $     | 89    | 
|                                                                         | State   |   |                         | 537   |      |   |        | 1,181  |   |   |       | 755   | 
|                                                                         |         |   |                         |       |      |   |        |        |   |   |       |      
|                                                                         |         |   | 2,663                   |       |      |   | (520   | )      |   |   | 844   |      
|                                                                         |         |   |                         |       |      |   |        |        |   |   |       |      
|Deferred:                                                                |         |   |                         |       |      |   |        |        |   |   |       |      
|                                                                         | Federal |   |                         | (923  | )    |   |        | (2,119 | ) |   |       | 1,788 | 
|                                                                         | State   |   |                         | (280  | )    |   |        | (4,301 | ) |   |       | 738   | 
|                                                                         |         |   |                         |       |      |   |        |        |   |   |       |      
|                                                                         |         |   | (1,203                  | )     |      |   | (6,420 | )      |   |   | 2,526 |      
|                                                                         |         |   |                         |       |      |   |        |        |   |   |       |      
|Income tax provision                                                     |         | $ | 1,460                   |       |      | $ | (6,940 | )      |   | $ | 3,370 |      
|                                                                         |         |   |                         |       |      |   |        |        |   |   |       |      
|Tax benefit from cumulative effect of change
in accounting principle:    |         |   |                         |       |      |   |        |        |   |   |       |      
|                                                                         | Federal |   | $                       | (510  | )    |   | $      |       |   |   | $     |      | 
|                                                                         | State   |   |                         | (90   | )    |   |        |       |   |   |       |      | 
|                                                                         |         |   |                         |       |      |   |        |        |   |   |       |      
|Total provision from cumulative effect of
change in accounting principle |         | $ | (600                    | )     |      | $ |       |        |   | $ |      |      
|                                                                         |         |   |                         |       |      |   |        |        |   |   |       |      

Income tax expense (benefit) as computed differs from the statutory rate
as applied to pre-tax net income (loss) as follows:

|                                           |                                      |   |                        |     |      |   |        |        |   |   |         |        |  
|------------------------------------------ | ------------------------------------ | - | ---------------------- | --- | ---- | - | ------ | ------ | - | - | ------- | ------ | -
|                                           |                                      |   | Year ended December 31
|                                           |                                      |   |                       
|                                           |                                      |   | 1999                   |     | 2000 |   | 2001  
|                                           |                                      |   |                        |     |      |   |       
|                                           |                                      |   | (in thousands)        
|Computed expected tax expense            |                                      | $ | 1,338                  |     |      | $ | (6,571 | )      |   | $ | (11,795 | )     
|Increase (decrease) in tax resulting from: |                                      |   |                        |     |      |   |        |        |   |   |         |       
|                                           | State taxes  net of federal benefit |   |                        | 110 |      |   |        | (1,202 | ) |   |         | (1,998 | )
|                                           | Meals and entertainment              |   |                        | 24  |      |   |        | 65     |   |   |         | 63     |  
|                                           | Goodwill amortization                |   |                        | (52 | )    |   |        |       |   |   |         |       |  
|                                           | Change in valuation allowance        |   |                        |    |      |   |        |       |   |   |         | 17,381 |  
|                                           | Other                                |   |                        | 40  |      |   |        | 768    |   |   |         | (281   | )
|                                           |                                      |   |                        |     |      |   |        |        |   |   |         |       
|Income tax provision                       |                                      | $ | 1,460                  |     |      | $ | (6,940 | )      |   | $ | 3,370   |       
|                                           |                                      |   |                        |     |      |   |        |        |   |   |         |       



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##### Table of Contents



The effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are presented as follows.

|                          |                               |                                |       |                 |        |      |         |        |        |   | 
|------------------------- | ----------------------------- | ------------------------------ | ----- | --------------- | ------ | ---- | ------- | ------ | ------ | - | 
|                          |                               |                                |       | At December 31,
|                          |                               |                                |       |                
|                          |                               |                                |       | 2000            |        | 2001
|                          |                               |                                |       |                 |        |     
|                          |                               |                                |       | (in thousands) 
|Deferred tax assets:      |                               |                                |       |                 |        |      |         |       
|                          | Deferred initiation fees      |                                | $     | 1,899           |        |      | $       | 2,153  |       
|                          | Operating loss carry forwards |                                |       | 6,860           |        |      |         | 17,664 |       
|                          | Accrued vacation              |                                |       | 207             |        |      |         | 223    |       
|                          | Bad debt                      |                                |       | 139             |        |      |         | 121    |       
|                          | State taxes                   |                                |       | 551             |        |      |         | 624    |       
|                          | Other                         |                                |       |                |        |      |         | 669    |       
|                          |                               |                                |       |                 |        |      |         |       
|                          |                               | Gross deferred tax assets      |       |                 | 9,656  |      |         |        | 21,454 |  
|                          |                               |                                |       |                 |        |      |         |       
|Deferred tax liabilities: |                               |                                |       |                 |        |      |         |       
|                          | Depreciation and amortization |                                |       | (4,225          | )      |      |         | (4,073 | )     
|                          | Other                         |                                |       | (2,905          | )      |      |         |       |       
|                          |                               |                                |       |                 |        |      |         |       
|                          |                               | Gross deferred tax liabilities |       |                 | (7,130 | )    |         |        | (4,073 | )
|                          |                               |                                |       |                 |        |      |         |       
|Net deferred tax asset    |                               |                                | 2,526 |                 |        |      | 17,381  |       
|Valuation allowance       |                               |                                |      |                 |        |      | (17,381 | )     
|                          |                               |                                |       |                 |        |      |         |       
|Net deferred tax asset    |                               | $                              | 2,526 |                 |        | $    |        |       
|                          |                               |                                |       |                 |        |      |         |       

In the fourth quarter of 2001, management of the Company determined, based
on year to date operating results and projections for the next three years that
it is more likely than not that future taxable income will be insufficient to
utilize its deferred tax assets. As a result of this
determination, the Company ceased recording any deferred tax benefit related to
its taxable losses and, in the fourth quarter of 2001, the Company recorded a
valuation allowance of $17,381,000 to offset the Companys net deferred tax
assets.

In March 2002, changes in existing tax laws resulted in a tax benefit of
approximately $900,000. The tax benefit arises from the Companys ability to
carryback net operating losses incurred during 2001, to the 1995, 1996 and 1997
tax years in which the Company had taxable income. This benefit will be
recorded in the first quarter of 2002 consistent with the provisions of
Statement of Financial Accounting Standards Board No. 109, Accounting for
Income Taxes.

As of December 31, 2001, the Company had federal and state net operating
loss carryforwards of $36,844,000 and $61,885,000 respectively, beginning
expiration in 2020 and 2005, respectively.

10. Non-Recurring Items

The Company recorded the following income (expense) as non-recurring items
in each of the years in the three-year period ended December 31, 2001:

|                                                         |  |                          |     |      |  |      |        |   |  |   |     | 
|-------------------------------------------------------- |  | ------------------------ | --- | ---- |  | ---- | ------ | - |  | - | --- | 
|                                                         |  | Year
ending December 31,
|                                                         |  |                         
|                                                         |  | 1999                     |     | 2000 |  | 2001
|                                                         |  |                          |     |      |  |     
|                                                         |  | (in thousands)          
|Class action litigation settlement                       |  | $                        |    |      |  | $    | (1,476 | ) |  | $ |    | 
|Loss on sale of Fountain Valley real estate (See Note 3) |  |                          |    |      |  |      | (1,017 | ) |  |   |    | 
|Impairment of Houston real estate (See Note 2)           |  |                          |    |      |  |      | (749   | ) |  |   |    | 
|Gain on sale or disposition of Spectrum Clubs            |  |                          | 553 |      |  |      |       |   |  |   |    | 
|Interest reversal on Note settlement                     |  |                          |    |      |  |      |       |   |  |   | 397 | 
|                                                         |  |                          |     |      |  |      |        |   |  |   |     | 
|                                                         |  | $                        | 553 |      |  | $    | (3,242 | ) |  | $ | 397 | 
|                                                         |  |                          |     |      |  |      |        |   |  |   |     | 



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##### Table of Contents



11. Stock Plans

Accounting for Stock Plans

The Company has elected to account for stock options granted to employees
and directors under the provisions of APB No. 25, using the intrinsic value
method. Entities electing to continue using the accounting prescribed by APB
Opinion No. 25 must make pro forma disclosures of net income and income per
share, as if the fair value based method of accounting defined in SFAS 123 had
been applied.

The Company has an employee stock option plan, which is described below.
In accordance with APB No. 25, no compensation cost has been recognized as the
fair value of the Companys stock was equal to the exercise price of the
options at the date of grant. Had compensation cost for the Companys plan
been determined consistent with SFAS 123, the Companys net income/(loss) and
income/(loss) per share would have been reduced to the pro-forma amounts
indicated below:

|                               |             |  |                                       |       |      |  |      |         |   |  |   |         |  
|------------------------------ | ----------- |  | ------------------------------------- | ----- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                               |             |  | Year ended December 31               
|                               |             |  |                                      
|                               |             |  | 1999                                  |       | 2000 |  | 2001
|                               |             |  |                                       |       |      |  |     
|                               |             |  | (in thousands, except per share data)
|Net income/(loss):             |             |  |                                       |       |      |  |      |         |   |  |   |        
|                               | As reported |  | $                                     | 1,310 |      |  | $    | (12,387 | ) |  | $ | (38,060 | )
|                               | Pro forma   |  | $                                     | 632   |      |  | $    | (13,435 | ) |  | $ | (39,600 | )
|Basic income/(loss) per share: |             |  |                                       |       |      |  |      |         |   |  |   |        
|                               | As reported |  | $                                     | .07   |      |  | $    | (0.70   | ) |  | $ | (2.12   | )
|                               | Pro forma   |  | $                                     | .03   |      |  | $    | (0.76   | ) |  | $ | (2.21   | )

The fair value of all option grants for the Companys plan are estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for all option grants in 1999, 2000
and 2001 respectively: dividend yield of 0%, 0% and 0%; expected volatility of
100.1%, 111.6% and 118.9%; risk-free interest rates of 6.25%, 6.25% and 4.48%
and expected economic lives of 6.0 years, 6.0 years and 6.0 years.

Stock Incentive Plans

Initially 1,800,000 shares of Common Stock were reserved under the
Companys Amended and Restated 1994 Stock Incentive Plan, which authorized the
issuance of various stock incentives to directors, officers, employees and
consultants including options, stock appreciation rights and purchase rights.
On December 31, 2000, the 1994 Stock Incentive Plan expired and in May 2001, it
was replaced by the 2001 Stock Incentive Plan. The 2001 Stock Incentive Plan
reserves 2.5 million shares of Common Stock, expires in May 2011 and also
authorizes stock appreciation rights and purchase rights.

Options allow for the purchase of Common Stock at prices determined by the
Companys Compensation Committee. Incentive stock options must be granted at a
price equal to or greater than the fair value of a share of Common Stock on the
date the option is granted. Non-statutory options must have an exercise price
equal to at least 85% of the fair value of the Companys Common Stock at the
date of grant. Options granted under the Plans may, at the election of the
Compensation Committee, become exercisable in installments. Except for the
options granted to D. Michael Talla, Co-Chief Executive Officer, which expire
on the fifth anniversary of the grant date, all options expire on the tenth
anniversary of the grant date.



F-16



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##### Table of Contents



A summary of the status of the Companys stock option plans as of December
31, 1999, 2000 and 2001 and changes during the years then ended are presented
below:

|                                                                                             |  |        |           |       |  |          |      | 
|-------------------------------------------------------------------------------------------- |  | ------ | --------- | ----- |  | -------- | ---- | 
|                                                                                             |  |        |           |       |  | Weighted
|                                                                                             |  |        |           |       |  | Average 
|                                                                                             |  |        |           |       |  | Exercise
|                                                                                             |  | Shares |           | Price
|                                                                                             |  |        |           |      
|Outstanding at January 1, 1999                                                               |  |        | 972,498   |       |  | $        | 5.25 | 
|Granted                                                                                      |  |        | 210,000   |       |  |          | 3.94 | 
|Canceled                                                                                     |  |        | 10,000    |       |  |          | 5.59 | 
|Exercised                                                                                    |  |        | 2,666     |       |  |          | 2.70 | 
|                                                                                             |  |        |           |      
|Outstanding at December 31, 1999                                                             |  |        | 1,169,832 |       |  |          | 5.01 | 
|                                                                                             |  |        |           |      
|Options excercisable at December 31, 1999                                                    |  |        | 683,166   |       |  |          | 4.32 | 
|                                                                                             |  |        |           |      
|Weighted-average per share fair value of options
granted during year ended December 31, 1999 |  |        |           |       |  |          | 3.22 | 
|Outstanding at January 1, 2000                                                               |  |        | 1,169,832 |       |  |          | 5.01 | 
|Granted                                                                                      |  |        | 744,499   |       |  |          | 6.50 | 
|Canceled                                                                                     |  |        | 355,499   |       |  |          | 6.67 | 
|Exercised                                                                                    |  |        | 25,000    |       |  |          | 2.96 | 
|                                                                                             |  |        |           |      
|Outstanding at December 31, 2000                                                             |  |        | 1,533,832 |       |  |          | 5.94 | 
|                                                                                             |  |        |           |      
|Options excercisable at December 31, 2000                                                    |  |        | 559,675   |       |  |          | 5.36 | 
|                                                                                             |  |        |           |      
|Weighted-average per share fair value of options
granted during year ended December 31, 2000 |  |        |           |       |  |          | 4.25 | 
|Outstanding at January 1, 2001                                                               |  |        | 1,533,832 |       |  |          | 5.94 | 
|Granted                                                                                      |  |        | 411,915   |       |  |          | 3.09 | 
|Canceled                                                                                     |  |        | 93,472    |       |  |          | 2.23 | 
|Exercised                                                                                    |  |        | 2,000     |       |  |          | 2.56 | 
|                                                                                             |  |        |           |      
|Outstanding at December 31, 2001                                                             |  |        | 1,850,275 |       |  |          | 5.37 | 
|                                                                                             |  |        |           |      
|Options excercisable at December 31, 2001                                                    |  |        | 915,284   |       |  |          | 5.83 | 
|                                                                                             |  |        |           |      
|Weighted-average per share fair value of options
granted during year ended December 31, 2001 |  |        |           |       |  |          | 3.09 | 

The following table summarizes information about stock options outstanding
at December 31, 2001:

|         |  |             |           |              |  |             |      |  |  |  |         | 
|-------- |  | ----------- | --------- | ------------ |  | ----------- | ---- |  |  |  | ------- | 
|         |  |             |           |              |  | Weighted    |      |  |  | 
|         |  |             |           |              |  | Average     |      |  |  | 
|         |  |             |           |              |  | Remaining   |      |  |  | 
|Exercise |  | Number      |           | Contractual  |  | Options    
|Prices   |  | Outstanding |           | Life (Years) |  | Exercisable
|         |  |             |           |              |  |            
|$2.5625  |  |             | 29,333    |              |  |             | 4.41 |  |  |  | 29,333  | 
|2.6875   |  |             | 70,000    |              |  |             | 4.11 |  |  |  | 70,000  | 
|2.7500   |  |             | 31,000    |              |  |             | 4.84 |  |  |  | 31,000  | 
|3.0100   |  |             | 294,089   |              |  |             | 9.39 |  |  |  |        | 
|3.3110   |  |             | 115,000   |              |  |             | 4.39 |  |  |  |        | 
|3.9375   |  |             | 210,000   |              |  |             | 7.10 |  |  |  | 140,000 | 
|4.2500   |  |             | 233,853   |              |  |             | 8.85 |  |  |  | 77,951  | 
|4.3750   |  |             | 60,000    |              |  |             | 5.22 |  |  |  | 60,000  | 
|5.2500   |  |             | 45,000    |              |  |             | 3.24 |  |  |  | 45,000  | 
|5.3750   |  |             | 39,000    |              |  |             | 5.50 |  |  |  | 39,000  | 
|8.0000   |  |             | 223,000   |              |  |             | 6.29 |  |  |  | 223,000 | 
|8.0000   |  |             | 450,000   |              |  |             | 8.11 |  |  |  | 150,000 | 
|8.2500   |  |             | 28,000    |              |  |             | 1.32 |  |  |  | 28,000  | 
|8.3750   |  |             | 22,000    |              |  |             | 5.85 |  |  |  | 22,000  | 
|         |  |             |           |              |  |             |      |  |  |  |         | 
|         |  |             | 1,850,275 |              |  |             |      |  |  |  | 915,284 | 
|         |  |             |           |              |  |             |      |  |  |  |         | 



F-17



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##### Table of Contents



Stock appreciation rights (SARs) may be granted in combination with
options or on a stand-alone basis. SARs permit the holder to receive shares of
stock, cash or a combination of shares and cash based upon by the difference
between the option price and the fair value of the Common Stock on the date of
exercise. Upon exercise of a SAR granted in combination with an option, the
related option is canceled. At December 31, 2001, no SARs had been granted.

Rights to purchase shares of Common Stock to be offered for direct sale
under the Plan must be at a purchase price equal to not less than 85% of the
fair value of the shares on the day preceding the date of grant. Purchase
rights are generally exercisable for a period of thirty days following the date
of grant. At December 31, 2001, no purchase rights had been granted.

1994 Stock Compensation Plan

In July 1994, the Company instituted its 1994 Stock Compensation Plan
(which was later amended) for the purpose of compensating outside
directors by issuing them shares of the Companys Common Stock as part of their
directors fees. A total of 50,000 shares are reserved for issuance pursuant to
this plan. A total of 36,000 shares have been issued to outside directors under
the plan. During the years ended December 31, 1999, 2000 and 2001, the Company
issued 8,000, 6,000 and 6,000 shares of Common Stock as director compensation
for aggregates consideration of $35,000, $20,000 and $16,000, respectively.

12. Related Party Transactions

Until December 3, 1999, the Company managed the operation of its
unconsolidated subsidiary, the Spectrum Club  Manhattan Beach, of which it
owned a 46.1% interest. The Company received a fee of $33,322 per month plus
4.5% of the Clubs gross revenues for managing this Club. The Company also
manages the operations of the Reebok Sports Club/NY and receives a fee of
approximately 5.87% of the gross monthly collections, as defined. Management
fees of $1.4 million, $1.5 million and $1.4 million relating to Reebok Sports
Club/NY were earned for the years ended December 31, 1999, 2000 and 2001.
These amounts are eliminated from income and expense in the presentation of the
Companys consolidated statement of operations.

Millennium is a significant shareholder of the Company and has jointly
developed Clubs with the Company. A representative of Millennium sits on the
Companys Board of Directors. The Reebok Sports Club/NY pays rent to
Millennium in the amount of $2.0 million per year and the partnership agreement
provides for a first priority annual distribution of $3.0 million to
Millennium. The Company pays rent to Millennium for The Sports Club/LA -
Washington D.C., The Sports Club/LA  Boston and The Sports Club/LA  San
Francisco and in 2000 and 2001 a total of $500,000 and $4.8 million,
respectively, was paid to Millennium for rent on these three Clubs. All such
payments are reflected as rent expense in the Companys consolidated statement
of operations.

The Company has a
50.1% interest in the partnership that owns The Sports Club/LA in Los
Angeles and Mr. Talla beneficially owns the remaining 49.9%. The
partnership agreement provides that, on an annual basis, the partners
will share in the first $300,000 of the Clubs net cash flow in
proportion to their percentage interests. The next $35.0 million
of net cash flow will be distributed to the Company. All
distributions of net cash flow thereafter, if any, will be made to
the partners in proportion to their percentage interests. Under
certain circumstances, the Company has an option to purchase Mr.
Tallas interest in the partnership for an amount equal to four
times the amount of his most recent annual distribution from the
partnership.

13. Concentration of Credit Risk

The Company markets its products principally to customers in Southern
California, New York City, Washington D.C., Boston, San Francisco and Las
Vegas. Management performs regular evaluations concerning the ability of its
customers to satisfy their obligations and records a provision for doubtful
accounts based upon these evaluations. The Companys credit losses for the
periods presented are insignificant and have not exceeded managements
estimates.



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##### Table of Contents



14. Quarterly Summary of Information (Unaudited)

Summarized unaudited condensed quarterly financial data is as follows:

|                          |          |                |          |        |         |  |              |        |             |  |   |        |   |  |   |         |  
|------------------------- | -------- | -------------- | -------- | ------ | ------- |  | ------------ | ------ | ----------- |  | - | ------ | - |  | - | ------- | -
|                          |          |                | 2001    
|                          |          |                |         
|                          |          |                | March 31 |        | June 30 |  | September 30 |        | December 31
|                          |          |                |          |        |         |  |              |        |            
|                          |          | (in thousands)
|Net loss from operations: |          |               
|                          | Revenues |                | $        | 23,546 |         |  | $            | 25,076 |             |  | $ | 24,041 |   |  | $ | 29,381  |  
|                          |          |                |          |        |         |  |              |        |             |  |   |        |   |  |   |        
|                          | Net loss |                | $        | (4,642 | )       |  | $            | (3,849 | )           |  | $ | (4,683 | ) |  | $ | (24,886 | )
|                          |          |                |          |        |         |  |              |        |             |  |   |        |   |  |   |        
|Net loss per share:       |          |                |          |        |         |  |              |        |             |  |   |        |   |  |   |        
|                          | Basic    |                | $        | (0.26  | )       |  | $            | (0.21  | )           |  | $ | (0.26  | ) |  | $ | (1.39   | )
|                          |          |                |          |        |         |  |              |        |             |  |   |        |   |  |   |        
|                          | Diluted  |                | $        | (0.26  | )       |  | $            | (0.21  | )           |  | $ | (0.26  | ) |  | $ | (1.39   | )
|                          |          |                |          |        |         |  |              |        |             |  |   |        |   |  |   |        

|                            |          |  |                |        |        |  |             |        |            |  |   |        |   |  |   |        |  
|--------------------------- | -------- |  | -------------- | ------ | ------ |  | ----------- | ------ | ---------- |  | - | ------ | - |  | - | ------ | -
|                            |          |  | 2000          
|                            |          |  |               
|                            |          |  | March31        |        | June30 |  | September30 |        | December31
|                            |          |  |                |        |        |  |             |        |           
|                            |          |  | (in thousands)
|Net income from operations: |          |  |                |        |        |  |             |        |            |  |   |        |   |  |   |       
|                            | Revenues |  | $              | 16,847 |        |  | $           | 18,279 |            |  | $ | 18,596 |   |  | $ | 23,147 |  
|                            |          |  |                |        |        |  |             |        |            |  |   |        |   |  |   |       
|                            | Net loss |  | $              | (2,176 | )      |  | $           | (1,583 | )          |  | $ | (2,214 | ) |  | $ | (6,414 | )
|                            |          |  |                |        |        |  |             |        |            |  |   |        |   |  |   |       
|Net loss per share:         |          |  |                |        |        |  |             |        |            |  |   |        |   |  |   |       
|                            | Basic    |  | $              | (0.12  | )      |  | $           | (0.09  | )          |  | $ | (0.12  | ) |  | $ | (0.36  | )
|                            |          |  |                |        |        |  |             |        |            |  |   |        |   |  |   |       
|                            | Diluted  |  | $              | (0.12  | )      |  | $           | (0.09  | )          |  | $ | (0.12  | ) |  | $ | (0.36  | )
|                            |          |  |                |        |        |  |             |        |            |  |   |        |   |  |   |       

In the fourth quarter of 2001, the Company recorded the following
significant adjustments:



| |  |  | An impairment loss of $3,243,000 related to the disposal of The
Sports Club/Las Vegas in January 2002.
| | - |  | ------------------------------------------------------------------------------------------------------
|
| |  |  | An impairment loss of $2,007,000 to write-down the goodwill of the
Companys SportsMed subsidiary.    
|
| |  |  | A valuation allowance on the net deferred tax assets of
$17,381,000.                                  

15. Subsequent Events

On January 31, 2002, the Company sold The Sports Club/Las Vegas to another
club operator for $6,575,000. After costs and expenses of sale, the Company
received net proceeds of $6,158,000. The Company recorded an impairment loss,
related to the sale of The Sports Club/Las Vegas, of $3,243,000 in December
2001 (see Note 2  Summary of Significant Accounting Policies).



F-19



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##### Table of Contents



On March 18, 2002, the Company completed a $10.5 million Preferred Stock
Issuance. The Company received $10.0 million in cash and issued 10,500 shares
Series B Preferred Stock at a price of $1,000 per share. The following terms
and conditions apply to the Preferred Stock Issuance:



| |  |  | The holders of each share of Series B Preferred shall have the
right to one vote for each share of Common Stock into which such Series
B Preferred could then be converted.                                                              
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Dividends will accrue at the annual rate of $90.00 per share. Such
dividends are cumulative but shall not accrue interest.                                                                                                               
|
| |  |  | At the Companys option, dividends may be paid by the issuance of
additional shares of Series B Preferred Stock.                                                                                                                         
|
| |  |  | The Preferred shares may, at the option of the holder, be converted
into shares of Common Stock at the rate of $3.00 per Common Share.
(3,500,000 total Common Shares if 100% converted).                                                
|
| |  |  | The Company may redeem the Preferred Shares by paying in cash the
total sum of $10.5 million together with all accrued but unpaid
dividends.                                                                                             
|
| |  |  | In the event the Series B Preferred Stock is redeemed before March
18, 2005, the holders shall receive a warrant to purchase shares of
Common Stock at a price of $3.00 per share exercisable before March 18,
2007.                     
|
| |  |  | In the event of liquidation, the Series B Preferred holders shall
be entitled to receive, prior and in preference to any distribution to
common shareholders, an amount equal to $1,000 for each share of
outstanding Series B Preferred.
|
| |  |  | The Conversion Price shall be adjusted in the event the Company
issues additional shares of Common Stock at a rate below $3.00 per
share, subject to certain exceptions.                                                                 
|
| |  |  | The Company has the obligation to redeem any outstanding Series B
Preferred Shares on March 18, 2009 at a price of $1,000 per share.                                                                                                     



F-20



---



##### Table of Contents



THE SPORTS CLUB COMPANY, INC.
VALUATION AND QUALIFYING ACCOUNTS
Three-year period ended December 31, 2001
(in thousands)

|                                |  |            |         |           |  |           |         |               |  |   |           |            |  |   |         | 
|------------------------------- |  | ---------- | ------- | --------- |  | --------- | ------- | ------------- |  | - | --------- | ---------- |  | - | ------- | 
|                                |  | Balance at |         |           |  |           |         |               |  |   |           |            |  |  
|                                |  | beginning  |         |           |  |           |         |               |  |   |           | Balance at
|Description                     |  | of period  |         | Additions |  | Deletions |         | end of period
|                                |  |            |         |           |  |           |         |              
|Year ended December 31, 1999:   |  |            |         |           |  |           |         |               |  |   |           |            |  |   |         | 
|Allowance for doubtful accounts |  | $          | 215,000 |           |  | $         | 934,000 |               |  | $ | 807,000   |            |  | $ | 342,000 | 
|                                |  |            |         |           |  |           |         |               |  |   |           |            |  |   |         | 
|Year ended December 31, 2000:   |  |            |         |           |  |           |         |               |  |   |           |            |  |   |         | 
|Allowance for doubtful accounts |  | $          | 342,000 |           |  | $         | 985,000 |               |  | $ | 656,000   |            |  | $ | 671,000 | 
|                                |  |            |         |           |  |           |         |               |  |   |           |            |  |   |         | 
|Year ended December 31, 2001:   |  |            |         |           |  |           |         |               |  |   |           |            |  |   |         | 
|Allowance for doubtful accounts |  | $          | 671,000 |           |  | $         | 782,000 |               |  | $ | 1,135,000 |            |  | $ | 318,000 | 
|                                |  |            |         |           |  |           |         |               |  |   |           |            |  |   |         | 



F-21



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##### Table of Contents






PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers and directors and their ages as of March 1,
2002
are as follows:

|                        |  |     |    |          |  |                                                          
|----------------------- |  | --- | -- | -------- |  | ---------------------------------------------------------
|Name                    |  | Age |    | Position
|                        |  |     |    |         
|D. Michael Talla        |  |     | 55 |          |  | Chairman of the Board
and Co-Chief Executive Officer     
|                       
|                       
|                       
|                       
|Rex A. Licklider        |  |     | 58 |          |  | Vice Chairman of the Board and Co-Chief Executive
Officer
|                       
|                       
|                       
|                       
|Nanette Pattee
Francini |  |     | 53 |          |  | Executive Vice
President and Director                    
|                       
|                       
|                       
|                       
|Timothy M.
OBrien      |  |     | 50 |          |  | Chief Financial Officer
and Assistant Secretary          
|                       
|                       
|                       
|                       
|Philip J. Swain         |  |     | 44 |          |  | Sr. Vice President of
Operations                         
|                       
|                       
|                       
|                       
|Mark S. Spino           |  |     | 47 |          |  | Sr. Vice President of
Development                        
|                       
|                       
|                       
|                       
|Brian J. Collins        |  |     | 41 |          |  | Director                                                 
|                       
|                       
|                       
|                       
|Andrew L. Turner        |  |     | 55 |          |  | Director                                                 
|                       
|                       
|                       
|                       
|Dennison T. Veru        |  |     | 41 |          |  | Director                                                 

The following information summarizes the business experience during at
least the past five years of each of our executive officers and directors.

D. Michael Tallabegan developing sports and fitness clubs
in 1977. He has
served as Chairman of the Board since our inception in 1994 and served until
July 1999 as our Chief Executive Officer. Mr. Talla assumed the position of
Co-Chief Executive Officer with Mr. Licklider in February 2000. Mr. Talla holds
a Bachelor of Arts Degree in Business Administration from the University of
Arizona.

Rex A. Lickliderhas served as Vice Chairman of the Board since
1994 and
was appointed Co-Chief Executive Officer in February 2000. Previously, Mr.
Licklider had been a consultant to us for strategic and financial planning. He
founded Com Systems, Inc., a publicly-traded long-distance telecommunications
company, and at various times between 1975 and April 1992 served as its
Chairman, President and Chief Executive Officer. Mr. Licklider is a founder and
director of Pentium Investments, Inc. and a director of The Learning Network,
Inc. and Deckers Outdoor Corporation. He also serves on the Board of Directors
of The Childrens Bureau of Southern California, Los Angeles Youth Programs,
Inc., The Achievable Foundation and Marymount High School in Los Angeles,
California. Mr. Licklider holds a Bachelor of Arts Degree in Business
Administration from the University of Arizona and a Masters in Business
Administration from the University of California at Los Angeles.

Nanette Pattee Francinibegan developing sports and fitness clubs
in 1977
and has served as our Executive Vice President and has been principally
responsible for overseeing all marketing activities since our inception in
1994. She has been one of our directors since 1994. Ms. Pattee Francini holds a
Bachelor of Arts Degree from the University of Arizona.

Timothy M. OBrienwas appointed as our Chief Financial
Officer in
February 1995 and since June 1995 has also served as Assistant Secretary. Mr.
OBrien has a Bachelor of Business Administration degree from the University of
Wisconsin-Madison and is a Certified Public Accountant.

Philip J. Swainwas appointed Senior Vice President of Operations
in
February 2000, having served as Vice President of Operations since our
inception in 1994.

Mark S. Spinowas appointed Senior Vice President of Development
in
February 2000, having served as our Vice President of Development since our
inception in 1994. Mr. Spino holds a Bachelor of Arts and a Master of Arts
degree in physical education from the University of Southern California.

Brian J. Collinshas been one of our Directors since 1997. From
December
1996 to May 1999, Mr. Collins served as Vice President and Chief Financial
Officer of Millennium Partners Management



23



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##### Table of Contents



LLC, an affiliate of Millennium Entertainment Partners L.P., which is a
real estate developer of mixed-use urban entertainment projects. In June 1997
he became a principal of Millennium Partners Management LLC and in June 1999
was named Chief Operating Officer. From March 1993 to November 1996, Mr.
Collins was Senior Vice President at Carol Management Corp., an owner and
operator of real estate and hotel properties. Mr. Collins holds a Bachelor of
Arts Degree from Colgate University and a Masters of Science in Accounting from
New York Universitys Graduate School of Business. For so long as Millennium
maintains at least a 12% interest in our equity securities, we and certain of
our stockholders have agreed with Millennium to cause a nominee of Millennium
to be appointed or elected to our Board of Directors. Mr. Collins is currently
serving as Millenniums nominee pursuant to this agreement. See Certain
Relationships and Related Transactions.

Andrew L. Turnerhas been a Director since 1994. He currently
serves as
Chairman of the Board for both Ballantrae Healthcare and Enduracare
Rehabilitation Services. He also serves on the Board of Directors of Watson
Pharmaceuticals, Inc., a publicly traded pharmaceutical manufacturing company.
From 1989 until August 2000, Mr. Turner served as Chairman of the Board and
Chief Executive Officer of Sun Healthcare Group, Inc., a publicly traded health
care services provider. In October 1999, Sun Healthcare Group, Inc. filed
voluntary petitions with the U.S. Bankruptcy Court to reorganize under Chapter
11.

Dennison T. Veruhas been a Director since 1996. In March 2000,
Mr. Veru
became Executive Vice President of Palisade Capital Management, LLC. From
November 1992 until December 1999, he served as President and Director of
Research at Awad & Associates, a money management division of Raymond James
Financial. He is a graduate of Franklin and Marshall College.

Directors who are not our employees receive an annual retainer fee of
$12,000, a fee of $1,000 for each Board and committee meeting attended and
reimbursement of expenses of attending Board and committee meetings. They also
receive an annual award of 2,000 shares of our Common Stock pursuant to our
Amended and Restated 1994 Stock Compensation Plan.

Our directors are divided into three classes having terms expiring at
the
annual stockholders meetings in 2002 (Ms. Francini and Mr. Veru), 2003 (Messrs.
Talla and Licklider) and 2004 (Messrs. Turner and Collins), or such later dates
as their successors are elected. At each annual meeting of stockholders,
successors to the class of directors whose term expires at such meeting will be
elected to serve for three-year terms and until their successors are elected.

Officers serve at the pleasure of the Board of Directors.

The Board of Directors has created an Audit Committee and a Compensation
Committee. The Audit Committee, composed of Messrs. Collins, Turner and Veru,
is charged with reviewing our annual audit and meeting with our independent
auditors and reviewing our internal controls and financial management
practices. The Compensation Committee, also composed of Messrs. Collins,
Turner and Veru, recommends to the Board of Directors compensation for key
employees and administers our Stock Incentive Plans.

Certain Transactions

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires
our officers and directors and persons who own more than ten percent of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and to furnish
us with copies of such reports. Based on our review of the copies of those
reports and written representations which we have received, we believe that all
such filings required to be made during calendar 2001 have been made.



24



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##### Table of Contents






ITEM 11. EXECUTIVE COMPENSATION

The table below shows, for the last three fiscal years, the amount of
compensation earned by the Co-Chief Executive Officers and the next four most
highly-compensated executive officers (the Named Executive Officers). The
current salaries of such executive officers are described below under
Employment Agreements.

|                        |                                |      |      |           |  |          |                     |                |            |        |              |        |  |  |              |         |  |  |        |        | 
|----------------------- | ------------------------------ | ---- | ---- | --------- |  | -------- | ------------------- | -------------- | ---------- | ------ | ------------ | ------ |  |  | ------------ | ------- |  |  | ------ | ------ | 
|                        |                                |      |      |           |  |          |                     |                |            |        |              |        |  |  | Long-Term    |         |  |  |       
|                        |                                |      |      |           |  |          |                     |                |            |        |              |        |  |  | Compensation |         |  |  |       
|                        |                                |      |      |           |  |          | Annual Compensation |                | Shares     |        | All Other   
|                        |                                |      |      |           |  |          |                     |                | Underlying |        | Compensation
|Name & Position         |                                | Year |      | Salary($) |  | Bonus($) |                     | Options Awards |            | ($)(a)
|                        |                                |      |      |           |  |          |                     |                |            |       
|D. Michael Talla        |                                |      | 2001 |           |  |          | 240,000             | (b)            |            |        |             |        |  |  | 115,000      |         |  |  | 17,979 |       
|                        | Co-Chief Executive Officer     |      |      | 2000      |  |          |                     | 243,875        | (b)        |        |              | 70,000 |  |  |              | 250,000 |  |  |        | 14,245 | 
|                        | and Chairman of the Board      |      |      | 1999      |  |          |                     | 243,000        | (b)        |        |              | 60,000 |  |  |              |        |  |  |        | 3,168  | 
|Rex A. Licklider        |                                |      | 2001 |           |  |          | 240,000             |                |            |        |             |        |  |  | 115,000      |         |  |  | 14,613 |       
|                        | Co-Chief Executive
Officer and |      |      | 2000      |  |          |                     | 156,050        |            |        |              |       |  |  |              |        |  |  |        | 10,879 | 
|                        | Vice Chairman of the Board     |      |      | 1999      |  |          |                     |               |            |        |              |       |  |  |              |        |  |  |        |       | 
|Nanette Pattee
Francini |                                |      | 2001 |           |  |          | 200,000             |                |            |        |             |        |  |  | 21,733       |         |  |  | 12,195 |       
|                        | Executive Vice President       |      |      | 2000      |  |          |                     | 198,325        |            |        |              | 60,000 |  |  |              | 78,267  |  |  |        | 9,617  | 
|                        | and Director                   |      |      | 1999      |  |          |                     | 159,993        |            |        |              | 45,000 |  |  |              | 50,000  |  |  |        | 1,980  | 
|Mark S. Spino           |                                |      | 2001 |           |  |          | 200,000             |                |            |        |             |        |  |  | 21,733       |         |  |  | 17,913 |       
|                        | Senior Vice President of       |      |      | 2000      |  |          |                     | 197,916        |            |        |              | 60,000 |  |  |              | 78,267  |  |  |        | 14,145 | 
|                        | Development                    |      |      | 1999      |  |          |                     | 150,000        |            |        |              | 45,000 |  |  |              | 50,000  |  |  |        | 3,168  | 
|Philip J. Swain         |                                |      | 2001 |           |  |          | 200,000             |                |            |        |             |        |  |  | 21,733       |         |  |  | 16,923 |       
|                        | Senior Vice President of       |      |      | 2000      |  |          |                     | 198,325        |            |        |              | 60,000 |  |  |              | 78,267  |  |  |        | 12,704 | 
|                        | Operations                     |      |      | 1999      |  |          |                     | 160,000        |            |        |              | 45,000 |  |  |              | 50,000  |  |  |        | 1,980  | 
|Timothy M.
OBrien      |                                |      | 2001 |           |  |          | 200,000             |                |            |        |             |        |  |  | 21,733       |         |  |  | 17,913 |       
|                        | Chief Financial Officer        |      |      | 2000      |  |          |                     | 197,916        |            |        |              | 60,000 |  |  |              | 78,267  |  |  |        | 4,716  | 
|                        | and Assistant Secretary        |      |      | 1999      |  |          |                     | 150,000        |            |        |              | 45,000 |  |  |              | 50,000  |  |  |        | 3,168  | 



---

|(a) |  | Represents value of (i) amounts paid by us on behalf of the Named
Executive Officer and dependents for medical insurance and (ii) our Common
Stock contributed for the benefit of the Named Executive Officer under the
401K Profit Sharing Plan, based upon the December 31 closing market price
each year of our Common Stock, on the American Stock Exchange.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | Mr. Talla also receives, on an annual basis, 49.9% of the first $300,000
of The Sports Club/LA-Los Angeles net cash flow. This amount is not
included in Mr. Tallas compensation. See Certain Relationships and
Related Transactions.                                                                                                                       

Option Grants, Exercises and Year-End Values

The following table describes option grants to the Named Executive
Officers during the last fiscal year.

|                        |  |               |         |           |  |          |       |            |  |       |      |                |  |                        |           |                       |  |  |         |  |  |  |         | 
|----------------------- |  | ------------- | ------- | --------- |  | -------- | ----- | ---------- |  | ----- | ---- | -------------- |  | ---------------------- | --------- | --------------------- |  |  | ------- |  |  |  | ------- | 
|                        |  |               |         |           |  | % of     |       |            |  |       |      |                |  |                        |           | Potential Realizable 
|                        |  |               |         |           |  | Total    |       |            |  |       |      |                |  |                        |           | Value at Assumed     
|                        |  |               |         |           |  | Options  |       |            |  |       |      |                |  |                        |           | Annual Rates of Stock
|                        |  | Shares        |         | Granted   |  |          |       |            |  |       |      |                |  | Price Appreciation for
|                        |  | Underlying    |         | To        |  | Exercise |       |            |  |       |      | Option Term(b)
|                        |  | Options       |         | Employees |  | Price    |       | Expiration |  |      
|Name                    |  | Granted(#)(a) |         | for 2001  |  | ($/Sh)   |       | Date       |  | 5%($) |      | 10%($)        
|                        |  |               |         |           |  |          |       |            |  |       |      |               
|D. Michael Talla        |  |               | 115,000 |           |  |          | 27.92 |            |  |       | 3.31 |                |  |                        | 5/20/2006 |                       |  |  | 61,019  |  |  |  | 176,709 | 
|Rex A. Licklider        |  |               | 115,000 |           |  |          | 27.92 |            |  |       | 3.01 |                |  |                        | 5/20/2011 |                       |  |  | 217,695 |  |  |  | 551,678 | 
|Nanette Pattee Francini |  |               | 21,733  |           |  |          | 5.28  |            |  |       | 3.01 |                |  |                        | 5/20/2011 |                       |  |  | 41,141  |  |  |  | 104,258 | 
|Mark S. Spino           |  |               | 21,733  |           |  |          | 5.28  |            |  |       | 3.01 |                |  |                        | 5/20/2011 |                       |  |  | 41,141  |  |  |  | 104,258 | 
|Philip J. Swain         |  |               | 21,733  |           |  |          | 5.28  |            |  |       | 3.01 |                |  |                        | 5/20/2011 |                       |  |  | 41,141  |  |  |  | 104,258 | 
|Timothy M. OBrien      |  |               | 21,733  |           |  |          | 5.28  |            |  |       | 3.01 |                |  |                        | 5/20/2011 |                       |  |  | 41,141  |  |  |  | 104,258 | 



25



---



##### Table of Contents





---

|(a) |  | All grants are incentive stock options granted under the terms of our
2001 Stock Incentive Plan, at an exercise price equal to or greater than
the fair market value of our Common Stock on the date of grant. All of
these options vest in 33-1/3% increments on the first three anniversaries
of the date of grant and, with the exception of D. Michael Talla whose
options expire 5 years from date of grant, all of these options expire 10
years from the date of grant.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | The dollar amounts listed are the result of calculations at the 5% and
10% annual rates of stock appreciation prescribed by the SEC and are not
intended to forecast possible future appreciation, if any, of our Common
Stock. If our Common Stock does not appreciate, the Named Executive
Officers will receive no benefit from the options.                                                                                                                               

Unexercised Stock Options and Fiscal Year-End Option Values

None of the Named Executive Officers exercised stock options during the
last fiscal year. The following table provides information with respect to
unexercised stock options outstanding as of December 31, 2001.

|                        |  |                               |         |                               |  |             |         |               |  |  |       |  |  |  |   | 
|----------------------- |  | ----------------------------- | ------- | ----------------------------- |  | ----------- | ------- | ------------- |  |  | ----- |  |  |  | - | 
|                        |  | Number of Shares Underlying   |         | Value of In-the-Money        
|                        |  | Unexercised Options at Fiscal |         | Unexercised Options at Fiscal
|                        |  | Year-End(a)                   |         | Year-End(b)                  
|                        |  |                               |         |                              
|                        |  | Exercisable                   |         | Unexercisable                 |  | Exercisable |         | Unexercisable
|Name                    |  | (#)                           |         | (#)                           |  | ($)         |         | ($)          
|                        |  |                               |         |                               |  |             |         |              
|D. Michael Talla        |  |                               | 113,334 |                               |  |             | 281,666 |               |  |  |      |  |  |  |  | 
|Rex A. Licklider        |  |                               |        |                               |  |             | 115,000 |               |  |  |      |  |  |  |  | 
|Nanette Pattee Francini |  |                               | 119,424 |                               |  |             | 90,578  |               |  |  | 1,688 |  |  |  |  | 
|Mark S. Spino           |  |                               | 119,424 |                               |  |             | 90,578  |               |  |  | 1,688 |  |  |  |  | 
|Philip J. Swain         |  |                               | 129,424 |                               |  |             | 90,578  |               |  |  | 2,813 |  |  |  |  | 
|Timothy M. OBrien      |  |                               | 194,424 |                               |  |             | 90,578  |               |  |  | 4,188 |  |  |  |  | 



---

|(a) |  | All options were granted pursuant to one of our two Stock Incentive
Plans.                                                                                                                                                                                                                
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | The in-the-money options had exercise prices of less than $2.80, the
closing price of our Common Stock on the American Stock Exchange on
December 31, 2001. The calculations of value assume a fair market value
of our Common Stock on December 31, 2001 at the price of $2.80 per share.

Employment Agreements

The Company has no written employment agreements. Currently, our
executive officers receive the following salaries:

|                        |  |                            |  |   |         | 
|----------------------- |  | -------------------------- |  | - | ------- | 
|D. Michael Talla        |  | Co-Chief Executive Officer |  | $ | 200,000 | 
|Rex A. Licklider        |  | Co-Chief Executive Officer |  |   | 200,000 | 
|Nanette Pattee
Francini |  | Executive Vice President   |  |   | 160,000 | 
|Mark S. Spino           |  | Senior Vice President      |  |   | 160,000 | 
|Philip J. Swain         |  | Senior Vice President      |  |   | 160,000 | 
|Timothy M.
OBrien      |  | Chief Financial Officer    |  |   | 160,000 | 

Compensation of Directors

Directors fees, paid only to directors who are not employees of
the Company, are as follows:



| |  |  | Annual retainer fee of $12,000,                                          
| | - |  | -------------------------------------------------------------------------
|
| |  |  | $1,000 for each Board and committee meeting attended,                    
|
| |  |  | Reimbursement of expenses for attending Board and committee meetings, and



26



---



##### Table of Contents





| |  |  | Automatic annual award of 2,000 shares of our Common Stock
granted under the Amended and Restated 1994 Stock Compensation Plan
each November 15th.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------

Messrs. Collins, Turner and Veru currently serve on the Board as
non-employee directors. Because of his position as an executive with
Millennium, Mr. Collins waived receipt of his directors fees in 2001. Until
assuming the position of Co-Chief Executive Officer, Mr. Licklider also
received amounts due to non-employee directors. All directors receive
reimbursement of reasonable out-of-pocket expenses incurred in connection with
meetings of the Board. Following are the amounts paid to all directors for
each of the last three years:

|     |  |        |        | 
|---- |  | ------ | ------ | 
|Year |  | Amount
|     |  |       
|1999 |  | $      | 69,240 | 
|2000 |  |        | 71,500 | 
|2001 |  |        | 56,863 | 

Under the Amended and Restated 1994 Stock Compensation Plan an aggregate
of 36,000 shares of Common Stock was issued to non-employee directors through
December 31, 2001.

Compensation of Committee Interlocks and Insider Participation

The Compensation Committee of the Board (the Committee)
administers
executive compensation. Mr. Turner has been a member of the Committee since
September 13, 1994, and became its Chairman on February 27, 1995. Mr. Veru was
appointed to the Committee of February 20, 1996, and Mr. Collins was appointed
on April 10, 1998. None of these individuals has ever been an officer or
employee.






|ITEM 12. | SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | ----------------------------------------------------------------

The following table shows the shares of our Common Stock beneficially
owned as of March 29, 2002 by our directors and Named Executive Officers. It
also shows other individuals or entities that beneficially owned more than 5%
of our Common Stock.

|                                                            |  |             |           |                   |  |                 |           |                   |  |         |        |                      |  |  |           |  |  |  |       |  
|----------------------------------------------------------- |  | ----------- | --------- | ----------------- |  | --------------- | --------- | ----------------- |  | ------- | ------ | -------------------- |  |  | --------- |  |  |  | ----- | -
|                                                            |  |             |           |                   |  | Shares Issuable |           |                   |  |         |        |                      |  |  |           |  |  | 
|                                                            |  |             |           |                   |  | upon Conversion |           |                   |  |         |        |                      |  |  |           |  |  | 
|                                                            |  |             |           |                   |  | of Preferred    |           |                   |  |         |        | Total and Percent of
|                                                            |  | Shares      |           | Stock or exercise |  | Shares Held     |           | Stock Outstanding
|Name and Address                                            |  | Owned       |           | of options        |  | Under           |           |                  
|of Beneficial Owner(a)                                      |  | Directly(b) |           | within 60
days(c) |  | 401-K Plan d)   |           | Number            |  | Percent
|                                                            |  |             |           |                   |  |                 |           |                   |  |        
|D. Michael Talla (f)                                        |  |             | 5,092,299 |                   |  |                 | 235,001   |                   |  |         | 4,360  |                      |  |  | 5,331,660 |  |  |  | 29.09 | %
|Nanette Pattee Francini (f)                                 |  |             | 256,107   |                   |  |                 | 160,002   |                   |  |         | 2,132  |                      |  |  | 418,241   |  |  |  | 29.09 | %
|Mark S. Spino (f)                                           |  |             | 227,969   |                   |  |                 | 160,002   |                   |  |         | 3,863  |                      |  |  | 391,834   |  |  |  | 29.09 | %
|Philip J. Swain (f)                                         |  |             | 134,164   |                   |  |                 | 170,002   |                   |  |         | 2,642  |                      |  |  | 306,808   |  |  |  | 29.09 | %
|Voting Trust (f)                                            |  |             | 5,710,539 |                   |  |                 | 725,007   |                   |  |         | 12,997 |                      |  |  | 6,448,543 |  |  |  | 29.09 | %
|Timothy OBrien                                             |  |             | 3,000     |                   |  |                 | 190,002   |                   |  |         | 4,273  |                      |  |  | 197,275   |  |  |  | 1.08  | %
|The Licklider Living Trust
Dated May 2, 1986                |  |             | 1,802,346 |                   |  |                 | 38,334    |                   |  |         |       |                      |  |  | 1,840,680 |  |  |  | 10.15 | %
|Andrew L. Turner                                            |  |             | 4,000     |                   |  |                 |          |                   |  |         |       |                      |  |  | 2,000     |  |  |  | *     |  
|Dennison T. Veru                                            |  |             | 29,000    |                   |  |                 |          |                   |  |         |       |                      |  |  | 29,000    |  |  |  | *     |  
|Brian J. Collins                                            |  |             | 55,601    |                   |  |                 |          |                   |  |         |       |                      |  |  | 55,601    |  |  |  | *     |  
|All Directors and Executive Officers as a
Group (9 persons) |  |             | 7,604,486 |                   |  |                 | 953,343   |                   |  |         | 17,270 |                      |  |  | 8,575,099 |  |  |  | 45.02 | %
|Millennium (g)                                              |  |             | 5,370,491 |                   |  |                 |          |                   |  |         |       |                      |  |  | 5,370,491 |  |  |  | 29.68 | %
|Kayne Anderson Capital Advisors, L.P.
(e)                   |  |             | 793,628   |                   |  |                 | 3,500,000 |                   |  |         |       |                      |  |  | 4,293,628 |  |  |  | 19.88 | %



---

|*   |  | Less than 1%                                                                                                                                                    
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(a) |  | The address of all directors and executive officers is c/o The Sports
Club Company, Inc., at 11100 Santa Monica Blvd., Suite 300, Los Angeles,
California 90025.



27



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##### Table of Contents



|(b) |  | Includes shares for which the named person is considered the owner because:                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|    |  | 1. the named person has sole voting and investment power,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|   
|   
|   
|    |  | 2. the named persons spouse has voting and investment power, or                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|   
|   
|   
|    |  | 3. the shares are held by other members of the named persons
immediate family.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|   
|   
|   
|(c) |  | Includes shares that can be acquired upon conversion of Preferred Stock
and shares that can be acquired through stock option exercises through May
28, 2002.                                                                                                                                                                                                                                                                                                                                                                                 
|   
|   
|   
|   
|(d) |  | Includes issued pursuant to our 401(k) Profit Sharing Plans
discretionary match as of March 29, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|   
|   
|   
|(e) |  | Effective March 18, 2002, the Company completed a private placement of a
newly created class of Preferred Stock to Kayne Anderson Capital Advisors,
L.P. and several of their affiliates. The new class of Series B Preferred
Stock carries voting rights and is convertible into 3,500,000 shares of
the Companys Common Stock. Kayne Anderson is deemed to be the beneficial
owner of the shares subject to conversion. Kayne Anderson Capital
Advisors, L.P. is located at 1800 Avenue of the Stars, Second Floor, Los
Angeles, CA 90067.

| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | The Kayne Anderson Capital Advisors, L.P. shares issuable upon
conversion
of Preferred Stock are held by the following affiliates:

|                                      |  |             |           | 
|------------------------------------- |  | ----------- | --------- | 
|                                      |  | Shares Held
|                                      |  |            
|Kayne Anderson Capital Advisors,
L.P. |  |             | 2,958,334 | 
|Ric Kayne                             |  |             | 333,333   | 
|Charles Norris                        |  |             | 166,667   | 
|Howard Zelikow                        |  |             | 33,333    | 
|David Shladovsky                      |  |             | 8,333     | 
|                                      |  |             |           | 
|                                      |  |             | 3,500,000 | 



|(f) |  | Named persons share voting power pursuant to a voting agreement that
requires each party to vote his or her shares in the manner determined by
a majority of all holders. The agreement is effective until October 20,
2004, or until terminated by persons holding 66 2/3% of the shares of our
Common Stock subject to the agreement. Each of the parties to the voting
agreement effectively controls the voting of all shares held by the
parties to the agreement, and, under SEC rules, are deemed beneficial
owners of the shares subject to the agreement. The total number of shares
of our Common Stock held by the parties without giving effect to
beneficial ownership resulting from the voting agreement is:
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |                                 |          |  |           |  |              |         |           |           | 
|----------------------- | ------------------------------- | -------- |  | --------- |  | ------------ | ------- | --------- | --------- | 
|                        |                                 |          |  | Shares    |  |             
|                        |                                 |          |  | Held      |  | Total
Shares
|Named Person            |                                 | Directly |  | Held     
|                        |                                 |          |  |          
|D. Michael Talla:       |                                 |          |  |           |  |              |         |          
|                        | Individually                    |          |  | 4,921,318 |  |              |         |           |          
|                        | Spouse                          |          |  | 30,953    |  |              |         |           |          
|                        | Trusts for two minor
children   |          |  | 140,028   |  |              |         |           |          
|                        |                                 |          |  |           |  |              |         |          
|                        |                                 | Total    |  |           |  |              |         |           | 5,092,299 | 
|Nanette Pattee
Francini |                                 |          |  |           |  |              | 256,107 |          
|Mark S. Spino           |                                 |          |  |           |  |              | 227,969 |          
|Philip J. Swain         |                                 |          |  |           |  |              | 134,164 |          
|                        |                                 |          |  |           |  |              |         |          
|                        | All Parties to Voting
Agreement |          |  |           |  |              |         | 5,710,539 |          



---

|(g) |  | The Millennium shares are held by the following affiliates:
|--- |  | -----------------------------------------------------------

|                                       |  |             |           | 
|-------------------------------------- |  | ----------- | --------- | 
|                                       |  | Shares Held
|                                       |  |            
|Millennium Partners LLC                |  |             | 2,253,863 | 
|Millennium Development Partners
L.P.   |  |             | 978,900   | 
|MDP Ventures I LLC                     |  |             | 72,100    | 
|MDP Ventures II LLC                    |  |             | 1,440,628 | 
|Millennium Entertainment Partners
L.P. |  |             | 625,000   | 
|                                       |  |             |           | 
|                                       |  |             | 5,370,491 | 



| |  | The address of all such entities is c/o Millennium Partners
Management LLC, 1995 Broadway, New York, New York, 10023.
| |  | ---------------------------------------------------------------------------------------------------------------------



28



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##### Table of Contents






ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

From time to time we have entered into transactions with our officers,
directors and stockholders. We believe that each of the following transactions
has been on terms no less favorable to us than could have been obtained from
unaffiliated third parties. All transactions between us and any of our
directors or officers are subject to the approval of the disinterested
directors.

Messrs. Talla and Licklider.We have a 50.1% interest in the
partnership
that owns The Sports Club/LA in Los Angeles and Mr. Talla beneficially owns the
remaining 49.9%. The partnership agreement provides that, on an annual basis,
the partners will share in the first $300,000 of the Clubs net cash flow in
proportion to their percentage interests. The next $35.0 million of net cash
flow will be distributed to us. All distributions of net cash flow thereafter,
if any, will be made to the partners in proportion to their percentage
interests. Under certain circumstances, we have an option to purchase Mr.
Tallas interest in the partnership for an amount equal to four times the
amount of his most recent annual distribution from the partnership.

In September 1999, we sold the property on which the Spectrum Club -
Thousand Oaks is located for a sales price of $12.0 million. We entered into a
sale and leaseback agreement for the property under a long-term lease with an
initial annual base rent of $1.3 million. The Thousand Oaks property consists
of the Spectrum Club  Thousand Oaks, a SportsMed facility, unimproved office
space, and a parking ramp. We are currently subleasing the Spectrum Club space
to another club operator. Mr. Licklider owns an approximate 4.6% interest in
the purchaser of the property, and trusts for the benefit of Mr. Tallas minor
children own an approximately 5.2% interest in the purchaser of the property.

As of May 4, 2001, we entered into a sublease for space located at
333
East 60th Street in New York City. Such space is located within the premises
including The Sports Club/LA  Upper East Side. The sublease provides for two
five-year renewal options, an initial monthly rent of $125,000, and rental
increases of 10% at the end of each five-year period. The subtenant for this
lease is Club at 60th Street, Inc., a New York corporation. The president and
owner of this corporation is currently an employee of a corporation controlled
by Mr. Talla. Mr. Talla has also disclosed to us the possibility that he might
acquire an equity interest in Club at 60th Street, Inc.

Millennium.Millennium is a partner in the Reebok-Sports Club/NY
partnership as well as the landlord of the building in which Reebok Sports
Club/NY is located. Reebok-Sports Club/NY partnership pays rent to Millennium
in the amount of $2.0 million per year, and the partnership agreement provides
for a first priority annual distribution of $3.0 million to Millennium. We are
entitled to certain additional priority distributions and 60% of the remaining
cash flow. Millenniums partnership interest entitles them to 20% of such
remaining cash flow.

In June 1997, we issued to Millennium 2,105,263 shares of our Common
Stock
in exchange for $10.0 million. In December 1997, we sold 625,000 shares of
Common Stock to Millennium for $5.0 million. We also granted to Millennium
certain registration and preemptive rights regarding its shares. In addition,
for so long as Millennium maintains at least a 12% interest in our equity
securities, we and certain of our stockholders have agreed to cause a nominee
of Millennium to be appointed or elected to the Board of Directors. Pursuant
to this agreement Brian J. Collins, an officer of Millennium, is currently
serving as a member of our Board of Directors.

We have entered into leases with Millennium relating to The Sports
Club/LA
- San Francisco, The Sports Club/LA  Washington, D.C. and The Sports Club/LA -
Boston. On March 27, 2001, the leases were amended with Millenniums landlord
contribution increasing by $16.5 million in exchange for additional rent
payments. In addition, after we receive a management fee equal to 6% of all
revenues, an amount equal to our investment in the Club and a 10%  11% annual
return on the investment, Millennium is entitled to receive a percentage of all
additional cash flows from each Club as additional rent. Millenniums
percentage of the excess cash flow, as defined, previously was 20% for each of
theses Clubs.



29



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##### Table of Contents



Under the amended lease agreements, their percentage increases to 25%
for
the Washington and Boston Clubs and 60% for the San Francisco Club.

In consideration of executing a guaranty in favor of Comerica Bank

California (the Bank) in connection with the Banks renewal of our $15
million credit facility (the Credit Facility), Rex A. Licklider, D. Michael
Talla and MDP Ventures II, LLC, an affiliate of Millennium, entered into
agreements with us as of July 3, 2001, pursuant to which we are obligated to
pay an annual commitment fee to each of the guarantors. At our discretion the
2001 fee was paid in restricted shares of Common Stock with each guarantor
receiving 15,384 shares. In addition to the commitment fee we are also
obligated to pay each guarantor a usage fee equal to 2% of such guarantors pro
rata portion of outstanding letters of credit and amounts advanced to us under
the Credit Facility. Such usage fee may be paid at our discretion in stock,
cash or a combination thereof. It is anticipated that we will renew the Credit
Facility and that the Bank will continue to require personal guarantees. We
may be obligated to pay additional fees to compensate the guarantors.

We are also currently negotiating to secure additional equipment
financing. If these loans require personal guarantees of the guarantors, it is
contemplated that we will compensate the guarantors.



30



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##### Table of Contents






PART IV






|ITEM 14. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
|-------- | ----------------------------------------------------------------



|(a) | (1) |  | Financial Statements filed as part of this Report are listed in Item 8
of this Report.                                                                                                        
|--- | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | (2) |  | No financial schedules have been included because they are
not applicable, not required or because required information is
included in the consolidated financial statements or notes thereto.
|   
|    | (3) |  | The following exhibits are filed as part of this Report.                                                                                                                                      

|        |  |                                                                                                                                                       |  |                           |  |          |  |             |  |         
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------- |  | ----------- |  | --------
|        |  |                                                                                                                                                       |  | Incorporated by Reference |  |         
|Exhibit |  |                                                                                                                                                       |  |                           |  | Filed   
|Number  |  | Exhibit Description                                                                                                                                   |  | Form                      |  | File No. |  | Filing Date |  | Herewith
|        |  |                                                                                                                                                       |  |                           |  |          |  |             |  |         
|3.1     |  | Restated Certificate of
Incorporation of the
Registrant.                                                                                              |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|3.2     |  | Bylaws of the Registrant                                                                                                                              |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|3.3     |  | Amendment to Bylaws
dated February 1, 1995.                                                                                                           |  | 10-K/A                    |  | 1-13290  |  | 10/14/97    |  |         
|       
|3.4     |  | Certificate of
Designation of Series B
Convertible Preferred
Stock of the Registrant                                                                  |  | 8-K                       |  | 1-13290  |  | 03/26/02    |  |         
|       
|4.1     |  | Specimen Common Stock
Certificate.                                                                                                                    |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|4.2     |  | Rights Agreement by and
between the Registrant
and American Stock
Transfer & Trust dated
as of October 6, 1998.                                       |  | 8-K                       |  | 1-13290  |  | 10/06/98    |  |         
|       
|4.3     |  | First Amendment to
Rights Agreement by and
between the Registrant
and American Stock
Transfer & Trust entered
into as of February 18,
1999.           |  | 8-K                       |  | 1-13290  |  | 03/15/99    |  |         
|       
|4.4     |  | Indenture by and among
Registrant, U.S. Bank
Trust National
Association and the
Subsidiary Guarantors
referred to therein,
dated as of April 1,
1999. |  | 8-K                       |  | 1-13290  |  | 04/14/99    |  |         
|       
|4.5     |  | Registration Rights
Agreement by and among
the Registrant, Jeffries
& Company, Inc. and CIBC
Oppenheimer Corp., dated
as of April 1, 1999.            |  | 8-K                       |  | 1-13290  |  | 04/14/99    |  |         
|       
|4.6     |  | Purchase Agreement by
and among the
Registrant, Jeffries &
Company, Inc. and CIBC
Oppenheimer Corp., dated
March 29, 1999.                            |  | 8-K                       |  | 1-13290  |  | 04/14/99    |  |         



31



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##### Table of Contents



|        |  |                                                                                                                                 |  |                           |  |          |  |             |  |         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------- |  | ----------- |  | --------
|        |  |                                                                                                                                 |  | Incorporated by Reference |  |         
|Exhibit |  |                                                                                                                                 |  |                           |  | Filed   
|Number  |  | Exhibit Description                                                                                                             |  | Form                      |  | File No. |  | Filing Date |  | Herewith
|        |  |                                                                                                                                 |  |                           |  |          |  |             |  |         
|4.7     |  | Second Amendment to Rights
Agreement entered into as of the
second day of July 1999.                                            |  | 10-K                      |  | 1-13290  |  | 03/28/00    |  |         
|       
|4.8     |  | Third Amendment to Rights
Agreement made and entered into
as of April 27, 2000.                                                 |  | 10-K                      |  | 1-13290  |  | 03/30/01    |  |         
|       
|4.9     |  | Fourth Amendment to Rights
Agreement entered into as of
June 27, 2001 between Registrant
and American Stock Transfer &
Company. |  | 8-K                       |  | 1-13290  |  | 07/17/01    |  |         
|       
|9.1     |  | Voting Agreement among D.
Michael Talla, Nanette Pattee
Francini, Mark S. Spino, Peter
Feinstein, Philip J. Swain and
FP II.    |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.1    |  | 1994 Stock Incentive Plan. #                                                                                                    |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.2    |  | Form of Stock Option Agreement. #                                                                                               |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.3    |  | Form of Stock Purchase
Agreement. #                                                                                             |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.4    |  | 1994 Stock Compensation Plan. #                                                                                                 |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.5    |  | Form of Indemnification
Agreement between the Registrant
and its directors and certain
officers.                                |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.6    |  | Indemnification Agreement
between the Registrant and D.
Michael Talla.                                                          |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.7    |  | Indemnification Agreement
between Registrant and Rex A.
Licklider.                                                              |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.8    |  | Employment Agreement between
Registrant and D. Michael Talla.
#                                                                 |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.9    |  | Employment Agreement between the
Registrant and Nanette Pattee
Francini. #                                                      |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.10   |  | Lease of premises for Reebok
Sports Club/NY located at 160
Columbus Avenue, New York 10023
dated June 3, 1992.                  |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         



32



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                        |  |                           |  |          |  |             |  |         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- |  | -------- |  | ----------- |  | --------
|        |  |                                                                                                                                                                                                                                                        |  | Incorporated by Reference |  |         
|Exhibit |  |                                                                                                                                                                                                                                                        |  |                           |  | Filed   
|Number  |  | Exhibit Description                                                                                                                                                                                                                                    |  | Form                      |  | File No. |  | Filing Date |  | Herewith
|        |  |                                                                                                                                                                                                                                                        |  |                           |  |          |  |             |  |         
|10.11   |  | Restated Agreement
of Limited
Partnership of El
Segundo-TDC, Ltd.,
as amended.                                                                                                                                                                         |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.12   |  | Management Agreement
effective as of June
3, 1992, between
R-SC/NY, Ltd. and
Pontius Realty, Inc.                                                                                                                                                      |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.13   |  | License Agreement
between Reebok
Fitness Centers,
Inc. and R-SC/NY,
Ltd. dated June 3,
1992.                                                                                                                                                           |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.14   |  | Letter Agreement
regarding R-SC/NY
dated June 3, 1992.                                                                                                                                                                                                 |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.15   |  | Memorandum of
Agreement between
Reebok Fitness
Centers, Inc. and
the Company dated as
of June 3, 1992.                                                                                                                                                 |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.16   |  | Seventh Amendment
and Restated
Agreement of Limited
Partnership of
L.A./Irvine Sports
Club, Ltd., a
California Limited
Partnership, dated
as of October 12,
1994.                                                                                      |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.17   |  | First Amendment to
Seventh Amended and
Restated Agreement
of Limited
Partnership of
L.A./Irvine Sports
Club, Ltd., a
California Limited
Partnership, dated
as of October 12,
1994.                                                                     |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.18   |  | Form of Option
Agreement by and
between D. Michael
Talla, an
individual, TTO
Partners, a
California Limited
Partnership, and
Sports Club, Ltd., a
California
Corporation,
relating to
L.A./Irvine Sports
Club, Ltd., a
California Limited
Partnership. |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.19   |  | Amended and Restated
Agreement of Limited
Partnership of TTO
Partners, a
California Limited
Partnership, dated
June 30, 1992, as
amended January 1,
1993, January 4,
1993 and February
12, 1994 and as
assigned January 1,
1993.                       |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.20   |  | First Amended and
Restated Agreement
of Limited
Partnership of
Reebok-Sports
Club/NY, Ltd. Dated
as of October 12,
1994.                                                                                                                               |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         



33



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##### Table of Contents



|        |  |                                                                                                                                                                                                |  |                           |  |          |  |             |  |         
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------- |  | ----------- |  | --------
|        |  |                                                                                                                                                                                                |  | Incorporated by Reference |  |         
|Exhibit |  |                                                                                                                                                                                                |  |                           |  | Filed   
|Number  |  | Exhibit Description                                                                                                                                                                            |  | Form                      |  | File No. |  | Filing Date |  | Herewith
|        |  |                                                                                                                                                                                                |  |                           |  |          |  |             |  |         
|10.21   |  | Letter Agreement by
and between Reebok
Fitness Centers,
Inc. and the Company
dated October 12,
1994.                                                                                           |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.22   |  | Amendment to First
Amended and Restated
Agreement of Limited
Partnership of
Reebok-Sports
Club/NY, Ltd. dated
as of October 12,
1994.                                                          |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.23   |  | Letter Agreement by
and between Reebok
Fitness Centers,
Inc. and the
Company, which
became effective on
October 29, 1994.                                                                      |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.24   |  | License Agreement by
and between Reebok
Fitness Centers,
Inc. and the
Company, which
became effective on
October 20, 1994.                                                                     |  | S-1                       |  | 33-79552 |  | 10/13/94    |  |         
|       
|10.25   |  | Agreement by and
among Reebok-Sports
Club/NY Ltd., Talla
New York, Inc., RFC,
Inc., LMP Health
Club Co., Millennium
Entertainment
Partners, L.P. and
Registrant dated as
of December 30,
1996. |  | 10-K/A                    |  | 1-13290  |  | 10/14/97    |  |         
|       
|10.26   |  | Letter Agreement
between Millennium
Entertainment
Partners, L.P. and
the Registrant dated
as of March 13,
1997.                                                                                |  | 10-K/A                    |  | 1-13290  |  | 10/14/97    |  |         
|       
|10.27   |  | First Amendment to
Option Agreement
between D. Michael
Talla and TTO
Partners dated May
27, 1997.                                                                                              |  | 10-K                      |  | 1-13290  |  | 02/26/98    |  |         
|       
|10.28   |  | Amendment of Lease
between Lincoln
Metrocenter
Partners, L.P. and
Reebok-Sports
Club/NY Ltd. as of
January 31, 1998.                                                                           |  | 10-K                      |  | 1-13290  |  | 02/26/98    |  |         
|       
|10.29   |  | Lease Agreement
between RCPI Trust
and the Registrant
as of February 27,
1998.                                                                                                                 |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.30   |  | Amended and Restated
Net Operating Lease
among Hirschfeld
Realty Club
Corporation and 328
E. 61 Corp., and
Vertical Fitness and
Racquet Club, Ltd.,
dated March 26,
1985.                      |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         



34



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##### Table of Contents



|        |  |                                                                                                                                                                            |  |                           |  |          |  |             |  |         
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------- |  | ----------- |  | --------
|        |  |                                                                                                                                                                            |  | Incorporated by Reference |  |         
|Exhibit |  |                                                                                                                                                                            |  |                           |  | Filed   
|Number  |  | Exhibit Description                                                                                                                                                        |  | Form                      |  | File No. |  | Filing Date |  | Herewith
|        |  |                                                                                                                                                                            |  |                           |  |          |  |             |  |         
|10.31   |  | Lease Modification
Agreement by and
among Hirschfeld
Realty Corporation
and 328 E. 61 Corp.,
and Vertical Fitness
and Racquet Club,
Ltd., dated July 1,
1990.              |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.32   |  | Assignment and
Assumption of Lease
by and between
Vertical Fitness and
Racquet Club, Ltd.,
and Bally
Entertainment
Corporation dated
January 8, 1996.                      |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.33   |  | Assignment of Lease
executed by Hilton
Hotels Corporation,
as successor to
tenant, and agreed
to and accepted by
the Registrant,
dated April 15,
1998.                     |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.34   |  | Second Amendment to
Amended and Restated
Net Operating Lease
by and among
Hirschfeld Realty
Club Corporation and
328 E. 61 Corp., and
the Registrant dated
April 15, 1998. |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.35   |  | Asset Purchase
Agreement between
Hilton Hotels
Corporation and RM
Sports Club, Inc.
dated as of April 1,
1998.                                                             |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.36   |  | Assignment and
Assumption of Asset
Purchase Agreement
between RM Sports
Club, Inc. and the
Registrant entered
into as of April 1,
1998.                                    |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.37   |  | Note Payable issued
by the Registrant to
Hilton Hotels
Corporation dated
April 15, 1998.                                                                                   |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.38   |  | Amended and Restated
1994 Stock Incentive
Plan as of June 2,
1998. #                                                                                                       |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.39   |  | Employment Agreement
between the
Registrant and John
Gibbons dated
October 16, 1998. #                                                                                     |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.40   |  | Letter Agreement
between the
Registrant and
Millennium Partners
LLC dated as of
October 27, 1998.                                                                          |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         



35



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                           |  |                           |  |          |  |             |  |         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------- |  | ----------- |  | --------
|        |  |                                                                                                                                                                                                                                                                           |  | Incorporated by Reference |  |         
|Exhibit |  |                                                                                                                                                                                                                                                                           |  |                           |  | Filed   
|Number  |  | Exhibit Description                                                                                                                                                                                                                                                       |  | Form                      |  | File No. |  | Filing Date |  | Herewith
|        |  |                                                                                                                                                                                                                                                                           |  |                           |  |          |  |             |  |         
|10.41   |  | First Amendment to
Lease between RCPI
Trust and the
Registrant dated
October 30,1998.                                                                                                                                                                                     |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.42   |  | Second Amendment to
Lease between RCPI
Trust and the
Registrant dated
March 4, 1999.                                                                                                                                                                                      |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.43   |  | Lease between CB-1
Entertainment
Partners LP and S.F.
Sports Club, Inc.
dated June 1, 1997.                                                                                                                                                                               |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.44   |  | Lease between 2200 M
Street LLC and
Washington D.C.
Sports Club, Inc.
dated March 1999.                                                                                                                                                                                   |  | 10-K                      |  | 1-13290  |  | 03/25/99    |  |         
|       
|10.45   |  | Fourth Amended and
Restated Loan
Agreement by and
among the
Registrant, certain
of its subsidiaries
and Comerica
Bank-California,
dated April 1, 1999.                                                                                                                    |  | 8-K                       |  | 1-13290  |  | 04/14/99    |  |         
|       
|10.46   |  | Intercreditor
Agreement by and
among the
Registrant, certain
of its subsidiaries,
Comerica
Bank-California and
U.S. Bank Trust
National
Association, dated
April 1, 1999.                                                                                                 |  | 8-K                       |  | 1-13290  |  | 04/14/99    |  |         
|       
|10.47   |  | Disbursement
Agreement between
U.S. Bank Trust
National Association
and the Registrant
and certain of its
subsidiaries dated
as of April 1, 1999.                                                                                                                         |  | 8-K                       |  | 1-13290  |  | 04/14/99    |  |         
|       
|10.48   |  | Stock Purchase
Agreement dated
September 16, 1999
by and among
Racquetball and
Fitness Clubs, Inc.,
The Spectrum Club
Company, Inc.,
Canoga Agoura
Spectrum Club, Inc.,
Spectrum Club, Inc.,
Spectrum Club
Anaheim, El Segundo
- TDC, Ltd., TVE,
Inc. and the
Registrant. |  | 8-K                       |  | 1-13290  |  | 10/05/99    |  |         
|       
|10.49   |  | Amendment #1 to the
Stock Purchase
Agreement dated
September 16, 1999
by and among
Racquetball and
Fitness Clubs, Inc.,
The Spectrum Club
Company, Inc.,
Canoga Agoura
Spectrum Club, Inc.,
Spectrum Club
Anaheim, El Segundo
- TDC, Ltd., TVE,
Inc. and the
Registrant.  |  | 8-K                       |  | 1-13290  |  | 10/05/99    |  |         



36



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##### Table of Contents



|        |  |                                                                                                                                                                                       |  |                           |  |          |  |             |  |         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------- |  | ----------- |  | --------
|        |  |                                                                                                                                                                                       |  | Incorporated by Reference |  |         
|Exhibit |  |                                                                                                                                                                                       |  |                           |  | Filed   
|Number  |  | Exhibit Description                                                                                                                                                                   |  | Form                      |  | File No. |  | Filing Date |  | Herewith
|        |  |                                                                                                                                                                                       |  |                           |  |          |  |             |  |         
|10.50   |  | Amended and Restated 1994 Stock
Compensation Plan. #                                                                                                                                  |  | 10-K                      |  | 1-13290  |  | 03/28/00    |  |         
|       
|10.51   |  | Lease Agreement as of September
24, 1999 between The Spectrum
Club Company, Inc. and West
Hollywood Property Limited
Partnership and 2400 Willow Lane
Associates Limited Partnership. |  | 10-K                      |  | 1-13290  |  | 03/28/00    |  |         
|       
|10.52   |  | Lease Agreement as of November
5, 1999 by and between New
Commonwealth Center Limited
Partnership and Washington D.C.
Sports Club, Inc.                                               |  | 10-K                      |  | 1-13290  |  | 03/28/00    |  |         
|       
|10.53   |  | Separation from
Employment
Agreement made as
of February 11,
2000 by and between
the Registrant and
John M. Gibbons. #                                                                |  | 10-K                      |  | 1-13290  |  | 03/28/00    |  |         
|       
|10.54   |  | Letter Agreement
dated March 11,
1999 amending the
October 27, 1998
Letter Agreement
between the
Registrant and
Millennium
Partners, LLC.                                             |  | 10-K                      |  | 1-13290  |  | 03/28/00    |  |         
|       
|10.55   |  | Amendment adopted
November 4, 1999 to
the Registrants
1994 Stock
Incentive Plan. #                                                                                                   |  | 10-K                      |  | 1-13290  |  | 03/28/00    |  |         
|       
|10.56   |  | Certificate
representing Series
B Senior Secured
Notes.                                                                                                                             |  | 10-K                      |  | 1-13290  |  | 03/28/00    |  |         
|       
|10.57   |  | First Amendment to
Fourth Amended and
Restated Loan
Agreement among the
Registrant and
certain of its
subsidiaries and
Comerica Bank -
California as of
December 3, 1999.             |  | 10-K                      |  | 1-13290  |  | 03/28/00    |  |         
|       
|10.58   |  | Form of The Sports
Club Membership
Agreements.                                                                                                                                        |  | 10-K                      |  | 1-13290  |  | 03/28/00    |  |         
|       
|10.59   |  | Transition Services
Agreement made as
of December 3, 1999
by and among the
Registrant and
Racquetball &
Fitness Clubs, Inc.                                                           |  | 10-K                      |  | 1-13290  |  | 03/28/00    |  |         



37



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##### Table of Contents



|        |  |                                                                                                                                                                                        |  |                           |  |          |  |             |  |         
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------- |  | ----------- |  | --------
|        |  |                                                                                                                                                                                        |  | Incorporated by Reference |  |         
|Exhibit |  |                                                                                                                                                                                        |  |                           |  | Filed   
|Number  |  | Exhibit Description                                                                                                                                                                    |  | Form                      |  | File No. |  | Filing Date |  | Herewith
|        |  |                                                                                                                                                                                        |  |                           |  |          |  |             |  |         
|10.60   |  | Second Amendment to
Fourth Amended and
Restated Loan
Agreement among the
Registrant and
certain of its
subsidiaries and
Comerica
Bank-California as
of August 10, 2000.                |  | 10-K                      |  | 1-13290  |  | 03/30/01    |  |         
|       
|10.61   |  | Reaffirmation of
Intercreditor and
Subordination
Agreement dated as
of August 10, 2000
among the
Registrant and
certain of its
subsidiaries and
U.S. Bank Trust,
National
Association. |  | 10-K                      |  | 1-13290  |  | 03/30/01    |  |         
|       
|10.62   |  | First Supplemental Agreement of Lease
made as of the 27th day of March, 2001
between CB-1 Entertainment Partners,
LP and S.F. Sports Club, Inc.                                        |  | 10-K                      |  | 1-13290  |  | 03/30/01    |  |         
|       
|10.63   |  | First Supplemental Agreement of Lease
made as of the 27th day of March 2001
between New Commonwealth Center
Limited Partnership and Washington
D.C. Sports Club, Inc.                  |  | 10-K                      |  | 1-13290  |  | 03/30/01    |  |         
|       
|10.64   |  | First Supplemental Agreement of Lease
made as of the 27th day of March 2001
between 2200 M Street LLC and
Washington D.C. Sports Club, Inc.                                            |  | 10-K                      |  | 1-13290  |  | 03/30/01    |  |         
|       
|10.65   |  | Third Amendment to Fourth Amended and
Restated Loan Agreement entered into
as of June 1, 2001 by and among
Registrant and various of its
subsidiaries and Comerica Bank -
California.  |  | 8-K                       |  | 1-13290  |  | 07/17/01    |  |         
|       
|10.66   |  | Indemnification and Contribution
Agreement entered into as of July 3,
2001 by and among the Registrant., Rex
A. Licklider, D. Michael Talla and MDP
Ventures II LLC.                   |  | 8-K                       |  | 1-13290  |  | 07/17/01    |  |         
|       
|10.67   |  | The Sports Club Company, Inc. 2001
Stock Incentive Plan. #                                                                                                                             |  |                           |  |          |  |             |  | X       
|       
|10.68   |  | Preferred Stock Purchase Agreement
made as of March 18, 2002 by and among
Registrant and the holders of the
Series B Convertible Preferred Stock.                                      |  | 8-K                       |  | 1-13290  |  | 03/26/02    |  |         



38



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##### Table of Contents



|        |  |                                                                                                                                                            |  |                           |  |          |  |             |  |         
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------- |  | ----------- |  | --------
|        |  |                                                                                                                                                            |  | Incorporated by Reference |  |         
|Exhibit |  |                                                                                                                                                            |  |                           |  | Filed   
|Number  |  | Exhibit Description                                                                                                                                        |  | Form                      |  | File No. |  | Filing Date |  | Herewith
|        |  |                                                                                                                                                            |  |                           |  |          |  |             |  |         
|10.69   |  | Investor Rights Agreement made as of
the 18th day of March 2002 by and
between the Registrant and the holders
of the Series B Convertible Preferred
Stock. |  | 8-K                       |  | 1-13290  |  | 03/26/02    |  |         
|       
|10.70   |  | Asset Purchase Agreement dated as of
January 25, 2002, by and between SCC
Nevada, Inc. and LSI-Nevada, LLC.                                                |  |                           |  |          |  |             |  | X       
|       
|10.71   |  | Standard Form Lease between the
Registrant and Club at 60th St., Inc.
for space located at 333 East 60th
Street, New York, dated May 4, 2001.              |  |                           |  |          |  |             |  | X       
|       
|10.72   |  | First Amendment to Lease by and among
Registrant and Club at 60th St., Inc.
dated as of March 1, 2002.                                                     |  |                           |  |          |  |             |  | X       
|       
|10.73   |  | Waiver of Covenant Compliance Letter
Agreement between the Registrant and
Comerica Bank  California dated March
14, 2002.                                 |  |                           |  |          |  |             |  | X       
|       
|21.1    |  | Subsidiaries of the Registrant                                                                                                                             |  |                           |  |          |  |             |  | X       
|       
|23.1    |  | Consent of KPMG LLP                                                                                                                                        |  |                           |  |          |  |             |  | X       



---

|#   |  | Compensation agreement or plan.
|--- |  | -------------------------------
|   
|   
|   
|   
|(b) |  | Reports on Form 8-K            

| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | The following report on Form 8-K was filed from
October 1, 2001 through
the date of this report:

| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | On March 26, 2002, we filed a Form 8-K announcing the
completion of a
$10,500,000 private placement of a newly created class of Preferred
Stock.



|(c) |  | Exhibits
|--- |  | --------

Index to Exhibits



39



---



##### Table of Contents



|        |  |                                                                                                                                              
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                              
|Number  |  | Exhibit                                                                                                                                      
|        |  |                                                                                                                                              
|10.67   |  | The Sports Club Company, Inc. 2001 Stock Incentive Plan. #                                                                                   
|       
|10.70   |  | Asset Purchase Agreement dated as of January 25, 2002, by and
between SCC Nevada, Inc. and LSI-Nevada, LLC.                                  
|       
|10.71   |  | Standard Form Lease between the Registrant and Club at 60th St.,
Inc. for space located at 333 East 60th Street, New York, dated
May 4, 2001.
|       
|10.72   |  | First Amendment to Lease by and among Registrant and Club at 60th
St., Inc. dated as of March 1, 2002.                                       
|       
|10.73   |  | Waiver of Covenant Compliance Letter Agreement between the
Registrant and Comerica Bank  California dated March 14, 2002.                   
|       
|21.1    |  | Subsidiaries of the Registrant.                                                                                                              
|       
|23.1    |  | Consent of KPMG LLP.                                                                                                                         



---

|# |  | Compensation agreement or plan.
|- |  | -------------------------------



40



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act
of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 29th
day of March, 2002.



| | THE SPORTS CLUB COMPANY, INC.
 
 
 
/s/ D. Michael Talla
D. Michael Talla
Co-Chief Executive Officer
 
/s/ Rex A. Licklider
Rex A. Licklider
Co-Chief Executive Officer
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant, in the capacities and on the date indicated.

|                                                    |  |                                                                      |  |               
|--------------------------------------------------- |  | -------------------------------------------------------------------- |  | --------------
|Signature                                           |  | Title                                                                |  | Date          
|                                                    |  |                                                                      |  |               
|                                                   
|                                                   
|                                                   
|                                                   
|/s/ D. Michael Talla
D. Michael Talla               |  | Chairman of the Board
and Co-Chief Executive Officer                 |  | March 29, 2002
|                                                   
|/s/ Rex A. Licklider
Rex A. Licklider               |  | Vice Chairman of the Board
and Co-Chief Executive Officer            |  | March 29, 2002
|                                                   
|/s/ Timothy OBrien
Timothy M. OBrien              |  | Chief Financial Officer
(Principal Financial and
Accounting Officer) |  | March 29, 2002
|                                                   
|/s/ Brian J. Collins
Brian J. Collins               |  | Director                                                             |  | March 29, 2002
|                                                   
|/s/ Nanette Pattee Francini
Nanette Pattee Francini |  | Director                                                             |  | March 29, 2002
|                                                   
|/s/ Andrew L. Turner
Andrew L. Turner               |  | Director                                                             |  | March 29, 2002
|                                                   
|/s/ Dennison Veru
Dennison Veru                     |  | Director                                                             |  | March 29, 2002



41