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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                        --------------------------------
                                   FORM 10-K/A
                                  (Amendment 1)



|X|      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2003
                                       OR
|_|      TRANSITION REPORT PURSUANT TO SECTON 13 OR 15(d) OF THE

         SECURITIES EXCHANGE ACT



             For the transition period from ___________to __________

                         Commission File Number: 1-13290

                     ---------------------------------------
                          The Sports Club Company, Inc.
             (Exact name of registrant as specified in its charter)


            Delaware                                      95-4479735
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
 of incorporation or organization)
11100 Santa Monica Blvd., Suite 300
      Los Angeles, California                                90025
(Address of registrant's principal                         (Zip Code)
        executive offices)

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

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

   Common Stock $.01 par value                       American Stock Exchange

  Securities registered pursuant                                None
   to Section 12(g) of the Act:
                     ---------------------------------------

         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 |_|

         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/A or any
amendment to this Form 10-K/A. [_]

         The aggregate market value of the voting stock held by non-affiliates
of the registrant on June 15, 2004 was $7,184,586. 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 18,783,744 on June 15, 2004. Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes |_| No |X|


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<PAGE>

                                EXPLANATORY NOTE

         This Amendment No. 1 on Form 10-K/A (this "Amendment") to the Annual
Report of The Sports Club Company, Inc. on Form 10-K for the fiscal year ended
December 31, 2003, filed with the Securities and Exchange Commission (the "SEC")
on June 21, 2004 (the "Original Filing") is being filed solely for the purpose
of responding to comments of the staff of the SEC received by us in connection
with our filing of a Form 8-K on July 12, 2004 and the periodic reports of the
Company referenced in that Form 8-K filing.

         Item 9A. Controls and Procedures has been amended to incorporate
additional disclosures requested by the SEC regarding certain reportable
conditions in our accounting controls and procedures identified by our
independent auditor.

         In connection with the filing of this Amendment and pursuant to the
rules of the SEC, we are including with this Amendment a currently dated
signature page and certain currently dated certifications as Exhibits 31.1,
31.2, 32.1 and 32.2. As no changes have been made to our consolidated financial
statements, or the Notes thereto, for the three most recent fiscal years ended
December 31, 2003 as reported in the Original Filing, the consent of KPMG LLP
contained as Exhibit 23.1 in the Original Filing is incorporated by reference
into this Amendment. All other exhibits included as part of the Original Filing
are incorporated by reference into this Amendment.

         None of these revisions change our previously reported net revenues,
income from operations, net income, income per share or cash flows for the
periods included, nor result in a restatement to our financial position or
results of operations.

         Except as described above, no other changes have been made to the
Original Filing, however, for the convenience of the reader and because it is
our intention to distribute this Amendment to our stockholders in satisfaction
of our obligations under the rules of the SEC and the American Stock Exchange,
we have restated the Original Filing in its entirety, as amended pursuant to the
description above, in this Amendment.

         This Amendment continues to speak as of the date of the Original
Filing, and we have not updated the disclosures contained therein to reflect any
events that occurred at a date subsequent to the filing of the Original Filing.
Accordingly, this Amendment should be read in conjunction with our subsequent
filings with the SEC.


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<PAGE>





                                     PART I

ITEM 1.   BUSINESS

General

         We were incorporated in Deleware in 1994 to consolidate the ownership
of several sports and fitness clubs. We currently own and operate eight Clubs
under "The Sports Club/LA" name in Los Angeles, Beverly Hills, Orange County,
Washington D.C., Boston, San Francisco and at Rockefeller Center and the Upper
East Side in New York City. We also operate and own a majority interest in
Reebok Sports Club/NY, and operate The Sports Club/LA in Miami under a
management agreement. 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 (hereinafter referred to as "Clubs" or "The Sports Club/LA")
are conveniently located and are spacious, modern facilities that typically
include spas, restaurants, fitness centers, swimming pools and basketball
courts. The Sports Club/LA sites are designed as "urban country clubs," and most
Clubs range in size from 90,000 to 140,000 square feet. Initiation fees and
monthly membership dues at The Sports Club/LA are higher than those charged by
most other sports and fitness clubs. 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.

         According to the International Health, Racquet & Sportsclub Association
("IHRSA"), the industry's leading trade organization, it is estimated that 36.3
million Americans were members of more than 20,000 sports and fitness clubs in
2002. Revenues generated by the United States sports and fitness club industry
increased at a compound annual rate of 8.1% from $6.5 billion in 1993 to $13.1
billion in 2002. 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 54% of all
memberships and are the fastest growing segment of the industry.

Recent Events

         On March 12, 2004, we completed a $6.5 million private placement of a
newly created series of Convertible Preferred Stock. We received $6.1 million in
cash, net of costs, and issued 65,000 shares of $.01 par value Series D
Convertible Preferred Stock at a price of $100 per share. Proceeds from the sale
were primarily used to make our March 15, 2004 interest payment on our Senior
Secured Notes.

         In November 2003, we opened The Sports Club/LA - Miami. This 40,000
square foot Club is located in the new Four Seasons Resort and Towers project in
downtown Miami. We manage this Club for which we receive a management fee based
upon both the gross revenue and net cash flow of the Club. We also license The
Sports Club/LA name to the owner. This management structure allows us to expand
our brand and receive an immediate earnings stream, with the potential for
additional profits, without making any capital investment.

         In October 2003, we opened The Sports Club/LA - Beverly Hills. This
40,000 square foot Club is located in the heart of the Beverly Hills retail and
commercial district and is located approximately three miles east of our
flagship property The Sports Club/LA - Los Angeles. This Club may serve as the
prototype for smaller size Clubs to be built in locations near existing Sports
Club/LA sites.

         On June 12, 2003, we replaced our Bank Credit Agreement with a new
$20.0 million secured loan from Orange County's Credit Union. The new loan is
evidenced by a promissory note that bears interest at a fixed interest rate of
7.25% per annum; requires monthly principal and interest payments of $144,561;
is secured by the common stock and all the assets of Irvine Sports Club Inc. our
wholly owned subsidiary that

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<PAGE>

owns The Sports Club/LA - Orange County; and is guaranteed by two of our major
shareholders. The note may be prepaid at any time without penalty and requires a
final principal payment of $18.3 million on July 1, 2008.

The Sports Club/LA

         The Sports Club/LA ranges in size from 40,000 to 140,000 square feet
and typically includes the following features:

     o    large,  fully equipped gyms with  state-of-the-art  fitness equipment,
          including weight training,  cardio-  vascular  equipment,  flexibility
          centers and functional performance areas,

     o    basketball, volleyball,  racquetball, squash, tennis and paddle tennis
          courts,

     o    group  exercise  studios  featuring  classes  throughout  the  day and
          evening,  seven days a week,  including aerobics,  yoga, dance, muscle
          conditioning, boxing, martial arts, pilates and bodymind,

     o    group cycling studios,

     o    rock climbing walls,

     o    boxing studios,

     o    swimming pools, sundecks, golf practice nets and running tracks,

     o    destination  city  spa  offering   massage,   facials  and  full  body
          treatments,

     o    men's and women's locker rooms featuring wood lockers,

     o    steam rooms, saunas and jacuzzis,

     o    restaurants,  sports bars, private  dining/conference  rooms and media
          centers,

     o    valet parking, pro shops, hair salons and childcare services,

     o    sports medicine and physical therapy facilities,

     o    personal trainers to develop and supervise members' exercise routines,

     o    registered dietitians for nutritional consultations,

     o    FitLab assessment centers,

     o    PTS Private Trainer System nutritional programs and products,

     o    interactive  children's'  classes, as well as supervised  age-specific
          junior  recreation  rooms  and  junior  programs  such as  gymnastics,
          martial arts and dance,

     o    instruction in racquet sports,  golf, swimming,  boxing,  martial arts
          and rock climbing,

     o    full-time activities directors responsible for social and media events
          for members, including organizing trips, lectures and charity events,

     o    sports  instructors  who  present  sports  tournaments,   leagues  and
          classes, and

     o    wellness  protocols  such as exercise  regimens  designed for specific
          groups of members.

                                       4
<PAGE>

         We currently have ten 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, Bel Air, Westwood and
Century City. We opened The Sports Club/LA-Beverly Hills in October 2003. This
40,000 square foot Club is located in the heart of Beverly Hill's retail and
commercial district. The Sports Club/LA - Orange County opened in 1990 in
Irvine, California near Newport Beach.

         We operate three Clubs in New York City. 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 and own a 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 -
New York at Rockefeller Center was opened in February 2000. This Club was
designed to service the executive business community in midtown Manhattan. The
Sports Club/LA - New York in New York City's Upper East Side 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 and serves the affluent residential Upper East Side area of New York
City.

         We also operate The Sports Club/LA at four other 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 Ritz Carlton Hotel. 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. The Sports
Club/LA - Miami opened in November 2004. We operate this Club pursuant to a
management agreement with Millennium, which has retained 100% ownership in the
Club's operations. We receive a management fee consisting of a flat percentage
of cash revenues plus a share of the Club's operating income.

The SportsMed Company, Inc.

         Our SportsMed subsidiary operates physical therapy facilities within
The Sports Club/LA in Los Angeles and Orange County, 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 October 2003, we opened The Sports
Club/LA - Beverly Hills. This 40,000 square foot Club is located in the heart of
the Beverly Hills retail and commercial district. This Club may serve as the
prototype for smaller size Clubs to be built in locations near existing Sports
Club/LA sites.

         In 2000 and 2001, we completed the development of five new The 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 The Sports Club/LA sites 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;
Goldman Sachs' Whitehall Street Real Estate Limited Partnerships; and Millennium
Entertainment Partners L.P., a consortium of German insurance companies. These
Clubs are located in projects developed by Millennium

                                       5
<PAGE>

in prime, metropolitan locations that, like Reebok Sports Club/NY, include
commercial, retail, entertainment and residential space. In addition, each of
these developments includes either a Ritz Carlton or Four Seasons hotel. These
Clubs are approximately 100,000 square feet and offer services typically found
at other Sports Club/LA sites. We believe that such projects offer ideal
locations for The Sports Club/LA and would consider developing The Sports
Club/LA 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 that have not yet achieved mature membership levels have operated
at a negative cash flow or only a slight positive cash flow 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.
This trend has continued at The Sports Club/LA sites we opened since 2000. Three
of these Clubs are now operating at a positive cash flow level while three Clubs
are still building the membership base necessary to achieve this level. We
believe that our revenues from these Clubs will significantly increase as
membership levels mature.

Future New Club Developments

         The completion of The Sports Club/LA at five new sites 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 primary focus is now
on improving the operating performance of our existing Clubs. We are pursuing
The Sports Club/LA developments at new sites that are financially structured in
a way that will 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.

         We currently operate The Sports Club/LA - Miami. Millennium is the
owner of this Club. They are responsible for providing all funds necessary to
construct, equip and operate the Club. We manage the Club's operations for which
we receive a management fee based upon both the gross revenues and net cash flow
of the Club. We also license The Sports Club/LA name to Millennium. This
structure allows us to expand our brand and receive an immediate earnings
stream, with the potential for additional profits, without making any capital
investment. We would consider entering into similarly structured agreements to
manage other Clubs for Millennium or other developers.

Sales and Marketing

         Strategy. The Sports Club/LA is marketed as an "urban country club"
offering personalized attention and multiple amenities and services. We believe
that the image of The Sports Club/LA as the leader in the sports and fitness
industry justifies charging a premium. Our members include professionals, sports
and entertainment personalities and business people. The Sports Club/LA
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 The Sports Club/LA emphasize retaining existing members, replacing
members who leave with new members and increasing ancillary revenues from
services such as private training and spa services. Our focus at the newer
Sports Club/LA locations is on attracting additional members.

         Referrals, Endorsements and Advertising. Word-of-mouth referrals and
endorsements by existing members are The Sports Club/LA's most important source
of new members. In addition, The Sports Club/LA utilizes targeted marketing
programs which include advertisements, promotions, public relations and
community events. The principal marketing media for the Clubs are direct mail
and print advertisements. Special events and special membership programs
supplement the print advertisements. The Sports Club/LA hosts corporate parties
and charity benefits and often donates 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.



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<PAGE>



         Targeted Members. The largest segment of the membership base for The
Sports Club/LA 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 Club/LA to business
centers. Our members use 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 Club/LA offers
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 The Sports Club/LA 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 rehabilitation by becoming members at The Sports
Club/LA.

         Family Programs. We believe that the 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 that offer programs
to 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
Sports Club/LA's 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 Sports Club/LA provides individualized sports
instruction and offers 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 (that we generally define as members who
are over 60 years old) that 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.

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 that is led by members of our
management staff and a personnel instructor. Topics include our history and
philosophy, The Sports Club/LA 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 our 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

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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 that 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
and all trainers are required to be certified by the National Academy of Sports
Medicine. 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 The Sports Club/LA. 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

         Membership at The Sports Club/LA requires an initiation fee plus
monthly membership dues. Initiation fees are required to be paid upfront or
during the member's first year. Members are currently required to pay their dues
on a monthly basis by electronic funds transfer, by which each member is
automatically debited each month for dues either through a checking account or
credit card. At established Clubs, the average life of a membership is four to
five years.

         The Sports Club/LA offers three types of memberships: executive, health
and racquet sports. The Sports Club/LA's initiation fees and monthly membership
dues vary depending on the location of the Club. The Sports Clubs' market rate
for initiation fees range from $400 to $2,900 and monthly membership dues range
from $110 to $300. Corporate, bicoastal and spousal memberships are also
available. We offer the following membership options:

         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 The Sports
Club/LA locations.

         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 health memberships for an
additional fee. We also offer a bi-coastal membership that entitles a member to
use all The Sports Club/LA locations throughout the country and both an Access
West and Access East membership that allows a member the ability to use all of
our Clubs located on either the west coast or east coast.

         Racquet Sports Membership. Racquet sports memberships are currently
offered at The Sports Club/LA - Orange County, 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 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

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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 The Sports Club/LA 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.

Trademarks and Trade Names

         We have registered our "flying lady" logo as a stand-alone design and
in combination with "The Sports Club/LA" name 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 that are marketed under the trade names of Private Trainer System and
PTS.

         Additionally, we have received trademark approval for several of our
fitness programs, including BodyArt, REV and others. We have not been able to
obtain full protection under Federal trademark laws for our SportsMed subsidiary
name, Splash, the name of our spas, and For Kids Only, our child care and
children's fitness program; however, each of these have been granted "allowed"
status.

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, Florida and New York. 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.

         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.



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<PAGE>



Employees

         At May 31, 2004, we had 2,399 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 May 31, 2004, we employed 1,091 full-time
employees, 981 of whom were involved in The Sports Club/LA operations such as
sales, management, private training, food and beverage or support staff, 42 of
whom work for our SportsMed subsidiary and 68 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.

Available Information

         Quarterly and annual reports on Form 10-Q and Form 10-K can be accessed
through the SEC website at http://www.sec.gov/edgar/searchedgar/webusers.htm.
The website for the "Public Company Accounting Oversight Board" is
http://www.pcaobus.org/.



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ITEM 2.  PROPERTIES

         We own the real estate at The Sports Club/LA - Orange County and The
Sports Club/LA - Los Angeles (subject to a minority interest held by our
Chairman D. Michael Talla). All other premises on which the Clubs are located
are leased.

         The following table provides certain information concerning our Clubs:

<TABLE>
<CAPTION>

                                                Approximate   Open Date    Own or Lease
                    Club                        Square Feet      (1)      Expiration Date      Renewal Option
                    ----                        -----------    --------   ---------------- -----------------------
<S>                                             <C>            <C>        <C>               <C>
The Sports Club/LA - Los Angeles (2).......       100,000       1994 A         Own                    N/A
The Sports Club/LA - Orange County.........       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
The Sports Club/LA - Beverly Hills.........        40,000       2003 O       4/30/18           One 10-year option
-------------
</TABLE>

(1)  Date of acquisition ("A") or opening ("O").

(2)  D. Michael Talla, our Chairman, has the right to 49.9% of the first
     $300,000 of annual operating income from the partnership which owns The
     Sports Club/LA - 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.

         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 that provide for all operating costs of
these facilities to be assumed by the new owners.

         All of the Clubs maintain comprehensive casualty, liability and
business interruption insurance. In March 2003, we secured insurance against
acts of terrorism. Clubs located in California maintain a blanket $35.0 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 that may be either uninsurable or not economically insurable, and
insurance proceeds may not adequately compensate us 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

         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



                                       11
<PAGE>



                                     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.
<TABLE>
<CAPTION>

                                                                            Price Range of Common Stock
                                                                            ---------------------------
                                 Calendar Quarter                             High                 Low
                                 ----------------                             ----                 ---

<S>                                                                   <C>                   <C>
Year Ended December 31, 2002:
     First Quarter .............................................      $        2.90         $       2.45
     Second Quarter.............................................               2.60                 2.10
     Third Quarter..............................................               2.45                 1.00
     Fourth Quarter.............................................               3.45                 1.72

Year Ended December 31, 2003:
     First Quarter..............................................               2.50                 2.15
     Second Quarter.............................................               2.87                 2.40
     Third Quarter..............................................               3.00                 2.50
     Fourth Quarter.............................................               2.70                 1.65

Year Ending December 31, 2004:
     First Quarter..............................................               2.35                 1.80
     Second Quarter (through June 15th).........................               1.98                 1.45
</TABLE>

         As of June 15, 2004, we had 63 stockholders of record and approximately
600 beneficial owners. The closing price of our Common Stock as reported by the
American Stock Exchange ("AMEX") on June 15, 2004, was $1.61.

         On April 15, 2004, AMEX notified us that we had not met certain of the
AMEX continued listing standards as set forth in Section 1003(d) of the AMEX
Company Guide. We were afforded an opportunity to respond and on April 30th,
submitted a plan to comply with the AMEX listing standards. The plan was amended
on May 19, 2004. On May 25, 2004, AMEX approved our amended plan. We have an
extension until June 21, 2004, to complete the filing of our Form 10-K for the
year ended December 31, 2003 and Form 10-Q for the quarter ended March 31, 2004
with the Securities and Exchange Commission. We are subject to periodic AMEX
review and our failure to regain compliance with the continued listing standards
by the end of the extension period could result in our Common Stock being
delisted from the AMEX.

Dividend Policy

         We have never declared or paid any dividends on our Common Stock or
Preferred 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, debt service
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.



                                       12
<PAGE>



ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         The following table presents our summary financial and operating data
for the fiscal years ended December 31, 1999 through 2003 and has been derived
from our consolidated financial statements. Such consolidated financial
statements and summary financial and operating data have been restated as
described in Note 2 to the consolidated financial statements. 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/A.

<TABLE>
<CAPTION>

                                                                     Fiscal Year Ended December 31,
                                                         ------------------------------------------------------
                                                           1999       2000       2001         2002         2003
                                                           -----      -----      -----        ----         ----
                                                                                           (Restated)
                                                              (Dollars in thousands, except per share data)

<S>                                                      <C>        <C>        <C>        <C>         <C>
Statement of Operations Data:
  Revenues:
   Membership revenues..............................     $  86,787  $  75,217  $ 100,165  $ 120,853   $ 130,988
   Reimbursed costs.................................            --         --         --         --       2,383
                                                         ---------  ---------  ---------  ---------   ---------
     Total revenues.................................        86,787     75,217    100,165    120,853     133,371
  Operating expenses:
   Direct..........................................         60,065     58,575     87,560    100,973     107,925
   Reimbursed costs.................................            --         --         --         --       2,383
   General and administrative......................          6,810      7,326      8,468      7,414       7,840
   Selling..........................................         2,608      2,915      3,880      4,907       4,902
   Depreciation and amortization...................          6,147      7,428     11,883     11,909      12,052
   Pre-opening expenses.............................         3,090      9,589      5,884        130       2,258
   Impairment charge................................           --          --      5,044         --          --
                                                         ---------  ---------  ---------  ---------   ---------
         Total operating expenses...................        78,720     85,833    122,719    125,333     137,360
                                                          --------   --------   --------   --------    --------
         Income (loss) from operations..............         8,067    (10,616)   (22,554)    (4,480)     (3,989)
  Other income (expense):
    Interest........................................        (5,991)    (6,478)   (13,001)   (13,420)    (13,750)
    Minority interests..............................          (150)      (150)      (150)      (150)       (150)
    Equity interest in net income of unconsolidated
      subsidiary....................................           931         --         --         --          --
    Non-recurring items.............................           768     (3,242)       397        127          --
                                                         ---------   ---------  --------   --------    --------
         Total other income (expense)...............        (4,442)    (9,870)   (12,754)   (13,443)    (13,900)
                                                         ---------   --------   ---------  ---------   --------
         Income (loss) before income taxes and
           cumulative effect of change in accounting
           principle................................         3,625    (20,486)   (35,308)   (17,923)    (17,889)
  Provision (benefit) for income taxes..............         2,021     (7,982)     5,370       (310)        485
                                                         ---------  ---------- ---------  ----------  ---------
         Income (loss) before cumulative effect of
           change in accounting principle............        1,604    (12,504)   (40,678)   (17,613)    (18,374)
  Cumulative effect of change in accounting principle,
   net of income tax benefit of $600 in 1999 and $0 in
   2002..............................................          899         --         --      5,134          --
                                                         ---------  ---------  ---------  ---------   ---------
         Net income (loss)..........................           705    (12,504)   (40,678)   (22,747)    (18,374)
  Dividends on Preferred Stock......................            --         --         --        888       1,400
                                                         ---------  ---------  ---------  ---------   ---------
     Net income (loss) attributable to common
       shareholders.................................     $     705  $ (12,504) $ (40,678) $ (23,635)  $ (19,774)
                                                         =========  ========== =========  =========   =========

  Net income (loss) per share:
    Basic and diluted...............................      $   0.04   $  (0.70) $   (2.27) $   (1.31)  $   (1.08)
                                                         =========   ========= ========== =========   =========

  Weighted average number of common shares outstanding:
    Basic...........................................        18,114     17,773     17,939     18,080      18,316
                                                         =========   =========  =========  =========   ========
    Diluted.........................................        18,290     17,773     17,939     18,080      18,316
                                                         =========   =========  =========  =========   ========
</TABLE>
<TABLE>
<CAPTION>

                                                                           At December 31,
                                                        -------------------------------------------------------
                                                           1999     2000       2001         2002        2003
                                                           ----     -----      -----        ----        ----
                                                                                        (Restated)
                                                                         (Dollars in thousands)
<S>                                                     <C>         <C>        <C>        <C>        <C>
Balance Sheet Data:
  Cash and cash equivalents..........................   $ 36,107    $  11,059  $   1,482  $   3,185  $    1,932
  Restricted cash....................................     41,389        6,996         --        227       4,432
  Property and equipment, net........................    118,959      169,907    170,799    156,630     155,173
  Total assets.......................................    225,088      223,773    197,114    181,252     183,959
  Deferred membership revenue (Short and Long-Term)..     13,025       16,214     19,026     18,231      19,161
  Long-term debt including current installments......    103,887      110,331    115,491    104,040     121,830
  Redeemable Preferred Stock.........................         --           --         --      5,140       5,590
  Stockholders' equity...............................     94,806       82,793     42,469     24,145       5,454

</TABLE>


                                       13
<PAGE>



ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         The following discussion of our historical results of operations and
our liquidity and capital resources should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere herein.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosures. On an on-going basis, we evaluate our
estimates and judgments that are based on historical experience and other
assumptions that we believe to be reasonable under the circumstances. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements.

Overview

         We are the operator of ten sports and fitness Clubs located in major
metropolitan markets across the United States, including one Club operated under
a management agreement. Our Clubs are spacious, modern facilities that typically
include spas, restaurants, fitness centers, swimming pools and basketball
courts. Our Clubs, which are usually named The Sports Club/LA are recognized as
among the finest sports and fitness facilities in the United States. In 1999, we
decided to focus our efforts on the national development of The Sports Club/LA
brand. At that time, we sold all of our smaller sized Clubs. We also issued
$100.0 million of Senior Secured Notes due in March 2006. The proceeds from
these transactions were utilized to develop five additional new Clubs in New
York City, Washington D.C., Boston and San Francisco. We have since opened The
Sports Club/LA in Beverly Hills and in Miami.

         Most of our Clubs range in size from 90,000 to 140,000 square feet. Due
to the size of these facilities and the additional amenities included in our
Clubs, we spend significant amounts to construct a new facility. We compare the
results of our Clubs based upon how long the Clubs have been open at the most
recent measurement period. We categorize Clubs as either mature or recently
opened. Mature Clubs are those Clubs at which we believe the membership levels
have reached a stable level and based upon the amount of new membership sales
and attrition, or the size of the Club, we do not believe a significant
additional growth in the membership level will occur. Clubs are considered to be
recently opened while the membership level is increasing. Three of the Clubs
that we own are considered to be mature while the other six are considered to be
recently opened. Five of these Clubs were opened between 2000 and 2001 while The
Sports Club/LA - Beverly Hills was opened in October 2003. Newly developed Clubs
tend to achieve significant increases in revenues until a mature membership
level is reached. Recently opened Clubs that have not yet achieved mature
membership levels have operated at a loss or only a slight profit as a result of
fixed expenses that, together with variable operating expenses, approximate or
exceed membership fees and other revenues. Since 2000, we have invested
significant amounts of cash in the construction and operation of these new
Clubs. Our operating performances and our liquidity have been negatively
impacted due to the start up nature of these Clubs and the initial construction
cost.

         We measure performance using key operating statistics such as
initiation fees, monthly dues and ancillary revenues per member. We closely
focus on new membership sales and the level of membership attrition at each
Club. We also closely evaluate our expenses with an emphasis on controlling
payroll costs. We use Club operating income, before depreciation expenses and
rent expense as a means to evaluate the overall performance of an individual
Club.

         We have two primary sources of revenues. First, our largest source of
revenue is from membership dues and initiation fees. We recognize revenue from
dues in the month it is earned. Initiation fees are deferred and recognized as
revenue on a straight-line basis over a period of three years, which represents
the average life of a membership based upon historical data. Secondly, we
generate ancillary revenue from our membership within each Club. The largest of
these revenues comes from individual private training. We also generate revenues
from our spas, restaurants, childcare, sports programs and guest fees. Our total
ancillary revenues represent 36.5% of total Club revenue and we believe that
percentage is among the highest in the industry. We believe that membership
levels are the primary indicator of a Clubs ability to generate revenue.
Therefore, we are consistently generating programs to

                                       14
<PAGE>

market the Clubs to potential new members as well as striving to reduce our
membership attrition rates. We believe our current attrition rate of 27% is well
below the normal in the industry.

         Our direct expenses include costs to operate our Clubs. These consist
primarily of payroll and employee benefits, rent and other occupancy related
costs, supplies, repairs, costs of products sold and various other operating
costs. A significant amount of these costs are fixed in nature.

         General and administrative expenses include costs related to our
centralized support functions such as accounting, information technology,
development and our executive management. Costs associated with being a publicly
owned Company are also included in this category. Selling expenses include our
advertising, marketing department and promotional costs associated with the
generation of new memberships.

Critical Accounting Policies and 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 a period of three years, which
represents the average life of a membership based upon historical data. Dues
that are received in advance are recognized on a pro-rated basis over the
periods in which services are to be provided. In addition, payments of last
months' dues are deferred. Revenues for services including private training, spa
treatments and physical therapy sessions are recorded when such services are
performed. Amounts received in advance are recorded as deferred revenues.
Revenues from our SportsMed subsidiary are recognized based upon the estimated
amount to be collected.

         Effective July 1, 2003, we adopted EITF 00-21, Revenue Arrangements
with Multiple Deliverables. As a result of the adoption of EITF 00-21, the fair
value of any free products or services bundled with new memberships is now
recorded as revenue when the product is delivered or the service is performed.
Prior to the adoption of EITF 00-21, we considered all payments as initiation
fees and no revenue was recorded for the free products or services bundled with
new memberships. The impact upon implementation of EITF 00-21 was to increase
our 2003 revenues by $862,000.

         Allowance for doubtful accounts. We provide a reserve against our
receivables for estimated losses that may result from our members' inability to
pay. We determine the amount of the reserve by analyzing known uncollectible
accounts, economic conditions and historical losses and our members'
creditworthiness. The likelihood of a material loss from this area is minimal
due to our limited exposure to credit risk.

         Impairment of long-lived assets. The carrying value of our long-lived
assets is reviewed annually and whenever events or changes in circumstances
indicate that such carrying values may not be recoverable. We consider a history
of consistent and significant operating losses to be our primary indicator of
potential impairment. Assets are grouped and evaluated for impairment at the
lowest level for which there are identifiable cash flows, which is generally at
an individual Club or a group of Clubs located in the same geographical area.
The determination of whether an impairment has occurred is based on an estimate
of undiscounted future cash flows directly related to that Club or group of
Clubs compared to the carrying value of the assets. If an impairment has
occurred, the amount of impairment recognized is

                                       15
<PAGE>

determined by estimating the fair value of the assets and recording a loss if
the carrying value is greater than the fair value. There was no impairment of
long-lived assets at December 31, 2003.

         Valuation of goodwill. Prior to January 1, 2002, we amortized goodwill,
which represents the excess of the purchase price over the net assets acquired
in business acquisitions, over 40 years. We recorded goodwill in connection with
our acquisitions of The Sports Club/LA in Los Angeles and Orange County, Reebok
Sports Club/NY and SportsMed. In January 2002, we adopted SFAS No. 142, Goodwill
and Other Intangible Assets, and as a result have ceased to amortize goodwill.
Instead, we were required to perform a transitional impairment review of our
goodwill as of January 1, 2002. We initially completed the transitional
impairment test, in 2002, which did not result in the impairment of goodwill. In
early 2004, we determined that the methodology used to determine if goodwill was
impaired was incorrect and that a reevaluation was required. We reperformed the
transitional impairment test and determined that goodwill was impaired as of
January 1, 2002 by $5,134,000. The 2002 consolidated financial statements have
been restated to reflect this adjustment. We are also required to evaluate
goodwill on an annual basis. We performed the analysis, as of December 31, 2002
and 2003, and determined that our remaining goodwill was not impaired.

         Valuation of deferred income taxes. Valuation allowances are
established 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.

Results of Operations

Fiscal 2003 compared to Fiscal 2002

         Total revenue increased $12.5 million or 10.4% to $133.4 million for
the year ended December 31, 2003 from $120.9 million for the year ended December
31, 2002. Of the $12.5 million increase, $6.0 million was from membership dues
and initiation fees, $4.1 million was from ancillary revenues, and $2.4 million
was related to the recovery of operating costs at The Sports Club/LA - Miami, a
Club that we manage.

         Revenue increased by $8.1 million at the five Sports Club/LA Clubs
opened in 2000 and 2001, primarily as a result of a 9.7% increase in membership
at these five Sports Club/LA Clubs from December 31, 2002 through December 31,
2003 and to annual rate increases for monthly dues and other ancillary services.
Revenue increased by $2.4 million due to cost reimbursements we received from
the owners of The Sports Club/LA - Miami, a Club we manage, which opened in
November 2003. Revenue increased by $1.3 million due to the opening of The
Sports Club/LA - Beverly Hills on October 7, 2003 and by $810,000, at our three
mature Clubs, primarily due to a $327,000 increase in food and beverage revenues
and a $444,000 increase in dues revenues. Revenue increased by $348,000 at our
SportsMed subsidiary primarily due to increased patient visits and by $88,000
due to management fees received from The Sports Club/LA - Miami. Revenue
decreased by $547,000 as a result of the sale of The Sports Club/Las Vegas on
January 31, 2002.

         Our direct expenses increased by $6.9 million (6.8%) to $107.9 million
for the year ended December 31, 2003, versus $101.0 million for the same period
in 2002. Direct expenses increased by $4.0 million at our five most recently
opened Sports Club/LA Clubs primarily due to increases in variable direct
expenses associated with the 9.7% membership increase and resulting revenue
growth that occurred at these five Sports Club/LA Clubs between December 31,
2002 and December 31, 2003 and to increases in workers' compensation, group
medical and property/liability insurance rates. Direct expenses increased by
$1.4 million as a result of the opening of The Sports Club/LA - Beverly Hills on
October 7, 2003. Direct expenses increased by $2.0 million at our three mature
Clubs primarily due to increased payroll, utility and property tax costs and to
increases in workers' compensation, group medical and property/liability
insurance rates. Direct expenses decreased by $505,000 due to the sale of The
Sports Club/Las Vegas on January 31, 2002. Direct expenses as a percent of
revenue for the year ended December 31, 2003,

                                       16
<PAGE>

decreased to 80.9% from 83.6% for the same period in 2002. As membership levels
and therefore revenues increase at the five Sports Club/LA Clubs opened in 2000
and 2001 and at The Sports Club/LA - Beverly Hills opened in October of 2003,
the direct expense percentage should continue to decrease. There is no
assurance, however, that such membership or revenue growth will occur.

         Reimbursed costs were $2.4 million for the year ended December 31,
2003. These costs relate to The Sports Club/LA - Miami, which is a non-owned
Club that we manage for its owner. We receive a management fee for managing the
Club and are reimbursed for all costs we incur pursuant to the management
agreement. As required by generally accepted accounting principles, reimbursed
costs are recorded as both revenue and expense in our consolidated financial
statements. The reimbursed costs of $2.4 million in the year ended December 31,
2003 represents both pre-opening expenses and normal operating expenses after
the Club opened in November 2003.

         Our general and administrative expenses were $7.8 million for the year
ended December 31, 2003, versus $7.4 million for the same period in 2002, an
increase of $426,000 or 5.7%. The increase in our general and administrative
expenses was primarily the result of increased workers' compensation insurance
rates, increased group medical and property/liability insurance costs, plus a
small increase in payroll costs. General and administrative expenses decreased
as a percentage of revenue to 5.9% for the year ended December 31, 2003, from
6.1% for the same period in 2002. We believe that general and administrative
expenses 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 expenses remained flat at $4.9 million for the years ended
December 31, 2003 and December 31, 2002. We continue to concentrate our
advertising and promotion efforts at the five Sports Club/LA Clubs opened in
2000 and 2001 and at The Sports Club/LA - Beverly Hills, which opened on October
7, 2003. Selling expenses decreased as a percentage of revenue to 3.7% for the
year ended December 31, 2003, from 4.1% for the same period in 2002.

         Our depreciation and amortization expenses increased by $143,000 (1.2%)
to $12.1 million for the year ended December 31, 2003, versus $11.9 million for
the same period in 2002. Depreciation and amortization expenses increased by
$132,000 as a result of the opening of The Sports Club/LA - Beverly Hills on
October 6, 2003 and by $43,000 due to capital additions made at the Clubs during
2002 and 2003. Depreciation and amortization expenses decreased by $32,000 as a
result of the sale of The Sports Club/Las Vegas on January 31, 2002.

         Pre-opening expenses were $2.3 million for the year ended December 31,
2003, versus $130,000 for the same period in 2002. Pre-opening expenses for the
year ended December 31, 2003, consisted of expenses related to The Sports
Club/LA - Beverly Hills, which opened on October 7, 2003. The pre-opening
expenses for the year ended December 31, 2002, consisted of expenses related to
a possible Club site on Long Island in New York. We have since decided not to
develop the Long Island site.

         Our net interest expense increased by $330,000 (2.5%) to $13.7 million
for the year ended December 31, 2003, versus $13.4 million for the same period
in 2002. Interest expense decreased by $182,000 due to a reduction of equipment
financing loans. Net interest expense increased by $944,000 primarily as a
result of interest incurred on our new five-year mortgage loan secured by The
Sport Club/LA - Orange County. We used a portion of the proceeds of the loan to
construct The Sports Club/LA - Beverly Hills and therefore, capitalized $432,000
of that interest during the construction period.

         We recorded two non-recurring gains, totaling $127,000, during the year
ended December 31, 2002. We recorded a non-recurring gain of $30,000, related to
the sale of The Sports Club/Las Vegas on January 31, 2002 and a non-recurring
gain of $97,000, related to the sale of real estate in Houston, Texas on August
30, 2002.

          In January 2002, we adopted SFAS No. 142, Goodwill and Other
Intangible Assets, and as a result have ceased to amortize goodwill. Instead, we
were required to perform a transitional impairment

                                       17
<PAGE>

review of our goodwill as of January 1, 2002 and to review goodwill annually for
impairment thereafter. We initially completed the transitional impairment test,
in 2002, which did not result in the impairment of goodwill. In early 2004, we
determined that the methodology used to determine if goodwill was impaired was
incorrect and that a revaluation was required. We reperformed the transitional
impairment test and determined that goodwill was impaired as of January 1, 2002
by $5,134,000. The 2002 consolidated financial statements have been restated to
reflect this adjustment.

         The tax provision of $485,000 recorded for the year ended December 31,
2003, is comprised of New York City and New York State income taxes incurred on
pre-tax earnings at Reebok Sports Club/NY. We did not record any federal or
state deferred tax benefit related to our consolidated pre-tax loss incurred for
the year ended December 31, 2003. After the tax provision of $485,000 and
dividends on preferred stock of $1.4 million, our consolidated net loss
attributable to common shareholders for the year ended December 31, 2003, was
$19.8 million or $1.08 per basic and diluted share. The tax benefit of $310,000
recorded for the year ended December 31, 2002, was the result of a $900,000
federal income tax refund we recorded due to tax law changes that allowed us to
carry-back our 2001 loss to prior tax years and New York City and New York State
income taxes of $590,000 incurred on pre-tax earnings at Reebok Sports Club/NY.
We did not record any federal or state deferred tax benefit related to our
consolidated pre-tax loss incurred for the year ended December 31, 2002. After
the tax benefit of $310,000 and dividends on preferred stock of $888,000, our
consolidated net loss attributable to common shareholders for the year ended
December 31, 2002, was $23.6 million or $1.31 per basic and diluted share.

Fiscal 2002 compared to Fiscal 2001

         Total revenue increased $20.7 million or 20.7%, to $120.9 million for
the year ended December 31, 2002 from $100.2 million for the year ended December
31, 2001. Of the $20.7 million increase, $11.1 million was from membership dues
and initiation fees and $9.6 million was from ancillary revenues.

         Revenue increased by $21.1 million, due to the opening of The Sports
Club/LA - Boston in September of 2001 and The Sports Club/LA - San Francisco in
October of 2001 and revenue increased by $6.2 million as a result of membership
growth at the three Sports Club/LA Clubs opened in 2000. Revenue decreased by
$5.4 million as a result of the sale of The Sports Club/Las Vegas on January 31,
2002, and by $2.2 million due to the transfer of our retail operations to
outside third party vendors. Revenue increased by $1.0 million at our other
Sports Clubs and our SportsMed subsidiary primarily due to an increase in
private training and monthly dues revenues at the Sports Clubs, partially offset
by a decrease in SportsMed revenues primarily due to the closing of The
SportsMed Agoura Hills location.

         Our direct expenses increased by $13.4 million to $101.0 million for
the year ended December 31, 2002, versus $87.6 million in 2001. Direct expenses
increased by $20.8 million, due to the opening of The Sports Club/LA - Boston in
September of 2001 and The Sports Club/LA - San Francisco in October of 2001 and
by $1.8 million as a result of an increase in expenses associated with the
membership growth at the three Sports Club/LA Clubs opened in 2000. Direct
expenses decreased by $5.4 million due to the sale of The Sports Club/Las Vegas
on January 31, 2002, by $2.5 million due to the transfer of our retail
operations to outside third party vendors and by $1.3 million at our other
Sports Clubs and our SportsMed subsidiary primarily as a result of cost cutting
measures we implemented at these Clubs and the closing of The SportsMed Agoura
Hills location. Direct expenses as a percent of revenue for the year ended
December 31, 2002, decreased to 83.6% from 87.4% in 2001.

         Our general and administrative expenses were $7.4 million for the year
ended December 31, 2002, versus $8.5 million in 2001, a decrease of $1.1 million
or 12.4%. Our general and administrative expenses decreased by $1.0 million due
to lower legal fees resulting from the settlement or dismissal of certain legal
matters in which we were involved. General and administrative expenses decreased
by $519,000 as a result of expense cutting measures that have reduced our
payroll and payroll related expenses. General and administrative expenses
increased by $419,000 primarily as a result of higher corporate office rent,
increased insurance premiums and a reduction in corporate costs capitalized on
certain development and information systems projects. General and administrative
expenses decreased as a percentage of revenue to 6.1% for the year ended
December 31, 2002, from 8.5% in 2001.

                                       18
<PAGE>

         Our selling expenses were $4.9 million for the year ended December 31,
2002, versus $3.9 million in 2001, an increase of $1.0 million or 26.5%. The
increase in selling expenses was the result of expanded advertising and
promotion efforts at the five Sports Club/LA Clubs opened in 2000 and 2001 with
the majority of this increase attributable to our two most recently opened
Clubs. We also placed special emphasis on membership growth at The Sports
Club/LA - Rockefeller Center. Selling expenses for the year ended December 31,
2002 at these five most recently opened Clubs increased by $1.2 million as
compared to 2001. Selling expenses decreased by $432,000 as a result of the sale
of The Sports Club/Las Vegas on January 31, 2002 and selling expenses declined
by $63,000 at our other Sports Club/LA Clubs and our SportsMed subsidiary.
Selling expenses as a percentage of revenue for the year ended December 31,
2002, were 4.1% versus 3.9% in 2001.

         Our depreciation and amortization expenses stayed flat at $11.9 million
for the years ended December 31, 2002 and 2001. Depreciation and amortization
expenses increased by $610,000 as a result of the opening of The Sports Club/LA
- Boston in September 2001 and The Sports Club/LA - San Francisco in October of
2001 and by $709,000 at our corporate headquarters, primarily due to the start
of amortization of our recently installed membership accounting software.
Depreciation and amortization expenses decreased by $344,000 as a result of the
sale of The Sports Club/Las Vegas on January 31, 2002 and by $455,000 at our
other Sports Club/LA Clubs primarily due to assets becoming fully depreciated.
Depreciation and amortization expense also decreased by $494,000 due to the
adoption of Statement of Financial Accounting Standards No. 142, effective
January 1, 2002, that requires goodwill and other indefinite lived intangibles
no longer be amortized.

         Pre-opening expenses were $130,000 for the year ended December 31,
2002, versus $5.9 million in 2001. Pre-opening expenses for the year ended
December 31, 2002, consisted of legal fees incurred related to a possible club
site on Long Island in New York. We have since terminated our interest in this
site. Pre-opening expenses by Club for the year ended December 31, 2001, were
$2.6 million at The Sports Club/LA - Boston, $2.9 million at The Sports Club/LA
- San Francisco and $405,000 at the possible club site on Long Island in New
York.

         We incurred impairment charges during the year ended December 31, 2001,
of $5.0 million. These impairment charges consisted of a $3.2 million impairment
charge related to the write down of fixed assets at The Sports Club/Las Vegas
and a $1.8 million impairment charge related to the write down of goodwill at
our SportsMed subsidiary.

         We incurred net interest expense of $13.4 million for the year ended
December 31, 2002, versus $13.0 million in 2001, an increase of $419,000. Net
interest expense increased by $496,000 due to our discontinuance of capitalizing
interest costs on Sports Clubs under development after the last Sports Club/LA
was opened in October 2001. Net interest expense increased by $323,000, due to a
reduction in interest income earned on invested cash balances. There was a
$162,000 decrease in net interest expense due to reductions of equipment
financing loans and a $238,000 decrease resulting from interest incurred in 2001
related to a sales tax audit at one of our Clubs.

         We recorded a non-recurring gain of $97,000, related to the sale of
undeveloped land in Houston, Texas and a $30,000 non-recurring gain, related to
the sale of The Sports Club/Las Vegas during the year ended December 31, 2002.
The Houston, Texas site was sold on August 30, 2002 and The Sports Club/Las
Vegas was sold on January 31, 2002. We recorded a non-recurring gain of $397,000
during the year ended December 31, 2001. The non-recurring gain in 2001 was the
result of the reversal of accrued interest expense related to the settlement of
litigation. As part of the settlement we were no longer required to pay the
accrued interest due on the note in question.

          In January 2002, we adopted SFAS No. 142, Goodwill and Other
Intangible Assets, and as a result have ceased to amortize goodwill. Instead, we
were required to perform a transitional impairment review of our goodwill as of
January 1, 2002 and to review goodwill annually for impairment thereafter. We
initially completed the transitional impairment test, in 2002, which did not
result in the impairment of goodwill. In early 2004, we determined that the
methodology used to determine if goodwill was impaired

                                       19
<PAGE>

was incorrect and that a revaluation was required. We reperformed the
transitional impairment test and determined that goodwill was impaired as of
January 1, 2002 by $5,134,000. The 2002 consolidated financial statements have
been restated to reflect this adjustment.

         The tax benefit recorded for the year ended December 31, 2002, is
comprised of a $900,000 federal income tax refund we received as a result of tax
law changes that allowed us to carry-back our 2001 loss to prior tax years,
partially offset by New York State and City income taxes incurred at Reebok
Sports Club/NY. We did not record any deferred tax benefit related to our loss
incurred for the year ended December 31, 2002. After the tax benefit and the
Preferred Stock dividends of $888,000, our loss attributable to common
shareholders for the year ended December 31, 2002, was $23.6 million or $1.31
per basic and diluted share. The income tax provision of $5.4 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. We did not record any deferred tax benefit
related to our loss incurred in 2001. After the 2001 income tax provision of
$5.4 million, our net loss attributable to common shareholders was $40.7 million
or $2.27 per basic and diluted share. We did not record any deferred tax assets
related to the losses incurred in 2002 and 2001 based on our analysis of current
and projected operating results and our determination that it is more likely
than not that future taxable income will be insufficient to utilize any deferred
tax assets.

Non-GAAP Financial Measures

         We use the term "EBITDA" in this discussion. EBITDA consists of net
income plus interest expense, net, provision for income taxes and depreciation
and amortization. This term, as we define it, may not be comparable to a
similarly titled measure used by other companies and is not a measure of
performance presented in accordance with GAAP. We use EBITDA and EBITDA margin
as measures of operating performance. EBITDA should not be considered as a
substitute for net income, cash flows provided by operating activities, or other
income or cash flow data prepared in accordance with GAAP. We believe EBITDA is
useful to an investor in evaluation our operating performance and liquidity
because:

     o    it is a widely accepted financial  indicator of a company's ability to
          service its debt;

     o    it is widely used to measure a company's operating performance without
          regard to items such as depreciation and amortization,  which can vary
          depending upon accounting methods and the book value of assets, and to
          present a meaningful measure of corporate performance exclusive of our
          capital structure and the method by which assets were acquired; and

     o    it helps  investors  to more  meaningfully  evaluate  and  compare the
          results of our  operations  from period to period by removing from our
          operating  results  the  impact of our  capital  structure,  primarily
          interest expense from our outstanding debt, and asset base,  primarily
          depreciation and amortization of our properties.

          Our management uses EBITDA:

     o    as a  measurement  of operating  performance  because it assists us in
          comparing our  performance on a consistent  basis,  as it removes from
          our  operating  results  the impact of our  capital  structure,  which
          includes  interest  expense from our  outstanding  debt, and our asset
          base, which includes depreciation and amortization of our properties;

     o    in  presentations  to the members of our board of  directors to enable
          our board to have the same consistent  measurement  basis of operating
          performance used by management; and

     o    as the basis for incentive  bonuses paid to selected members of senior
          and Club level management.



                                       20
<PAGE>



         Below is a reconciliation of EBITDA to net income:

                                                               Year Ending
                                                            December 31, 2003
                                                            -----------------
    EBITDA.............................................    $             7,913
        Depreciation and amortization..................                (12,052)
        Interest, net..................................                (13,750)
        Provision for income taxes.....................                   (485)
                                                           -------------------
    Net loss...........................................    $           (18,374)
                                                           ====================

Liquidity and Capital Resources

Liquidity

         Historically, we have satisfied our liquidity needs through various
debt arrangements, sales of Common or Preferred Stock and cash from operations.
Our primary liquidity needs the past several years have been the development of
new Clubs and the interest cost associated with our $100.0 million Senior
Secured Notes.

         In order to make our March 15, 2004 interest payment on the Senior
Secured Notes, we were required to issue $6.5 million of a newly created class
of Series D Convertible Preferred Stock. We are not certain that amounts we will
generate from operations through September 15, 2004 will be sufficient for us to
make the Senior Secured Note interest payment due on September 15, 2004. If cash
flows from operations are insufficient to make the September 15, 2004 or future
interest payments, we would be required to sell assets, offer additional equity
securities or increase our cash flow from operations to meet our cash flow
needs. There can be no assurance that we will be able to sell assets, raise
capital by offering additional equity securities or increase our cash flow from
operations.

         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.

Operating Activities

         Our cash balance on December 31, 2003 was $1.9 million. During 2003,
our earnings before interest, taxes, depreciation and amortization ("EBITDA")
were $7.9 million. We believe we will continue to generate positive EBITDA and
that such amount will increase as our new Clubs continue to mature.

         We have various deposits that secure our performance under several
contracts. We expect to receive back $800,000 of such deposits in the second
quarter of 2004, $1.0 million in the third quarter of 2004 and the remaining
$1.7 million in the fourth quarter of 2004.



                                       21
<PAGE>



Investing Activities

         Investing activities consist of new Club development and expenditures
to maintain and update our existing Clubs. Capital expenditures related to new
Clubs were $16.1 million in 2001, $6.7 million in 2002 and $10.6 million in
2003. Our Clubs are upscale and capital improvements are regularly needed to
retain the upscale nature and presentation of the Clubs. A deterioration of the
quality of the Clubs can lead to reduction in membership levels and lower
revenues. Capital expenditures to maintain and update our existing Clubs were
$5.3 million in 2001, $2.6 million in 2002 and $2.2 million in 2003. 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. We also expect to spend approximately $600,000 during the next
year to upgrade our management information systems and enhance our disaster
recovery capabilities.

         On April 22, 2002, we signed a lease to develop The Sports Club/LA -
Beverly Hills. The new Sports Club/LA, of approximately 40,000 square feet, is
located at 9601 Wilshire Boulevard in the heart of the Beverly Hill's retail and
commercial district. We view the Beverly Hills market as an excellent location
for The Sports Club/LA brand and this Club may serve as a prototype for smaller
size Clubs to be built in locations near existing Sports Club/LA sites. At
December 31, 2003, approximately $1.1 million of construction costs are accrued
and remain to be paid on this Club. The Club opened in October 2003.

         We entered into a management service agreement with Terremark Brickell
II Ltd., an affiliate of Millennium to manage The Sports Club/LA - Miami.
Millennium provided all the capital to develop this facility and Millennium
retained a 100% ownership in the Club. We earn a management fee based upon the
Club's revenues and can also earn a profit participation based upon the Club's
net operating income. We were not required to invest any of our capital into
this development. The Club opened in November 2003.

         We currently have no other plans for new Club developments that would
require our own capital.

         During 2002, we generated $9.3 million of cash proceeds from the sale
of real estate in Houston, Texas and from the sale of The Sports Club/Las Vegas.

Financing Activities

         On April 1, 1999, we issued in a private placement $100.0 million of 11
3/8% Senior Secured Notes (the "Senior Secured Notes") due in March 2006, with
interest due semi-annually. The Senior Secured Notes were issued pursuant to the
terms of an indenture agreement 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 requires us to make an offer to retire the Senior
Secured Notes if the net proceeds of any asset sale are not reinvested in assets
related to our business, unless the remaining net proceeds are less than $10.0
million. To the extent we sell assets, the proceeds from those sales would be
subject to the excess proceeds provision of the Indenture. We are currently not
required to make such an offer as a result of the sale of any of our assets. The
Indenture requires us to make semi-annual interest payments of $5.7 million on
March 15th and September 15th of each year.

         On June 12, 2003, we obtained financing in the form of a secured
five-year promissory loan in the amount of $20.0 million. The new loan is
evidenced by a promissory note that bears interest at a fixed interest rate of
7.25%; requires monthly principal and interest payments of $144,561; is secured
by the common stock and all the assets of Irvine Sports Club, Inc., our wholly
owned subsidiary that owns The Sports Club/LA - Orange County; and is guaranteed
by two of our major stockholders. The note may be prepaid at any time without
penalty and requires a final payment of $18.3 million on July 1, 2008.

                                       22
<PAGE>

         The Indenture allows us to incur up to $10.0 million of equipment
financing obligations. At December 31, 2003, we had $2.0 million of equipment
financing obligations outstanding and would be allowed to finance an additional
$8.0 million with our equipment serving as collateral. We make monthly principal
and interest payments on this debt. These monthly payments are currently
$205,000 and they will continue until December 2004, when a significant portion
of the debt will be repaid.

         In March 2004, three of our principal shareholders purchased $6.5
million of a newly created class of Series D Convertible Preferred Stock in a
private placement offering. The proceeds were used to pay the March 15, 2004
interest payment on our Senior Secured Notes and to provide additional working
capital.

Contractual Obligations

         The following schedule lists known contractual obligations (amounts in
thousands):
<TABLE>
<CAPTION>

                                                                  Payments Due By Period
                                                                  ----------------------

                                                       Less                                       More
                                                      Than 1                                     Than 5
      Contractual Obligations           Total          Year         1-3 Years     3-5 Years       Years
      -----------------------           -----          ----         ---------     ---------       -----
<S>                                 <C>         <C>            <C>           <C>            <C>
Senior Secured Notes (1)........     $  100,000  $         --   $    100,000  $         --   $        --
Mortgage note (2)...............         19,855           305            677        18,873            --
Equipment financing loans (3)...          1,975         1,794            139            42            --
Operating leases (4)............        356,584        24,404         48,032        48,323       235,825
Minority interest (5)...........            900           150            750            --            --
Redeemable Preferred Stock (6)..         10,500            --             --            --        10,500
                                      ---------   -----------    -----------   -----------    ----------
Total                                $  489,814  $     26,653   $    149,598  $     67,238   $   246,325
                                      =========   ===========    ===========   ===========    ==========
</TABLE>

-------------

     (1) On April 1, 1999, we issued in a private placement $100.0 million
of  11  3/8%  Senior   Secured  Notes  due  in  March  2006  with  interest  due
semi-annually.

     (2) On June 12,  2003,  we  obtained  financing  in the  form of a  secured
five-year  promissory  loan in the amount of $20.0  million.  The new loan bears
interest at a fixed  interest  rate of 7.25%;  requires  monthly  principal  and
interest  payments of $144,561;  and requires a final principal payment of $18.3
million on July 1, 2008.

     (3) 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 3.5% and 13.3%.

     (4) We  lease  certain  facilities  pursuant  to  various  operating  lease
agreements.  Club  facility  leases are generally  long-term  and  noncancelable
triple-net  leases  (requiring  us to pay all real estate  taxes,  insurance and
maintenance  expenses),  and have an  average  remaining  term of  43.17  years,
including  renewal  options  which  are  included  in the lease  term,  with the
earliest  Sports Club lease  expiration  date of January 31,  2013.  We are also
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.  Amounts due for Spectrum  Club leases
are excluded from this table.

     (5) We own a 50.1% interest in the partnership that owns The Sports Club/LA
- Los  Angeles,  and D.  Michael  Talla,  our  Chairman,  beneficially  owns the
remaining 49.9%. We have the option to redeem Mr. Talla's preferred  partnership
interest for  $600,000,  which expires on January 31, 2006. We have included the
annual  preferred  distribution  of $149,700 to Mr. Talla in the above table for
the next two years and the redemption amount is included in 2006 (Year 3).

     (6) On March  18,  2002,  the  Company  issued  10,500  shares  of Series B
Preferred Stock. The stock is redeemable by the stockholders on March 18, 2009.



                                       23
<PAGE>



Impact of Inflation

         We do not believe inflation has had a material impact on our results of
operations for any of the years in the three-year period ended December 31,
2003. We cannot provide assurance that future inflation will not have an adverse
impact on our operating results and financial condition.

Seasonality of Business

         Seasonal trends have a limited impact on our operations. We typically
experience a slight increase in membership sales in the first quarter.
Additionally, we normally experience a slight decrease in our ancillary revenues
during the summer months at our east coast Clubs due to lower membership
attendance.

Forward Looking Statements

         From time to time we make "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 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 public disclosures. 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:

     o    the   availability  and  adequacy  of  our  cash  flow  and  financing
          facilities  for our  requirements,  including  payment  of the  Senior
          Secured Notes,

     o    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,

     o    our ability to successfully develop new sports and fitness clubs,

     o    disputes or other problems  arising with our  development  partners or
          landlords,

     o    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,

     o    competition,

     o    changes in personnel or compensation, and

     o    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.



                                       24
<PAGE>



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We are exposed to risk from a change in interest rates to the extent we
are required to refinance existing fixed rate indebtedness at rates higher than
those prevailing at the time the existing indebtedness was incurred. As of
December 31, 2003, we had Senior Secured Notes totaling $100.0 million due in
March 2006 bearing an interest rate of 11.375%. Annual interest of $11.4 million
is payable semi-annually in March and September. At December 31, 2003, the fair
value of the Senior Secured Notes is approximately $93.0 million. We also have a
$20.0 million loan with a fixed rate of 7.25% that matures and requires a final
principal payment of $18.3 million on July 1, 2008. A change in interest rates
of 1% would impact our interest expense by approximately $1.2 million per year.

ITEM  8.  FINANCIAL STATEMENTS


Index to Consolidated Financial Statements
                                                                            PAGE
                                                                            ----
Report of Independent Registered Public Accounting Firm......................F-1

Consolidated Balance Sheets as of December 31, 2002 and 2003.................F-2

Consolidated Statements of Operations for each of the Years in the Three-Year
Period ended December 31, 2003...............................................F-3

Consolidated Statements of Stockholders' Equity for each of the Years in the
Three-Year Period ended December 31, 2003....................................F-4

Consolidated Statements of Cash Flows for each of the Years in the Three-Year
Period ended December 31, 2003...............................................F-5

Notes to Consolidated Financial Statements...................................F-6

                    Consolidated Financial Statement Schedule

Valuation and Qualifying Accounts...........................................F-30

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

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

         None.



                                       25
<PAGE>

ITEM 9A.   CONTROLS AND PROCEDURES

                  (a) Evaluation of disclosure controls and procedures.

         Our management, with the participation of our Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), has evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") as of the end of the fiscal year covered by this Annual Report on Form
10-K. This evaluation included a review of the steps management undertook in an
effort to ensure that information required to be disclosed in its Exchange Act
filings is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission (the
"SEC"), in light of certain deficiencies in our controls and procedures
identified by our independent auditor, KPMG LLP ("KPMG"), as more particularly
described below. Based on such evaluation and input from KPMG, the CEO and CFO
concluded that, as of the end of such period, these deficiencies have caused our
disclosure controls and procedures not to be effective at a reasonable assurance
level.

         In performing its audit of our Consolidated Financial Statements for
the year ended December 31, 2003, KPMG noted a matter involving our internal
controls that it considered to be a "reportable condition," as defined under
standards established by the American Institute of Certified Public Accountants.
A "reportable condition," which may or may not be deemed a material weakness,
involves matters relating to significant deficiencies in the design or operation
of internal controls that, in KPMG's judgment, could adversely affect our
ability to record, process, summarize and report financial data consistent with
the assertions of management in the financial statements.

         The reportable condition, which KPMG considered to be a material
weakness, was that the Company does not have adequate internal controls over the
application of new accounting principles or the application of existing
accounting principles to new transactions. In this regard, KPMG noted that,
during their review of our financial statements for the quarter ended March 31,
2003, the Company had not properly accounted for private training revenues. In
addition, in connection with their audit of our financial statements for the
year ended December 31, 2003, KPMG determined that we were not properly
accounting for our management arrangement with The Sports Club/LA-Miami; that we
had not properly followed Financial Accounting Standard No. 142 relating to
goodwill; and that we had not properly accounted for the accretion of dividends
on our Series C Convertible Preferred Stock. Finally, KPMG suggested that we
needed to consider additional staffing in our accounting department, and take
other action (such as encouraging attendance at training seminars on new
accounting rules and pronouncements) to ensure that we have the expertise and
resources to implement new accounting standards and apply existing accounting
standards to new transactions. KPMG's observations were summarized in its letter
dated June 16, 2004, to the Audit Committee of the Board of Directors.

         In connection with the completion of the 2003 audit, the Company's
accounting personnel worked with, and considered the recommendations of, KPMG in
accounting for private training revenues, goodwill, management fees and dividend
accrual on our Series C Convertible Preferred Stock. They conducted detailed
validation work on these accounts to substantiate the accuracy of the financial
information and related disclosures contained in this Form 10-K/A. The
accounting personnel reviewed the requirements of Financial Accounting Standards
142 to understand the methodology underlying the accounting treatment of
goodwill and continue to monitor any new developments or changes in accounting
treatment or policies for these assets to ensure that they are accurately
disclosed in our financial statements.

         As a result of KPMG's observations, the Audit Committee has authorized
and directed management to devise and implement actions to address these
deficiencies and to enhance the reliability and effectiveness of the Company's
internal controls over financial reporting and to provide reasonable assurance
that our disclosure controls and procedures allow for the accurate presentation
and timely filing of our financial statements. The Company's accounting
personnel have reviewed their reporting and certification obligations under the
Exchange Act and the Sarbanes Oxley Act of 2002, and have consulted with the
Company's outside counsel with respect to those obligations. We are now
performing regular analyses of revenues attributable to private training and
management fees. In addition, our accounting

                                       26
<PAGE>

personnel have determined that if there should occur any changes in existing
accounting rules or policies, or if accounting principles are adopted, which
apply to the Company's financial accounts (particularly with respect to the
manner in which private training revenues, management fees, goodwill and
dividend accrual is accounted for), such matters will be brought to the
attention of our independent auditor and, if necessary, outside counsel to
ensure that all required disclosures are accurate and complete and are made in a
timely fashion. We have assigned a high priority to both the short-term and
long-term strengthening of these controls and have identified certain additional
measures which we believe will address the conditions identified by KPMG as a
material weakness, including the following:

         o engaging an independent accounting or financial consulting firm
(other than the Company's independent auditor) to consult with the Company on
accounting issues, including the interpretation of new accounting rules and
releases promulgated by the SEC, the Financial Accounting Standards Board and
other organizations, and the application of accounting principles to new
transactions in which the Company engages;

         o creating and maintaining a written "log" in which new FASB, EITF, SOP
and other accounting rules and pronouncements are recorded. The log will include
a description of the new rule or pronouncement; whether or not it amends or
modifies an existing rule or pronouncement; its applicability to the Company or
any transactions in which the Company has engaged, or proposes to engage; and
the appropriate accounting ramifications of the new rule or pronouncement.
Management intends to submit this log to the Audit Committee and its independent
auditors on a quarterly basis, as part of their respective financial statement
review;

         o subscribing to selected professional publications that discuss new
accounting rules and regulations applicable to reporting companies, and
encouraging its accounting personnel to attend seminars and other presentations
which focus on new accounting and financial disclosure rules and pronouncements;
and

         o establishing an internal audit procedure to ensure that transactional
recording, transactional review and adherence to applicable accounting policies
and principles are observed.

         Management believes that the foregoing measures will address the
conditions identified as a material weakness by KPMG. We will continue to
monitor and evaluate the effectiveness of our disclosure controls and procedures
and our internal controls over financial reporting on an ongoing basis, and are
committed to taking further action and implementing additional enhancements or
improvements, as necessary. We believe that these measures are reasonably likely
to have a material impact on both our internal controls over financial reporting
and disclosure controls and procedures in future periods.

         (b) Changes in internal controls.

         Except as described above, there have been no changes in the Company's
internal controls over financial reporting (as those terms are defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected,
or are reasonably likely to materially affect, its internal controls over
financial reporting.





                                       27
<PAGE>



                        Report of Independent Registered
                             Public Accounting Firm


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 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 the Standards of the Public
Company Accounting Oversight Board (United States). 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, 2002 and 2003, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2003, 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.

         The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring net losses, has a
working capital deficiency and has negative cash flows from operating activities
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

         As discussed in Note 2 to the consolidated financial statements, the
Company restated its 2002 consolidated financial statements.

         As discussed in Note 4 to the consolidated financial statements the
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, effective January 1, 2002.





/s/ KPMG LLP


Los Angeles, California
May 24, 2004



                                      F-1
<PAGE>



                          THE SPORTS CLUB COMPANY, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2002 and 2003
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                     ASSETS
                                                                                               2002          2003
                                                                                               ----          ----
                                                                                            (Restated)
<S>                                                                                         <C>          <C>
Current assets:
    Cash and cash equivalents..........................................................     $   3,185    $   1,932
    Accounts receivable, net of allowance for doubtful accounts of $534 and $517 at
      December 31, 2002 and 2003, respectively.........................................         3,951        3,923
    Inventories........................................................................         1,169          994
    Prepaid expenses...................................................................         1,148        1,789
                                                                                            ---------    ---------
         Total current assets..........................................................         9,453        8,638

Property and equipment, net............................................................       156,630      155,173
Goodwill...............................................................................         7,660        7,660
Restricted cash........................................................................           227        4,432
Other assets...........................................................................         7,282        8,056
                                                                                            ---------    ---------
                                                                                            $ 181,252    $ 183,959
                                                                                            =========    =========
</TABLE>

<TABLE>
<CAPTION>

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                                         <C>          <C>
Current liabilities:
    Current installments of notes payable and equipment financing loans................     $   2,158    $   2,099
    Accounts payable...................................................................         2,545        2,464
    Accrued liabilities................................................................        12,657       13,713
    Deferred revenues..................................................................        17,034       18,292
                                                                                            ---------    ---------
         Total current liabilities.....................................................        34,394       36,568

Notes payable and equipment financing loans, less current installments.................       101,882      119,731
Accrued lease obligations..............................................................         8,307        8,976
Deferred revenues......................................................................         1,197          869
Minority interest......................................................................           600          600
                                                                                            ---------    ---------
         Total liabilities.............................................................       146,380      166,744

Commitments and contingencies

Redeemable Preferred Stock, Series B, $.01 par value, 10,500 shares authorized;
      10,500 shares issued and outstanding at December 31, 2002 and December 31,
      2003 (liquidation preference of $11,248 and $12,198 at December 31, 2002
      and 2003, respectively)..........................................................        10,727       11,761

Stockholders' equity:
    Preferred Stock, $.01 par value, 984,500 shares authorized; no shares issued or
          outstanding..................................................................            --           --
    Preferred Stock, Series C, $.01 par value, 5,000 shares authorized;
        5,000 shares issued and outstanding (liquidation preference of $5,140 and $5,590
        at December 31, 2002 and 2003, respectively)...................................         5,140        5,590
    Common Stock, $.01 par value, 40,000,000 shares authorized;
        21,068,717 and 21,074,717 shares issued at December 31, 2002 and 2003,
        respectively...................................................................           211          211
    Additional paid-in capital.........................................................       101,821      100,348
    Accumulated deficit................................................................       (67,843)     (86,217)
    Treasury Stock, at cost, 2,964,764 and 2,650,003 shares at
      December 31, 2002 and 2003, respectively.........................................       (15,184)     (14,478)
                                                                                            ----------   ----------
         Stockholders' equity..........................................................        24,145        5,454
                                                                                            ---------    ---------
                                                                                            $ 181,252    $ 183,959
                                                                                            =========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.



                                      F-2
<PAGE>



                          THE SPORTS CLUB COMPANY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    Three-Year Period ended December 31, 2003
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                                 2001           2002           2003
                                                                                 ----           ----           ----
                                                                                             (Restated)
<S>                                                                          <C>            <C>            <C>
Revenues:
    Membership revenues.................................................     $   100,165    $    120,853   $    130,988
    Reimbursed costs....................................................              --              --          2,383
                                                                             -----------    ------------   ------------
         Total revenue..................................................         100,165         120,853        133,371

Operating expenses:
    Direct..............................................................          87,560         100,973        107,925
    Reimbursed costs....................................................              --              --          2,383
    General and administrative..........................................           8,468           7,414          7,840
    Selling.............................................................           3,880           4,907          4,902
    Depreciation and amortization.......................................          11,883          11,909         12,052
    Pre-opening expenses................................................           5,884             130          2,258
    Impairment charges..................................................           5,044              --             --
                                                                             -----------    ------------   ------------
         Total operating expenses.......................................         122,719         125,333        137,360
                                                                             -----------    ------------   ------------
             Loss from operations.......................................         (22,554)         (4,480)        (3,989)

Other income (expense):
    Interest, net.......................................................         (13,001)        (13,420)       (13,750)
    Minority interests..................................................            (150)           (150)          (150)
    Non-recurring items.................................................             397             127             --
                                                                             -----------    ------------   ------------

           Loss before income taxes and cumulative effect of change in
           accounting principle.........................................         (35,308)        (17,923)       (17,889)
Provision (benefit) for income taxes....................................           5,370            (310)           485
                                                                             -----------    -------------  ------------

           Loss before cumulative effect of change in accounting
           principle....................................................         (40,678)        (17,613)       (18,374)

Cumulative effect of change in accounting principle.....................              --           5,134             --
                                                                             -----------    ------------   ------------

           Net loss.....................................................         (40,678)        (22,747)       (18,374)

Dividends on Preferred Stock............................................              --             888          1,400
                                                                             -----------    ------------   ------------

           Net loss attributable to common stockholders.................     $   (40,678)   $    (23,635)  $    (19,774)
                                                                             ============   =============  =============


Loss per share before cumulative effect of change in accounting
    principle - basic and diluted.......................................     $     (2.27)   $      (1.02)  $      (1.08)
Per share effect of cumulative effect of change in accounting
    principle - basic and diluted.......................................              --           (0.29)            --
                                                                             -----------    -------------  ------------
Net loss per share - basic and diluted..................................     $     (2.27)   $      (1.31)  $      (1.08)
                                                                             ============   =============  =============


Weighted average number of common shares outstanding:
    Basic and diluted...................................................          17,939          18,080         18,316
                                                                             ===========    ============   ============
</TABLE>

          See accompanying notes to consolidated financial statements.



                                      F-3
<PAGE>



                          THE SPORTS CLUB COMPANY, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    Three-Year Period ended December 31, 2003
                                 (in thousands)
<TABLE>
<CAPTION>

                                                   Preferred Stock                   Additional
                                                       Series C      Common Stock      Paid-in    Accumulated    Treasury Stock
                                                   Shares   Amount   Shares  Amount    Capital      Deficit    Shares     Amount
                                                   ------   ------   ------  ------    -------      -------    ------     ------

<S>                                               <C>       <C>     <C>     <C>       <C>         <C>           <C>     <C>
Balance, December 31, 2000.......................      --  $    --   21,053 $   211   $ 102,743   $  (4,419)     3,156   $(15,742)
     Net loss....................................      --       --       --      --          --     (40,678)        --         --
     Reissuance of Treasury Stock
       for employee stock plans..................      --       --       --      --          --           1        (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     (45,096)     3,045    (15,410)
     Net loss, as restated.......................      --       --       --      --          --     (22,747)        --         --
     Issuance of series C Preferred Stock........       5    5,000       --      --          --          --         --         --
     Issuance of Common Stock to outside directors     --       --        8      --          15          --         --         --
     Reissuance of Treasury Stock for employee
       stock plans...............................      --       --       --      --          --          --        (80)       226
     Accretion of dividends on Series
       B Preferred Stock.........................      --       --       --      --        (748)         --         --         --
     Accretion of issuance costs on Series B
       Preferred Stock...........................      --       --       --      --         (70)         --         --         --
     Accretion of dividends on Series C Preferred
       Stock, as restated........................      --      140       --      --        (140)          --        --         --
                                                  -------  -------  ------- -------    ---------  ----------  --------  ---------
Balance, December 31, 2002, as restated.........        5    5,140   21,069     211     101,821     (67,843)     2,965    (15,184)
     Net loss...................................       --       --       --      --          --     (18,374)        --         --
     Issuance of Common Stock to outside directors     --       --        6      --          12          --         --         --
     Reissuance of Treasury Stock for loan
       guarantee fee............................       --       --       --      --          --          --       (213)       472
     Reissuance of Treasury Stock for employee
       stock plans..............................       --       --       --      --          --          --       (102)       234
     Accretion of dividends on Series B Preferred
       Stock....................................       --       --       --      --        (950)         --         --         --
     Accretion of dividends on Series C Preferred
       Stock....................................       --      450       --      --        (450)         --         --         --
     Accretion of issuance costs on Series B
       Preferred Stock..........................       --       --       --      --         (85)         --         --         --
                                                  -------  -------  ------- -------   ----------  ---------   --------   --------
Balance, December 31, 2003......................        5  $ 5,590   21,075 $   211   $ 100,348   $ (86,217)     2,650   $(14,478)
                                                  =======  =======  ======= =======   =========   ==========  ========   =========


</TABLE>

          See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>




                          THE SPORTS CLUB COMPANY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Three-year Period ended December 31, 2003
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                 2001         2002         2003
                                                                                 ----         ----         ----
                                                                                           (Restated)
<S>                                                                          <C>           <C>          <C>
Cash flows from operating activities:
    Net loss.............................................................    $(40,678)     $(22,747)    $ (18,374)
    Adjustments to reconcile net loss to cash used in operating
activities:
         Loss (gain) on disposition of real estate.......................         282          (127)           --
         Impairment charges..............................................       5,044            --            --
         Depreciation and amortization...................................      11,883        11,909        12,052
         Related party costs settled with common stock...................         349           241           718
         Cumulative effect of change in accounting principle.............          --         5,134            --
         Deferred taxes..................................................       4,524            --            --
         (Increase) decrease in:
             Accounts receivable, net....................................      (1,215)          725            28
             Inventories.................................................       1,629           (50)          175
             Other current assets........................................       2,547          (439)         (642)
             Other assets, net...........................................       1,164        (2,283)          (15)
         Increase (decrease) in:
             Accounts payable............................................       1,102          (233)          (81)
             Accrued liabilities.........................................       1,834           679         1,056
             Deferred revenues...........................................       2,812          (439)          930
             Accrued lease obligations...................................       2,758         3,242           669
                                                                             --------      --------     ---------
                Net cash used in operating activities....................      (5,965)       (4,388)       (3,484)

Cash flows from investing activities:
    Capital expenditures.................................................     (16,122)       (6,653)      (10,595)
    Distributions from unconsolidated subsidiary.........................          32            --            --
    (Increase) decrease in restricted cash...............................       6,996            --        (4,205)
    Proceeds from sale of The Sports Club/Las Vegas - net of costs.......          --         6,154            --
    Proceeds from sale of Houston real estate - net of costs.............          --         3,133            --
                                                                             --------      --------     ---------
             Net cash provided by (used in) investing activities.........      (9,094)        2,634       (14,800)

Cash flows from financing activities:
    Proceeds from issuance of Preferred Stock - net of costs.............          --        14,908            --
    Exercise of employee stock options...................................           5            --            --
    Proceeds from notes payable and equipment financing loans............      24,588        21,725        30,741
    Repayments of notes payable and equipment financing loans............     (19,111)      (33,176)      (13,710)
                                                                             ---------     ---------    ----------
             Net cash provided by financing activities...................       5,482         3,457        17,031
                                                                             --------      --------     ---------
             Net increase (decrease) in cash and cash equivalents.......       (9,577)        1,703        (1,253)
Cash and cash equivalents at beginning of year...........................      11,059         1,482         3,185
                                                                             --------      --------     ---------
Cash and cash equivalents at end of year.................................    $  1,482      $  3,185     $   1,932
                                                                             ========      ========     =========

Supplemental disclosure of cash flow information:
    Cash paid during the year for interest...............................    $ 12,118      $ 11,902     $  12,500
                                                                             ========      ========     =========
    Cash paid during the year for income taxes...........................    $    533      $    242     $     386
                                                                             ========      ========     =========

          See accompanying notes to consolidated financial statements.

</TABLE>



                                      F-5
<PAGE>




                          THE SPORTS CLUB COMPANY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2002 and 2003

1. Organization

         The Sports Club Company, Inc. (the "Company") operates sports and
fitness Clubs ("Clubs"), primarily under the "The Sports Club/LA" name. The
Sports Club/LA sites are developed as "urban country clubs" offering a full
range of services including numerous fitness and recreation options, diverse
facilities and other amenities. The Sports Club/LA is marketed to affluent,
health conscious individuals who desire a premier Club.

2. Restatement

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 requires that goodwill and certain intangibles
no longer be amortized, but instead be reviewed for impairment on at least an
annual basis. The Company adopted SFAS No. 142 effective January 1, 2002. The
Company initially completed the transitional impairment test, in 2002, which did
not result in the impairment of goodwill. During the first quarter of 2004, the
Company determined that the methodology used to determine if goodwill was
impaired was incorrect and that a reevaluation was required. The Company has
reperformed the transitional impairment test and determined that goodwill was
impaired as of January 1, 2002, by $5,134,000. The 2002 consolidated financial
statements have been restated to reflect this adjustment.

         The Company has restated the December 31, 2002 balance sheet to
reclassify $1,197,000 of deferred revenues to a long-term liability and to
accrete/record $140,000 of Series C Preferred Stock dividends from paid in
capital to Series C Preferred Stock.

         A restated consolidated balance sheet at December 31, 2002, a restated
consolidated statement of operations and a restated consolidated statement of
cash flows for the year ended December 31, 2002, reflecting the above
adjustments, is presented below. The amounts are in thousands, except per share
amounts:



                                      F-6
<PAGE>


<TABLE>
<CAPTION>



                                                                         At December 31, 2002
                                                                ----------- --------------- -----------
                                                                    As       Restatement        As
                                                                 Reported    Adjustments     Restated
                                                                 --------    -----------     --------
                            ASSETS
<S>                                                             <C>         <C>             <C>
Current assets:
    Cash and cash equivalents...............................    $   3,185   $      --       $   3,185
    Accounts receivable, net of allowance for doubtful
      accounts..............................................        3,951          --           3,951
    Inventories.............................................        1,169          --           1,169
    Other current assets....................................        1,148          --           1,148
                                                                ---------   ---------       ---------
      Total current assets..................................        9,453          --           9,453

Property and equipment, net.................................      156,630          --         156,630
Goodwill....................................................       12,794      (5,134)          7,660
Restricted cash.............................................          227          --             227
Other assets................................................        7,282          --           7,282
                                                                ---------   ---------       ---------
                                                                $ 186,386   $  (5,134)      $ 181,252
                                                                =========   =========       =========
</TABLE>

<TABLE>
<CAPTION>
                      LIABILITIES AND STOCKHOLDERS' EQUITY

<S>                                                             <C>         <C>             <C>
Current liabilities:
    Current installments of notes payable and equipment
      financing loans.......................................    $   2,158   $      --       $   2,158
    Accounts payable........................................        2,545          --           2,545
    Accrued liabilities.....................................       12,657          --          12,657
    Deferred revenues.......................................       18,231      (1,197)         17,034
                                                                ---------   ----------      ---------
      Total current liabilities.............................       35,591      (1,197)         34,394

Notes payable and equipment financing loans, less
   current installments.....................................      101,882          --         101,882
Accrued lease obligations...................................        8,307          --           8,307
Deferred revenues...........................................           --       1,197           1,197
Minority interest...........................................          600          --             600
                                                                ---------   ---------       ---------
    Total liabilities.......................................      146,380          --         146,380

Commitments and contingencies

Redeemable Preferred Stock..................................       10,727          --          10,727

Shareholders' equity:
    Preferred Stock, Series C...............................        5,000         140           5,140
    Common Stock............................................          211          --             211
    Additional paid-in capital..............................      101,961        (140)        101,821
    Accumulated deficit.....................................      (62,709)     (5,134)        (67,843)
    Treasury Stock, at cost.................................      (15,184)         --         (15,184)
                                                                ---------   ---------       ---------
      Stockholders' equity..................................       29,279      (5,134)         24,145
                                                                ---------   ----------      ---------
                                                                $ 186,386   $  (5,134)      $ 181,252
                                                                =========   ==========      =========
</TABLE>




                                      F-7
<PAGE>


<TABLE>
<CAPTION>


                                                                     Year Ended December 31, 2002
                                                                -------------------------------------
                                                                    As       Restatement        As
                                                                 Reported    Adjustments     Restated
                                                                 --------    -----------     --------
<S>                                                             <C>         <C>             <C>
Membership revenues.........................................    $ 120,853   $      --       $ 120,853

Operating expenses:
    Direct..................................................      100,973          --         100,973
    General and administrative..............................        7,414          --           7,414
    Selling.................................................        4,907          --           4,907
    Depreciation and amortization...........................       11,909          --          11,909
    Pre-opening expenses....................................          130          --             130
                                                                ---------   ---------       ---------
      Total operating expenses..............................      125,333          --         125,333
                                                                ---------   ---------       ---------
        Loss from operations................................       (4,480)         --          (4,480)

Other income (expense):
    Interest, net...........................................      (13,420)         --         (13,420)
    Minority interests......................................         (150)         --            (150)
    Non-recurring items.....................................          127          --             127
                                                                ---------   ---------       ---------

      Loss before income taxes and cumulative effect of
        change in accounting principle......................      (17,923)         --         (17,923)
Provision (benefit) for income taxes........................         (310)         --            (310)
                                                                ----------  ---------       ----------

    Loss before cumulative effect of change in
      accounting principle..................................      (17,613)         --         (17,613)

Cumulative effect of change in accounting principle.........           --       5,134           5,134
                                                                ---------   ---------       ---------

    Net loss................................................      (17,613)     (5,134)        (22,747)

Dividends on Preferred Stock................................          888          --             888
                                                                ---------   ---------       ---------

    Net loss attributable to common stockholders............    $ (18,501)  $  (5,134)      $ (23,635)
                                                                ==========  ==========      ==========

Net loss per share:
    Basic and diluted.......................................    $   (1.02)  $   (0.29)      $   (1.31)
                                                                ==========  =========       ==========

Weighted average number of common shares outstanding:
    Basic and diluted.......................................       18,080          --          18,080
                                                                =========  ==========      ==========

</TABLE>


                                      F-8
<PAGE>

<TABLE>
<CAPTION>



                                                                     Year Ended December 31, 2002
                                                                --------------------------------------
                                                                    As       Restatement        As
                                                                 Reported    Adjustments     Restated
                                                                 --------    -----------     --------
<S>                                                             <C>         <C>             <C>
Cash flows from operating activities:
    Net loss................................................    $ (17,613)  $  (5,134)      $ (22,747)
    Adjustments to reconcile net loss to cash used in
      operating activities:
       Gain on disposition of real estate...................         (127)         --            (127)
       Impairment charges...................................           --          --              --
       Depreciation and amortization........................       11,909          --          11,909
       Related party costs settled with common stock........          241          --             241
       Cumulative effect of change in accounting principle..           --       5,134           5,134
       (Increase) decrease in:
          Accounts receivable, net..........................          725          --             725
          Inventories.......................................          (50)         --             (50)
          Other current assets..............................         (439)         --            (439)
          Other assets, net.................................       (2,283)         --          (2,283)
       Increase (decrease) in:
          Accounts payable..................................         (233)         --            (233)
          Accrued liabilities...............................          679          --             679
          Deferred revenues.................................         (439)         --            (439)
          Accrued lease obligations.........................        3,242          --           3,242
                                                                ---------   ---------       ---------
             Net cash used in operating activities..........       (4,388)         --          (4,388)

Cash flows from investing activities:
    Capital expenditures....................................       (6,653)         --          (6,653)
    Proceeds  from sale of The Sports  Club/Las  Vegas-net  of
      costs.................................................        6,154          --           6,154
    Proceeds from sale of Houston real estate-net of costs..        3,133          --           3,133
                                                                ---------   ---------       ---------
             Net cash provided by investing activities              2,634          --           2,634

Cash flows from financing activities:
    Proceeds from issuance of Preferred Stock-net of costs         14,908          --          14,908
    Proceeds from notes payable and equipment financing loans      21,725          --          21,725
    Repayments of notes payable and equipment financing loans     (33,176)         --         (33,176)
                                                                ----------  ---------       ---------
             Net  cash provided by financing activities.....        3,457          --           3,457
                                                                ---------   ---------       ---------
             Net increase in cash and cash equivalents......        1,703          --           1,703
Cash and cash equivalents at beginning of year..............        1,482          --           1,482
                                                                ---------   ---------       ---------
Cash and cash equivalents at end of year....................    $   3,185   $      --       $   3,185
                                                                =========   =========       =========

Supplemental disclosure of cash flow information:
    Cash paid during the year for interest..................    $  11,902          --      $   11,902
    Cash paid during the year for income taxes..............    $     242          --      $      242

</TABLE>



                                      F-9
<PAGE>



3. Liquidity/Going Concern

         The Company has experienced recurring net losses of $40.7 million,
$22.7 million and $18.4 million during the years ended December 31, 2001, 2002
and 2003, respectively. The Company has also experienced net cash flows used in
operating activities of $6.0 million, $4.4 million and $3.5 million during the
years ended December 31, 2001, 2002 and 2003, respectively. Additionally, the
Company may suffer a significant loss and net cash flows used in operating
activities during the year ending December 31, 2004. The Company has had to
raise funds through the offering of equity securities in order to make the
interest payments due on its Senior Secured Notes. The above historical and
estimated future results of operations and cash flows raise doubt about the
Company's ability to continue as a going concern.

         The Company's continued existence is primarily dependent upon its
ability to increase membership levels at its six most recently opened Clubs.
Five Clubs were opened during 2000 and 2001 and The Sports Club/LA-Beverly Hills
was opened in October 2003. Recently opened Clubs that have not yet achieved
mature membership levels have operated at a loss or only a slight profit as a
result of fixed expenses that, together with variable operating expenses,
approximate or exceed current membership fees and other ancillary revenues.
Increasing membership levels at these six most recently opened Clubs is the key
to producing operating profits and positive cash flows from operating
activities. The Company is constantly generating programs to market the Clubs to
potential new members as well as striving to reduce its membership attrition
rates. The Company has also pursued aggressive cost cutting programs that have
reduced general and administrative expenses (including employment costs) from
$8.5 million during the year ended December 31, 2001 to $7.8 million during the
year ended December 31, 2003. Direct and selling expenses have also dropped as a
percentage of revenues during the last three years.

           If the Company is unable to increase membership levels or reduce
costs to the point where cash flows from operating activities are sufficient to
make the September 15, 2004 or future interest payments, the Company would be
required to sell assets or issue additional equity securities. There can be no
assurance that the Company will be able to sell assets or raise capital by
offering additional equity securities. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

4. 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. The Company has
a 50.1% interest in the partnership that owns The Sports Club/LA - Los Angeles,
and the Company's Chairman beneficially owns the remaining 49.9%. The Company
includes The Sports Club/LA - Los Angeles in its consolidated financial
statements. 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 and
profits in proportion to their percentage interests. The next $35.0 million of
annual 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. The Company has the option to redeem the preferred
partnership interest in the partnership held by the Company's Chairman. The
option expires as of January 31, 2006. The preferred partnership interest is
carried at its redemption amount, which is $600,000 at December 31, 2003 and
2002 and has been classified as minority interest on the accompanying
consolidated balance sheets.

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
three years.

                                      F-10
<PAGE>

Dues that are received in advance are recognized on a pro-rata basis over the
periods in which services are to be provided. In addition, payments of last
month dues are deferred. Revenues for services including private training, spa
treatments and physical therapy sessions are recorded when such services are
performed. Amounts received in advance of performing these services are recorded
as deferred revenues. Revenues from the Company's SportsMed subsidiary are
recognized as services are performed based upon the estimated amount to be
collected by the Company. Management fees, including reimbursed costs, are
recognized as the management services are provided.

         Effective July 1, 2003, the Company adopted Emerging Issues Task Forces
("EITF") 00-21, Revenue Arrangements with Multiple Deliverables. As a result of
the adoption of EITF 00-21, the fair value of any free products or services
bundled with new memberships is now recorded as revenue when the product is
delivered or the service is performed. Prior to the adoption of EITF 00-21, the
Company considered all payments as initiation fees and no revenue was recognized
specifically for the free products or services bundled with new memberships. The
impact upon implementation of EITF 00-21 was to increase the Company's 2003
revenues by $862,000.

         Membership fees and other ancillary revenues are often prepaid and
amortized to revenue as the membership fees and other ancillary revenues are
earned. The following is a rollforward of deferred revenues for the years ended
December 31, 2001, 2002 and 2003:
<TABLE>
<CAPTION>

                                                               Years Ended December 31,
                                                               -----------------------
                                                      2001                 2002               2003
                                                      ----                 ----               ----
                                                                    (in thousands)
<S>                                            <C>                  <C>                 <C>
Deferred revenues - beginning of year......... $      16,214        $      19,026       $     18,231
Plus cash received from members...............        13,404               12,555             14,848
Less revenue recognized as earnings...........       (10,592)             (13,350)           (13,918)
                                               -------------        -------------       ------------
Deferred revenues - end of year............... $      19,026        $      18,231       $     19,161
                                               =============        =============       ============
</TABLE>

Reimbursed Costs

         The Company accounts for reimbursed costs in accordance with Emerging
Issue Task Force ("EITF") 99-19, Reporting Revenue Gross as a Principal versus
Net as an Agent. EITF 99-19 requires that revenue be reported gross with
separate display of cost of sales to arrive at gross profit or on a net basis,
when the Company acts as a primary obligor in the transaction, has discretion in
selecting the service provider and has credit risk as the Company receives
reimbursements after the goods or services have been purchased. Reimbursed costs
relate to The Sports Club/LA - Miami, which is a non-owned Club that the Company
manages for its owner. The Company receives a management fee for managing the
Club and is reimbursed for all costs that are advanced on the owner's behalf.
Reimbursed costs are recorded as both revenue and expense in the consolidated
financial statements. Reimbursed costs represent both pre-opening expenses and
normal operating expenses of the Club during 2003.

Allowance for Doubtful Accounts.

         The Company provides a reserve against its receivables for estimated
losses that may result from its members' inability to pay. The Company
determines the amount of the reserve by analyzing known uncollectible accounts,
economic conditions and historical losses and its members' creditworthiness. The
likelihood of a material loss from this area is minimal due to the Company's
limited exposure to credit risk.

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, 2002
and 2003, cash and cash equivalents were $3.2 million and $1.9 million,
respectively.

         The Company considers cash, cash equivalents and other short-term
investments that are required to be held as deposits to satisfy certain
governmental regulatory or Club operating lease security deposits as

                                      F-11
<PAGE>

restricted cash. At December 31, 2002 and 2003, the Company had $227,000 and
$4.4 million, respectively, of restricted cash.

Inventories

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

Advertising Costs

         Amounts incurred for advertising costs with third parties are expensed
as incurred. Advertising expense totaled approximately $1.2 million, $1.5
million and $1.4 million for the years ended December 31, 2001, 2002 and 2003,
respectively.

Loan Costs

         Loan costs and the debt discount on the Senior Notes are amortized over
the terms of the related loans using the straight line method which approximates
the effective interest method.

Start-up Costs

         All costs related to the development of new sports and fitness clubs,
except for real estate related costs are expensed as incurred. Real estate
related costs, which include construction costs and rent payments prior to
opening, are capitalized.

Long-Lived Assets

         Property and equipment are recorded at cost.

         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 and forty years for buildings. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term (including
option periods in which the Company will incur a penalty for non-renewal) or the
estimated useful lives of the improvements.

The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 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. The Company adopted SFAS No. 144 on
January 1, 2002. The Company evaluates its long-lived assets on a club-by-club
basis with the exception of its three New York Clubs, which are evaluated on a
combined basis due to the inter-related nature of the operations of the New York
Clubs.

         The Company reviews its long-lived assets and certain identifiable
intangible assets for impairment on an annual basis or 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 exceeds 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.

Goodwill

         In July 2001, the FASB issued SFAS No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method be used for all business combinations initiated after June 30,
2001. SFAS No. 142 requires that goodwill and certain intangibles no

                                      F-12
<PAGE>

longer be amortized, but instead be reviewed for impairment on at least an
annual basis. Through December 31, 2001, goodwill was being amortized on a
straight-line basis over forty years. In December 2001, the Company recorded an
impairment loss of $1.8 million related to goodwill at its SportsMed subsidiary.
The amortization of goodwill and certain intangibles ceased upon the adoption
of SFAS No. 142, which is effective for fiscal years starting after December 15,
2001. The Company adopted SFAS No. 141 and SFAS No. 142 effective January 1,
2002. The Company has goodwill recorded which will no longer be amortized
subsequent to the adoption of SFAS No. 142. The Company initially completed the
transitional impairment test, in 2002, which did not result in the impairment of
goodwill. In early 2004, the Company determined that the methodology used to
determine if goodwill was impaired was incorrect and that a reevaluation was
required. The Company has reperformed the transitional impairment test and
determined that goodwill was impaired as of January 1, 2002 by $5,134,000. The
2002 consolidated financial statements have been restated to reflect this
adjustment. In addition, the Company was not required to reclassify any portion
of goodwill as a result of the adoption of SFAS No. 142.

         The adoption of SFAS No. 142 had the following effect on the Company's
reported net income (loss) attributable to common shareholders and net income
(loss) per share for the years ended December 31, 2001, 2002 and 2003 (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                    Years Ended
                                                                    December 31,
                                                                    -----------
                                                         2001           2002          2003
                                                         ----           ----          ----
                                                                     (Restated)
<S>                                                  <C>            <C>           <C>
Reported loss attributable to
    common stockholders..........................    $  (40,678)    $  (23,635)   $  (19,774)
 Add back: Goodwill amortization, net of tax.....           494             --            --
                                                     ----------     ----------    ----------
Adjusted loss attributable to
    common stockholders..........................    $  (40,184)    $  (23,635)   $  (19,774)
                                                     ===========    ===========   ===========

Reported basic and diluted
    loss per share...............................    $    (2.27)    $    (1.31)   $    (1.08)
                                                     ===========    ===========   ===========

Adjusted basic and diluted
    loss per share...............................    $    (2.24)    $    (1.31)   $    (1.08)
                                                     ===========    ===========   ===========
</TABLE>

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 was
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 further deferred tax benefit related to its taxable losses
incurred in 2001, 2002 and 2003, and in the fourth quarter of 2001, the Company
recorded a valuation allowance of $19,627,000 to offset its net deferred tax
asset recorded through that date (See Note 12 - 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

                                      F-13
<PAGE>

includes the effects of all dilutive options, warrants and other securities and
utilizes the treasury stock method or if converted method as appropriate.

         The securities whose conversion would result in an incremental number
of shares that would be included in determining the weighted average shares
outstanding for diluted earnings per share if their effect was not antidilutive
are as follows:

     o    December 31, 2003 - 1,754,609 stock options, 10,500 shares of Series B
          mandatorily redeemable convertible Preferred Stock and 5,000 shares of
          Series C convertible Preferred Stock.

     o    December 31, 2002 - 1,785,333 stock options, 10,500 shares of Series B
          mandatorily  redeemable  convertible Preferred Stock and, 5,000 shares
          of Series C convertible Preferred Stock.

     o    December 31, 2001 - 1,850,275 stock options.

Stock Based Compensation

         The Company has elected to account for stock options granted to
employees and directors under the provisions of APB Opinion 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
(loss) and income (loss) per share, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied. In accordance with APB
Opinion 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 No. 123, the Company's net loss attributable to common
shareholders and loss per share would have been increased to the pro-forma
amounts indicated below:
<TABLE>
<CAPTION>

                                                                       Year ended December 31,
                                                                       -----------------------
                                                             2001             2002                2003
                                                             ----             ----                ----
                                                                           (Restated)
                                                                (in thousands, except per share data)
<S>                                                    <C>               <C>              <C>
   Net loss attributable to common
        stockholders, as reported....................  $   (40,678)      $   (23,635)     $      (19,774)

   Stock-based employee compensation expense
       included in reported net loss...............             --                --                 --

   Stock-based employee compensation expense
       determined under fair value based method for
       all awards..................................         (1,540)           (1,239)               (583)
                                                       ------------      ------------     ---------------

   Adjusted net loss attributable to common
       stockholders.................................   $   (42,218)      $   (24,874)     $      (20,357)
                                                       ============      ============     ===============

   Net loss per share as reported basic and
       diluted.....................................    $     (2.27)      $     (1.31)     $        (1.08)
                                                       ============      ============     ===============

   Adjusted net loss per share basic and diluted....   $     (2.35)      $     (1.38)     $        (1.11)
                                                       ============      ============     ===============
</TABLE>


         The fair value of all option grants for the Company's plans 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 2001:
dividend yield of 0%; expected volatility of 119%; risk-free interest rate of
4.48% and expected economic life of 6.0 years. There were no options granted in
2002 and 2003.

                                      F-14
<PAGE>

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. Those estimates include the estimated undiscounted cash flows
used to determine any potential impairment of long-lived assets and a change in
such undiscounted cash flows may change the Company's conclusion as to their
impairment. 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 or by obtaining the then current fair
value from the publicly traded bond market. The fair value of long-term debt at
December 31, 2003 was estimated to be $112.7 million.

Redeemable Preferred Stock

         Mandatorily redeemable convertible Preferred Stock (Series B) is stated
at redemption value, less the unamortized discount. The discount is accreted
into the carrying value of the mandatorily redeemable convertible Preferred
Stock through the date at which the Preferred Stock is redeemable at the option
of the holder with a charge to accumulated deficit using the effective-interest
method. Due to the inherent uncertainties regarding the ability and ultimate
timing of either the redemption or conversion of these preferred shares and the
accretion method used, it is not practicable for management to determine their
fair value.

Segment Reporting

         Management has determined that the Company has one reporting segment.

Impact of Recent Accounting Pronouncements

        In June 2002,  the FASB  issued  Statement No. 146, Accounting for Costs
Associated  with  Exit or  Disposal  Activities.  Statement  No.  146  nullified
Emerging  Issues Task Force  ("EITF")  issue  94-3,  Liability  Recognition  for
Certain  Employee  Termination  Benefits  and  Other  Costs to Exit an  Activity
(including Certain Costs Incurred in a Restructuring).  Under EITF issue 94-3, a
liability for an exit cost was recognized at the date of an entity's  commitment
to an exit plan.  Under  Statement No. 146, the  liabilities  associated with an
exit or disposal activity will be measured at fair value and recognized when the
liability  is incurred  and meets the  definition  of a liability  in the FASB's
conceptual  framework.  This  Statement is effective  prospectively  for exit or
disposal activities initiated after December 31, 2002. The adoption of Statement
No.  146 did  not  have  any  impact  on the  Company's  consolidated  financial
statements.

         On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure ("SFAS 148"), which amends
SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 148
amends the disclosure requirements in SFAS 123 for stock-based compensation for
annual periods ending after December 15, 2002 and for interim periods beginning
after December 15, 2002. The disclosure requirements apply to all companies,
including those that continue to recognize stock-based compensation under APB
Opinion No. 25, Accounting for Stock Issued to Employees. Effective for
financial statements for fiscal years ending after December 15, 2002, SFAS 148
also provides three alternative transition methods for companies that choose to
adopt the fair value measurement provisions of SFAS 123. Management has chosen
not to adopt the fair value measurement provisions of SFAS 123.

                                      F-15
<PAGE>

         In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"), which addresses the disclosure
to be made by a guarantor in its interim and annual financial statements about
its obligations under guarantees. The disclosure requirements are effective for
interim and annual financial statements ending after December 15, 2002. The
Company does not have any guarantees that require disclosure under FIN 45.

         In November 2002, the EITF issued EITF 00-21, Revenue Arrangements with
Multiple Deliverables ("EITF 00-21"). EITF 00-21 addresses certain aspects of
the accounting by a vendor for arrangements under which it will perform multiple
revenue-generating activities. Specifically, EITF 00-21 addresses how to
determine whether an arrangement involving multiple deliverables contains more
than one unit of accounting. In applying EITF 00-21, separate contracts with the
same entity or related parties that are entered into at or near the same time
are presumed to have been negotiated as a package and should, therefore, be
evaluated as a single arrangement in considering whether there are one or more
units of accounting. That presumption may be overcome if there is sufficient
evidence to the contrary. EITF 00-21 also addresses how consideration should be
measured and allocated to the separate units of accounting in the arrangement.
The guidance in EITF 00-21 is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. Alternatively, companies may elect
to report the change in accounting as a cumulative-effect adjustment. Effective
July 1, 2003, the Company adopted EITF 00-21, Revenue Arrangements with Multiple
Deliverables on a prospective basis. As a result of the adoption of EITF 00-21,
the fair value of any free products or services bundled with new memberships is
now separated and recognized as revenue when the product is delivered or the
service is performed. Prior to the adoption of EITF 00-21, the Company
considered all payments as initiation fees and no revenue was recognized
separately for the free products or services bundled with new memberships. The
impact upon implementation of EITF 00-21 was to increase the Company's 2003
revenues by $862,000.

         In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"), which addressed the consolidation by
business enterprises of variable interest entities, which have one or both of
the following characteristics: (i) the equity investment at risk is not
sufficient to permit the entity to finance its activities without additional
financial support from other parties, or (ii) the equity investors lack one or
more of the following essential characteristics of a controlling financial
interest: (a) the direct or indirect ability to make decisions about the
entity's activities through voting or similar rights, (b) the obligation to
absorb the expected losses of the entity if they occur, or (c) the right to
receive the expected residual returns of the entity if they occur. FIN 46
applies immediately to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or interim period
beginning after December 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
In December 2003, the interpretation was revised by the FASB when it issued FIN
46R, which clarified its scope and also extended the requirement to apply its
provisions to investments created prior to January 31, 2003 until the end of the
Company's first quarter in 2004. The implementation extension does not apply to
special purpose entities. The Company does not expect FIN 46 or FIN 46R to have
an impact on the consolidated financial statements.

         On April 30, 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149
amends and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133. This Statement is effective for contracts entered into or
modified after June 30, 2003, and hedging relationships designated after June
30, 2003. The Company has no derivative instruments and is not involved in any
hedging activities and therefore the adoption of SFAS 149 did not have any
impact on the Company's consolidated financial statements.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS
150"), which addresses how an issuer classifies and measures in its statement of
financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument as a liability if it embodies an

                                      F-16
<PAGE>

obligation for the issuer such as a mandatorily redeemable financial instrument.
SFAS 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise shall be effective for the first interim period
beginning after June 15, 2003. The application of SFAS 150 did not have any
effect on the Company's consolidated financial statements and it did not change
the presentation of any liability or equity items in its consolidated balance
sheets.

5. Dispositions

Disposition of Real Estate

         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 Houston site was
sold on August 30, 2002 and a non-recurring gain of $97,000 was recorded (See
Note 13).

Disposition of Club

         In January 2002, the Company sold The Sports Club/Las Vegas to another
club operator. 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. A gain of $30,000, related to the sale of The Sports Club/Las
Vegas was recorded in January 2002. The gain was based upon the actual proceeds
received from the sale of this Club.

6. Property and Equipment

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

                                                                                  At December 31,
                                                                                  ---------------
                                                                              2002              2003
                                                                              ----              ----
                                                                                  (in thousands)
<S>                                                                     <C>               <C>
        Land.......................................................     $    10,621       $    10,621
        Building and leasehold improvements........................         146,814           153,690
        Furniture, fixtures and equipment..........................          40,314            44,018
                                                                        -----------       -----------
                                                                            197,749           208,329
        Less accumulated depreciation and amortization.............          41,119            53,156
                                                                        -----------       -----------
        Net property and equipment.................................     $   156,630       $   155,173
                                                                        ===========       ===========
</TABLE>

         Equipment, which secures equipment financing loans, was $8,151,000 and
$8,251,000 at December 31, 2002 and 2003, respectively.



                                      F-17
<PAGE>



7. Notes Payable and Equipment Financing Loans

         Notes payable and equipment financing loans are summarized as follows:
<TABLE>
<CAPTION>

                                                                                  At December 31,
                                                                                  ---------------
                                                                              2002               2003
                                                                              ----               ----
                                                                                   (in thousands)
<S>                                                                     <C>                <C>
        Senior secured notes (a)...................................     $   100,000        $    100,000
        Equipment financing loans (b)..............................           4,040               1,975
        Mortgage note (c)..........................................              --              19,855
                                                                        -----------        ------------
                                                                            104,040             121,830
        Less current installments..................................           2,158               2,099
                                                                        -----------        ------------
                                                                        $   101,882        $    119,731
                                                                        ===========        ============
</TABLE>

(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 of the Company's 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") that includes certain covenants, which as of December 31,
2003, 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 on or
sell certain assets, and (iii) enter into mergers and consolidations. The Senior
Notes are subject to redemption at the option of the Company, in whole or in
part, at the redemption prices (expressed as percentages of principal amount)
set forth below, plus accrued and unpaid interest thereon:

              Period                                   Percentage
              ------                                   ----------
              Prior to March 15, 2004..............    105.688%
              Prior to March 15, 2005..............    102.844%
              Thereafter...........................    100.000%

         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, 2003, the Company was in compliance with the
terms of the Indenture, except as noted below. At December 31, 2003, the
estimated fair value of the Senior Secured Notes was $93.0 million.

         On May 25, 2004, the Company received a letter from the Trustee of the
Indenture Agreement notifying the Company that an "event of default" under the
Indenture would arise if the Company failed to file its financial reports with
the Securities and Exchange Commission ("SEC") within thirty (30) days after the
Company's receipt of such notice. The Company has filed its report with the SEC
within the thirty (30) day period thereby curing and nullifying the Trustee's
notice.

(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 3.5% and 13.3%.

(c) Prior to June 12, 2003, the Company had a $10.0 million credit facility from
a commercial bank. On June 12, 2003, the Company obtained alternative financing
in the form of a secured five-year mortgage in the amount of $20.0 million.
Amounts outstanding under the previous bank credit facility were repaid with a
portion of the proceeds of the new loan. The new loan is evidenced by a
promissory note that bears interest at a fixed interest rate of 7.25%; requires
monthly principal and interest payments of $144,561; is secured by the common
stock and all the assets of Irvine Sports Club, Inc., the Company's wholly owned

                                      F-18
<PAGE>

subsidiary that owns The Sports Club/LA - Orange County; and is guaranteed by
two of the Company's major shareholders. The note requires The Sports Club/LA -
Orange County to maintain a minimum operating income, as defined, or the Company
will be required to establish a payment reserve account of up to $607,000. As of
December 31, 2003, the Company has maintained the minimum operating income. The
note may be prepaid at any time without penalty and requires a final principal
payment of $18.3 million on July 1, 2008.

         Future minimum annual principal payments at December 31, 2003, are as
follows (in thousands):

         2004............................................... $     2,099
         2005...............................................         444
         2006...............................................     100,372
         2007...............................................         400
         2008...............................................      18,515
                                                             -----------
                                                             $   121,830
                                                             ===========

8. 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). 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,
2003 are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                                                Net
                                                                             Sublease          Rental
                                                           Commitments        Rentals       Commitments
                                                           -----------        -------       -----------
         <S>                                            <C>               <C>             <C>
         Year ending December 31:
              2004...................................   $    30,116        $    5,712     $    24,404
              2005...................................        29,892             5,917          23,975
              2006...................................        29,974             5,917          24,057
              2007...................................        30,004             5,990          24,014
              2008...................................        29,726             5,417          24,309
              Thereafter.............................       266,139            30,314         235,825
                                                        -----------        ----------     -----------
                   Total minimum lease payments......   $   415,851        $   59,267     $   356,584
                                                        ===========        ==========     ===========
</TABLE>

         Rent expense for facilities, including minimum lease payments recorded
on a straight-line basis over the lease term, aggregated $18,685,000,
$23,301,000 and $23,743,000 for the years ended December 31, 2001, 2002 and
2003, respectively.

Litigation

         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 an material adverse effect on the Company's
financial condition, cash flow or results of operations.

Employment Agreements

         At December 31, 2003, the Company did not have any employment
agreements with any employees.

                                      F-19
<PAGE>

9. Series B Redeemable Preferred Stock

         On March 18, 2002, the Company completed a $10.5 million private
placement of a newly created series of its Convertible Preferred Stock. The
Company received $9.9 million in cash, after issuance costs, and issued 10,500
shares of Series B Preferred Stock, $.01 par value ("Series B Preferred"), at a
price of $1,000 per share. The Company has the option to redeem any outstanding
shares of Series B Preferred at any time and the holders may require the
redemption of any outstanding shares of Series B Preferred on or after March 18,
2009 at a price of $1,000 per share plus accrued but unpaid dividends. Dividends
accrue at the annual rate of $90.00 per share. Such dividends are cumulative but
do not accrue interest and at the Company's option, may be paid in cash or in
additional shares of Series B Preferred. The Series B Preferred may, at the
option of the holder, be converted into shares of Common Stock at the rate of
$2.8871 per share, as adjusted for the issuance of Series D Preferred Stock in
March 2004 (resulting in the issuance of 3,636,867 shares of Common Stock if
100% of the Series B Preferred is converted at that price). The conversion price
will be adjusted downward in the event the Company issues additional shares of
Common Stock at a price below $2.8871 per share, subject to certain exceptions;
and any such downward adjustment is subject to the prior approval of the
American Stock Exchange. In the event the Series B Preferred is redeemed before
March 18, 2005, the holders will receive warrants 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 are entitled to receive,
prior and in preference to any distribution to common shareholders and pari
passu with holders of the Series C Preferred Stock, an amount equal to $1,000
for each share of Series B Preferred then outstanding.

         The initial carrying value of the Series B Preferred was recorded at
its "fair value" (sale price less costs to issue) on the date of issuance. The
carrying value of the Series B Preferred will be periodically adjusted so that
the carrying value equals the redemption value on the redemption date. The
carrying value of the Series B Preferred will also be periodically adjusted for
any accrued and unpaid dividends. The Series B Preferred carrying value
consisted of the following (in thousands):

Initial fair value, sale price of $10,500
      less costs to issue of $592......................  $               9,908
 Redemption value accretion............................                     71
 Accrued and unpaid dividends accretion................                    748
                                                         ---------------------
     Total carrying value at December 31, 2002.........                 10,727
Redemption value accretion.............................                     84
Accrued and unpaid dividends accretion.................                    950
                                                         ---------------------
     Total carrying value at December 31, 2003.........  $              11,761
                                                         =====================




                                      F-20
<PAGE>



10.  Series C Preferred Stock

         On September 6, 2002, the Company completed a $5.0 million private
placement of a newly created series of Convertible Preferred Stock. The Company
received $5.0 million in cash and issued 5,000 shares of Series C Convertible
Preferred Stock, $.01 par value ("Series C Convertible Preferred"), at a price
of $1,000 per share. Dividends are earned at an annual rate of $90.00 per share.
Dividends are payable when and as declared by the Board of Directors. Such
dividends are cumulative, but do not accrue interest and at the Company's
option, may be paid in cash or additional shares of Series C Convertible
Preferred. Dividends are paid pari passu with dividends on the Series B
Preferred Stock. In addition, upon conversion any earned and unpaid dividends
would become payable. Accordingly, the Company has recorded such Series C
divdidends. The Series C Convertible Preferred may, at the option of the holder,
be converted into shares of Common Stock at the rate of $2.8871 per share, as
adjusted for the issuance of Series D Preferred Stock in March 2004 (resulting
in the issuance of 1,731,842 shares of Common Stock if 100% of the Series C
Convertible Preferred is converted at that price). Upon conversion, any earned
and unpaid dividends would become payable in cash or additional shares of Series
C Convertible Preferred, at the Company's option. The conversion price will be
adjusted downward in the event the Company issues additional shares of Common
Stock at a price below $2.8871 per share, subject to certain exceptions; and any
such downward adjustment is subject to the prior approval of the American Stock
Exchange. At the option of the Company the Series C Convertible Preferred Stock
may be redeemed in whole or in part by paying in cash the sum of $1,000 per
share plus any earned and unpaid dividends. In the event the Series C
Convertible Preferred is redeemed before September 6, 2005, the holders will
receive warrants to purchase shares of Common Stock at a price of $3.00 per
share, exercisable before September 6, 2007. In the event of liquidation, the
Series C Convertible Preferred holders are entitled to receive, prior and in
preference to any distribution to common shareholders, and pari passu with
holders of the Series B Preferred, an amount equal to $1,000 for each share of
Series C Convertible Preferred then outstanding, plus earned and unpaid
dividends.

         The carrying value of the Series C Convertible Preferred is
periodically adjusted for any accrued and unpaid dividends. The Series C
Convertible Preferred dividends are accrued because they must be paid
concurrently with any redemption of the Series B Preferred. At December 31,
2003, the Series C Convertible Preferred carrying value consisted of the
following (in thousands):

       Initial fair value.............................$....       5,000
       Accrued and unpaid dividend accretion...............         590
                                                           ------------
       Total carrying value at December 31, 2003......$....       5,590
                                                      =    ============

11. Loss per Share

          Basic and diluted loss per share computations for the years 2001, 2002
and 2003 are as follows:
<TABLE>
<CAPTION>

                                                                         Years ended December 31,
                                                                         ------------------------
                                                                   2001            2002            2003
                                                                   ----            ----            ----
                                                                                (Restated)
                                                                  (in thousands, except per share data)
<S>                                                           <C>             <C>              <C>
   Net loss attributable to common shareholders used for
   basic and diluted loss per share......................     $   (40,678)    $   (23,635)     $   (19,774)
                                                              ============    ============     ============

   Weighted average shares outstanding:
     Basic and diluted....................................         17,939          18,080           18,316
                                                              ===========     ===========      ===========

   Loss per share:
     Basic and diluted....................................    $    (2.27)     $    (1.31)      $    (1.08)
                                                              ===========     ===========      ===========

</TABLE>




                                      F-21
<PAGE>



12. Income Taxes

         The provision for income taxes consists of the following:
<TABLE>
<CAPTION>

                                                                         Years ended December 31,
                                                                         ------------------------
                                                                   2001            2002             2003
                                                                   ----            ----             ----
                                                                              (in thousands)
<S>                                                           <C>             <C>              <C>
    Current:
          Federal.........................................    $        89    $       (930)  $           --
          State...........................................            757             620              485
                                                              -----------     -----------      -----------
                                                                      846            (310)             485
    Deferred:
          Federal.........................................          3,486              --               --
          State...........................................          1,038              --               --
                                                              -----------     -----------      -----------
                                                                    4,524              --               --
                                                              -----------     -----------      -----------
    Income tax provision (benefit)........................    $     5,370     $      (310)     $       485
                                                              ===========     ============     ===========
</TABLE>

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

                                                                          Years ended December 31,
                                                                          ------------------------
                                                                   2001            2002             2003
                                                                   ----            ----             ----
                                                                               (in thousands)

<S>                                                           <C>             <C>              <C>
    Computed "expected" tax expense (benefit).............    $   (12,005)    $    (7,839)     $   (6,070)
    Increase (decrease) in tax resulting from:
        State taxes - net of federal benefit..............         (2,091)         (1,102)         (1,009)
        Meals and entertainment...........................             63              75              79
         Change in valuation allowance....................         19,627           9,048           6,592
        Other.............................................           (224)           (492)            893
                                                              ------------    ------------     ----------
    Income tax provision (benefit)........................    $     5,370     $      (310)     $      485
                                                              ===========     ============     ==========
</TABLE>

         The effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are presented as follows:
<TABLE>
<CAPTION>

                                                                               At December 31,
                                                                               ---------------
                                                                        2002                     2003
                                                                        ----                     ----
                                                                                 (in thousands)
<S>                                                            <C>                     <C>
Deferred tax assets:
     Deferred revenues....................................     $         1,368         $          1,232
     Operating loss carry forwards........................              24,198                   31,723
     Accrued vacation.....................................                 257                      294
     Bad debt.............................................                 193                      186
     Depreciation and amortization........................                 507                      263
     State taxes..........................................                 315                      165
     Other................................................               1,837                    1,404
                                                               ---------------         ----------------
       Gross deferred tax assets..........................              28,675                   35,267
Valuation allowance.......................................             (28,675)                 (35,267)
                                                               ----------------        -----------------
Net deferred tax asset....................................     $            --         $             --
                                                               ===============         ================
</TABLE>


         The Company has determined, based on historical 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 recorded valuation allowances of
$19,627,000, $9,048,000 and $6,592,000 in 2001, 2002 and 2003, respectively to
offset the Company's net deferred tax assets.

                                      F-22
<PAGE>

         As of December 31, 2003, the Company had federal and state net
operating loss carryforwards of $70,094,000 and $84,147,000 respectively,
beginning expiration in 2020 and 2005, respectively.

13. Non-Recurring Items

         The Company recorded the following as non-recurring items for 2001,
2002 and 2003:
<TABLE>
<CAPTION>

                                                                             Years Ended December 31,
                                                                             ------------------------
                                                                        2001           2002           2003
                                                                        ----           ----           ----
                                                                                  (in thousands)
<S>                                                                <C>             <C>           <C>
Gain on sale of Houston real estate (See Note 5)................    $     --       $        97    $       --
Gain on sale of The Sports Club/Las Vegas (See Note 5)..........          --                30            --
Interest expense reversal on litigation settlement (a)..........         397                --            --
                                                                    --------       -----------    ----------
                                                                    $    397       $       127    $       --
                                                                    ========       ===========    ==========
</TABLE>

         (a) The Company recorded a non-recurring gain of $397,000 during the
year ended December 31, 2001. The non-recurring gain in 2001 was the result of
the reversal of accrued interest expense related to the settlement of
litigation. As part of the settlement the Company was no longer required to pay
the accrued interest due on the note in question.

14. Stock Plans

Stock Incentive Plans

         The Company's shareholders reserved 1,800,000 shares of Common Stock
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, the Company's shareholders adopted the 2001 Stock Incentive Plan
(the "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
number of options granted to the Company's former Co-Chief Executive Officer D.
Michael Talla, which expire on the fifth anniversary of the grant date, all
options expire on the tenth anniversary of the grant date.



                                      F-23
<PAGE>



          A summary of the status of the Company's stock option plans as of
December 31, 2001, 2002 and 2003 and changes during the years then ended are
presented below:

<TABLE>
<CAPTION>


                                                                                               Weighted
                                                                                           Average Exercise
                                                                              Shares            Price
                                                                              ------            -----
<S>                                                                          <C>         <C>
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 exercisable 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

Outstanding at January 1, 2002.......................................         1,850,275          5.37
Granted..............................................................                --            --
Canceled.............................................................           (64,942)         5.20
Exercised............................................................                --            --
                                                                          -------------
Outstanding at December 31, 2002.....................................         1,785,333          5.38
                                                                          =============
Options exercisable at December 31, 2002.............................         1,296,448          5.61
                                                                          =============

Outstanding at January 1, 2003.......................................         1,785,333          5.38
Granted..............................................................                --            --
Canceled.............................................................           (30,724)         8.13
Exercised............................................................                --            --
                                                                          -------------
Outstanding at December 31, 2003.....................................         1,754,609          5.33
                                                                          =============

Options exercisable at December 31, 2003.............................         1,621,965          5.52
                                                                          =============
</TABLE>

         The following table summarizes information about stock options
outstanding at December 31, 2003:


                                             Weighted
                                              Average
                                             Remaining
      Exercise             Number           Contractual            Options
       Prices           Outstanding        Life (Years)          Exercisable
       ------           -----------        ------------          -----------
      $2.5625              24,333              2.41                 24,334
       2.6875              70,000              2.11                 70,000
       2.7500              26,000              2.84                 26,000
       3.0100             282,932              7.39                188,621
       3.3110             115,000              2.39                 76,667
       3.9375             210,000              5.10                210,000
       4.2500             219,344              6.85                219,343
       4.3750              60,000              3.22                60,000
       5.2500              42,000              1.24                 42,000
       5.3750              32,000              3.50                32,000
       8.0000             211,000              4.29                211,000
       8.0000             450,000              6.11                450,000
       8.3750              12,000              3.85                 12,000
                    -------------                            -------------
                        1,754,609                                1,621,965
                    =============                            =============




                                      F-24
<PAGE>



         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, 2003, 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, 2003, no purchase rights had been granted.

1994 Stock Compensation Plan

         In July 1994, the Company instituted its 1994 Stock Compensation Plan
(that was amended by the Company's shareholders in July 1999) 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 were reserved
for issuance pursuant to this plan and a total of 50,000 shares have been issued
to outside directors under the plan. During the years ended December 31, 2001,
2002 and 2003, the Company issued 6,000, 8,000 and 6,000 shares of Common Stock
as director compensation for aggregate consideration of $16,000, $15,000 and
$12,000, respectively.

15. Related Party Transactions

         Millennium Partners LLC (collectively with its affiliate "Millennium")
is a significant shareholder of the Company and has jointly developed Clubs with
the Company. A representative of Millennium is on the Company's Board of
Directors. Millennium is a partner in the Reebok Sports Club/NY partnership as
well as the landlord of the building in which the Reebok Sports Club/NY is
located. 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 is entitled to
certain additional priority distributions and 60% of the remaining cash flow.
Millennium is entitled to 20% of such remaining cash flows.

         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
2001, 2002 and 2003 a total of $4.8 million, $9.5 million and $9.5 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 statements
of operations. In addition, after the Company receives a management fee equal to
6% of all revenues, an amount equal to its capital investment in the Boston and
Washington D.C. Clubs and a 11% annual return on the capital investment and an
amount equal to its operating investment in the Club and a 10% annual return on
the operating 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, is 25% for the Washington and Boston Clubs
and 60% for the San Francisco Club. Millennium has not received any payments to
date under these provisions.

         On November 24, 2003, the Company opened The Sports Club/LA - Miami as
part of the exclusive new Four Seasons Hotel and Tower in Miami, Florida. The
Company operates this 40,000 square foot Club pursuant to a management agreement
with Millennium, the developer of the project. The Company receives a fee of 6%
of gross revenues and a participation in the Club's net cash flow. For the year
ended December 31, 2003, management fees of $131,000 were earned by the Company.
The Company was also reimbursed $2,383,000 for costs it incurred related to the
operation of The Sports Club/LA - Miami.

         The Company has a 50.1% interest in the partnership that owns The
Sports Club/LA - Los Angeles, and the Company's Chairman beneficially owns the
remaining 49.9%. The Company includes The Sports Club/LA - Los Angeles in its
consolidated financial statements. 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

                                      F-25
<PAGE>

proportion to their percentage interests. The next $35.0 million of annual 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. The Company has the option to redeem the preferred
partnership interest in the partnership held by the Company's Chairman. The
option expires as of January 31, 2006. The preferred partnership interest is
carried at its redemption amount, which is $600,000 at December 31, 2003 and
2002 and has been classified as minority interest on the accompanying
consolidated balance sheets.

         As of May 4, 2001, the Company entered into a ten-year sublease for
space located within The Sports Club/LA - Upper East Side. The sublease provides
for two five-year renewal options and one seven-year renewal option; 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 owned by Mr. Talla.

         In September 1999, the Company sold the property on which the Spectrum
Club - Thousand Oaks is located for a sales price of $12.0 million. The Company
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. The Company is 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.

         On March 18, 2002, the Company sold an aggregate of 10,500 shares of
Series B Convertible Preferred Stock to Kayne Anderson Capital Advisors and four
affiliates thereof for aggregate offering proceeds of $10.5 million. The shares
of Series B Preferred may, at the option of the holder, be converted into shares
of the Company's Common Stock at the current rate of $2.8871 per share; entitle
each holder to one vote for each share of Common Stock into which such Series B
Preferred could then be converted; and provide for the payment of dividends at
an annual rate of $90.00 per share. Dividends are cumulative, do not accrue
interest and, at the Company's discretion, may be paid in additional shares of
Series B Preferred. As part of the sale of the Series B Preferred to Kayne
Anderson, the Company agreed that for so long as Kayne Anderson beneficially
owns at least 12% of the Company's equity securities (on an "as-converted
basis") Kayne Anderson will have the right to designate one member to the
Company's Board of Directors. Mr. Charles A. Norris is currently serving on the
Board as the nominee of Kayne Anderson.

         On September 6, 2002, the Company sold an aggregate of 5,000 shares of
Series C Convertible Preferred Stock to three of the Company's major
shareholders, D. Michael Talla, Rex Licklider and MDP Ventures II, LLC, an
affiliate of Millennium, for aggregate offering proceeds of $5.0 million. The
shares of Series C Preferred may, at the option of the holder, be converted into
shares of the Company's Common Stock at the current rate of $2.8871 per share;
entitle each holder to one vote for each share of Common Stock into which such
Series C Preferred could then be converted; and provide for the payment of
dividends at an annual rate of $90.00 per share. Dividends are cumulative, do
not accrue interest and, at the Company's discretion, may be paid in additional
shares of Series C Preferred.

          In consideration of executing a guaranty in favor of Comerica-Bank -
California (the "Bank") in connection with the Bank's renewal of the Company's
credit facility (the "Credit Facility"), Messrs. Talla and Licklider and MDP
Ventures II, LLC, an affiliate of Millennium, entered into agreements with the
Company as of July 3, 2001, pursuant to which the Company was obligated to pay a
1% annual commitment fee to each of the guarantors. In addition to the committee
fee, the Company was obligated to pay to each guarantor a usage fee equal to 2%
per annum of such guarantor's pro rata portion of any amounts advanced to the
Company by the Bank. At the Company's discretion all earned commitment fees and
usage fees under the agreements were paid in restricted shares of Common Stock
with each guarantor receiving in the aggregate 86,392 shares. In June 2003, the
Company replaced the Credit Facility and, as of February 15, 2004, all payment
obligations due the guarantors have been met.

                                      F-26
<PAGE>

         Upon termination of the Credit Facility, on June 12, 2003, the Company
entered into a new promissory note with another financial institution. The new
note is for $20.0 million (the "Loan") and is guaranteed by Messrs. Talla and
Licklider. Messrs. Talla and Licklider entered into agreements with the Company
as of December 1, 2003, pursuant to which the Company is obligated to pay a
quarterly fee to each guarantor equal to 3% per annum of their pro rata portion
of the average outstanding principal balance of the Loan. At the Company's
discretion, such fees may be paid in Common Stock, cash or a combination
thereof. The third quarter 2003 fee was paid in stock with each guarantor
receiving 28,509 shares. The Company has also elected to pay the fourth quarter
2003 fee in stock and has determined that each guarantor will receive 40,731
shares.

16. Concentration of Credit Risk

         The Company markets its products principally to customers in Southern
California, New York City, Washington D.C., Boston and San Francisco. 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 managements' estimates (see Note 4 -
allowance for doubtful accounts).

17. Subsequent Events

         On March 12, 2004, the Company completed a $6.5 million private
placement of a newly created series of Convertible Preferred Stock. The Company
received $6.1 million in cash, net of costs, and issued 65,000 shares of $.01
par value Series D Convertible Preferred Stock ("Series D Convertible
Preferred"), at a price of $100 per share. The Series D Convertible Preferred
Stock was purchased by three of the Company's major shareholders consisting of
Rex Licklider (the Company's Chief Executive Officer), Millennium and Kayne
Anderson Capital Advisors. Dividends are earned at an annual rate of $9.00 per
share and shall be paid prior and in preference to any dividends earned on the
Series B Preferred, Series C Preferred, Common Stock or any other class of
equity security that is junior to the Series D Convertible Preferred. Dividends
are payable when and as declared by the Board of Directors. Such dividends are
cumulative, but do not accrue interest and at the Company's option, may be paid
in cash or additional shares of Series D Convertible Preferred. The Series D
Convertible Preferred may, at the option of the holder, be converted into shares
of Common Stock at the rate of $2.00 per share (resulting in the issuance of
3,250,000 shares of Common Stock if 100% of the Series D Convertible Preferred
is converted). Each share of Series D Convertible Preferred shall automatically
be converted into shares of Common Stock upon the consummation of a qualified
secondary stock offering of at least $50.0 million or if the closing price of
the Common Stock for a period of thirty consecutive trading days exceeds $4.00
per share until March 15, 2005, or $6.00 per share thereafter, and at least
150,000 shares of Common Stock have been traded during such applicable thirty
day period. Upon conversion, any earned and unpaid dividends would become
payable. The conversion price will be adjusted equitably in the event of any
combination, recapitalization, merger, reclassification or similar transaction
or issuance of Common Stock (or any instrument convertible into or exercisable
into Common Stock) at a price per share less than the Series D Convertible
Preferred conversion price then in effect. Commencing on the sixth anniversary
of the issuance of the Series D Convertible Preferred the Company at its option
may redeem the Series D Convertible Preferred in whole or in part by paying in
cash the sum of $100 per share plus any earned and unpaid dividends. In the
event of liquidation, the Series D Convertible Preferred holders are entitled to
receive, prior and in preference to any distribution to common shareholders and
holders of the Series B Preferred and Series C Convertible Preferred, an amount
equal to $100 for each share of Series D Convertible Preferred then outstanding,
plus any earned and unpaid dividends. The holders of the Series D Convertible
Preferred are afforded protective rights that among other things restrict the
Company's ability to incur debt or lease obligations, make investments or
acquisitions, sell a Club leased from Millennium, issue any new class of equity
securities, repurchase or redeem any equity securities, hire or fire the Chief
Executive Officer, enter into any new line of business or change the primary
line of business and issue options under the Company's stock option plans. In
addition, Millennium is entitled to designate two directors (at least one of
whom must be independent) and the other two holders are each entitled to
designate one director, to serve on the Company's Board of Directors.



                                      F-27
<PAGE>



18. Quarterly Summary of Information (Unaudited)

         Revenues and operating expenses for the first, second, and third
quarters of 2003 have been restated to record the impact of reimbursed costs
which previously had not been shown on the consolidated statement of operations.
Reimbursed costs relate to The Sports Club/LA - Miami, which is a non-owned Club
that the Company manages for its owner. The Company receives a management fee
for managing the Club and is reimbursed for costs that are advanced on the
owner's behalf. Reimbursed costs are recorded as both revenue and expense in the
consolidated financial statements. The effect of reimbursed costs on the
Company's loss from operations, net loss, loss attributable to common
stockholders and net loss per share (basic and diluted) is zero, since
reimbursed costs are reported both as revenue and as operating expenses in the
consolidated financial statements in equal amounts. Reimbursed costs represent
both pre-opening expenses and normal operating expenses of the Club. Reimbursed
costs by quarter for the first, second, third and fourth quarters of 2003 were
$258,000, $448,000, $327,000 and $1,350,000, respectively.
<TABLE>
<CAPTION>

                                                                               2003
                                                  ------------------------------------------------------------
                                                    March 31       June 30       September 30      December 31
                                                    --------       -------       ------------      -----------
                                                             (in thousands, except per share amounts)

<S>                                               <C>           <C>             <C>              <C>
Revenue:
   As reported...............................     $    32,403   $     32,181    $     31,727     $     36,027
                                                  ===========   ============    ============     ============
   As restated...............................     $    32,661   $     32,629    $     32,054     $     36,027
                                                  ===========   ============    ============     ============

Operating expenses:
   As reported...............................     $    32,788   $     33,193    $     33,399     $     36,947
                                                  ===========   ============    ============     ============
   As restated...............................     $    33,046   $     33,641    $     33,726     $     36,947
                                                  ===========   ============    ============     ============

Net loss attributable to common stockholders:
   As reported...............................     $   (4,243)   $    (4,822)    $    (5,618)     $    (5,091)
                                                  ===========   ============    ============     ============
   As restated...............................     $   (4,243)   $    (4,822)    $    (5,618)     $    (5,091)
                                                  ===========   ============    ============     ============

Net loss per share basic and diluted:
   As reported...............................     $    (0.23)   $     (0.26)    $     (0.31)     $     (0.28)
                                                  ===========   ============    ============     ============
   As restated...............................     $    (0.23)   $     (0.26)    $     (0.31)     $     (0.28)
                                                  ===========   ============    ============     ============
</TABLE>

         The following unaudited condensed quarterly financial data for the four
quarters ended December 31, 2002 have been restated as described in Note 2:
<TABLE>
<CAPTION>

                                                                               2002
                                                  ------------------------------------------------------------
                                                    March 31       June 30       September 30      December 31
                                                    --------       -------       ------------      -----------
                                                             (in thousands, except per share amounts)

<S>                                               <C>           <C>             <C>              <C>
Revenues:
     As reported.............................     $   29,968    $    29,946     $    30,195      $    30,744
                                                  ==========    ===========     ===========      ===========
     As restated ............................     $   29,968    $    29,946     $    30,195      $    30,744
                                                  ==========    ===========     ===========      ===========

Net loss attributable to common stockholders:
     As reported.............................     $    (4,312)  $     (5,239)   $     (3,882)    $     (5,068)
                                                  ============  =============   =============    =============
     As restated.............................     $    (9,446)  $     (5,239)   $     (3,882)    $     (5,068)
                                                  ============  =============   =============    =============



                                      F-28
<PAGE>





Net loss per share basic and diluted:
      As reported............................     $     (0.24)  $      (0.29)   $      (0.21)    $      (0.29)
                                                  ============  =============   =============    =============
      As restated............................     $     (0.52)  $      (0.29)   $      (0.21)    $      (0.29)
                                                  ============  =============   =============    =============
</TABLE>

19. Employee Benefit Plan

         The Company maintains a 401(k) defined contribution plan and is subject
to the provisions of the Employee Retirement Income Security Act of 1974
("ERISA"). The Plan provides for the Company to make a discretionary employer
matching contribution currently equal to 33% of the first 8% of each
participating employees' wages. The employer matching contribution can be made
in cash or Company stock, at the Company's discretion. Employer matching
contributions totaling $225,667, $233,995 and $256,066 were made for the Plan
years ended December 31, 2001, 2002 and 2003, respectively. The employer
contribution vests pro-rata over four years. In order to participate in the
Plan, employees must have been employed by the Company for at least one year and
must have worked at least 1,000 hours during that one year period. In order to
receive an employer matching contribution the participant must be employed by
the Company at December 31st and must have worked a minimum of 1,000 hours for
each applicable Plan year.



                                      F-29
<PAGE>



                          THE SPORTS CLUB COMPANY, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                    Three-year period ended December 31, 2003

<TABLE>
<CAPTION>


                                                Balance at
                                               beginning of                                         Balance at end
Description                                       period           Additions        Deletions          of period
------------------------------------------     --------------    --------------    -------------    ----------------

<S>                                            <C>               <C>               <C>               <C>
Year ended December 31, 2001:
     Allowance for doubtful accounts           $   671,000       $   782,000       $ 1,135,000       $   318,000
                                               ===========       ===========       ===========       ===========

Year ended December 31, 2002:
     Allowance for doubtful accounts           $   318,000       $   798,000       $   582,000       $   534,000
                                               ===========       ===========       ===========       ===========

Year ended December 31, 2003:
     Allowance for doubtful accounts           $   534,000       $   684,000       $   701,000       $   517,000
                                               ===========       ===========       ===========       ===========
</TABLE>





                                      F-30
<PAGE>





                                    PART III

 ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Our executive officers and directors and their ages as of June 15, 2004
are as follows:

Name                                        Age    Position
----                                       ----------------
D. Michael Talla.......................     57     Chairman of the Board
Rex A. Licklider.......................     61     Vice Chairman of the Board
                                                   and Chief Executive Officer
Philip J. Swain........................     46     President and Chief Operating
                                                   Officer
Nanette Pattee Francini................     55     Executive Vice President
Timothy M. O'Brien.....................     52     Chief Financial Officer and
                                                   Assistant Secretary
Mark S. Spino..........................     49     Senior Vice President of
                                                   Development
Andrew L. Turner.......................     57     Director
George J. Vasilakos....................     66     Director
Charles A. Norris......................     58     Director
Christopher M. Jeffries................     54     Director
Charles J. Ferraro.....................     60     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 Talla began developing sports and fitness clubs in 1977 when
he co-founded our predecessor non-public company. He has served as Chairman of
the Board since the inception of our public company in 1994, and served until
July 1999 as our Chief Executive Officer. From February 2000 until March 2004,
Mr. Talla held the position of Co-Chief Executive Officer with Mr. Licklider.
Since 1978, Mr. Talla has owned Talla Development Company and West Hollywood
Development Company, both real estate holding companies with properties in
California and Nevada. He has served on the Board of Trustees for the Curtis
School in Brentwood, California; West L.A. Little League; For Kids Only
Foundation; American Youth Soccer Association and Los Angeles Youth Programs.

         Rex A. Licklider has served as Vice Chairman of the Board since 1994
and as Chief Executive Officer since March 2004, having served with Mr. Talla as
Co-Chief Executive Officer from February 2000. Previously, Mr. Licklider served
as 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. Since January 1993, Mr. Licklider has been a member
of the Pentium Group, an entity investing, and often taking a management role,
in early stage and turn around/growth businesses. He is 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, The
Achievable Foundation and For Kids Only Foundation.

         Philip J. Swain was appointed President and Chief Operating Officer in
April 2003, having been our Senior Vice President of Operations since February
2000. Mr. Swain served as Vice President of Operations from 1994 until his
promotion in 2000.

         Nanette Pattee Francini began developing sports and fitness clubs in
1977 when she co-founded our predecessor non-public company. She has served as
our Executive Vice President and has been responsible for overseeing all
Branding/Marketing as well as new concept development since the inception of our
public company in 1994. Ms. Francini served on the Board of Directors from 1994
until April 2004. She founded and is Chairman of the Board of Directors of For
Kids Only Foundation. In 2003, Ms. Francini received the Golden Star Award from
Big Brothers Big Sisters, and in 2004 she accepted the Visionary Award bestowed
by the City of Beverly Hills.



                                       28
<PAGE>



         Timothy M. O'Brien has been our Chief Financial Officer since February
1995 and since June 1995 has also served as Assistant Secretary. Mr. O'Brien is
a Certified Public Accountant.

         Mark S. Spino was appointed Senior Vice President of Development in
February 2000, having served as Vice President of Development since 1994.

         Andrew L. Turner has been a director since 1994. Mr. Turner currently
serves as Chairman of the Board for EnduraCare Therapy Management, the nation's
largest privately held contract physical therapy company. He serves on the Board
of Directors for Watson Pharmaceuticals, Inc., a New York Stock Exchange traded
pharmaceutical manufacturing company. From 1989 until August 2000, Mr. Turner
served as Chairman and Chief Executive Officer of Sun Healthcare Group, Inc., a
New York Stock Exchange 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 of the Federal Bankruptcy Code.

         George J. Vasilakos has been a director since June 2002. Since January
1993, Mr. Vasilakos has been a member of the Pentium Group, an entity investing,
and often taking a management role, in early stage and turn around/growth
businesses. He was a principal and served as the Chief Executive Officer of
Golden Tel, the largest payphone provider in Nevada, which was sold in 1998.
Currently, Mr. Vasilakos serves as Chief Executive Officer for The Learning
Network, Inc., an e-learning company, and DiTronics, LLC, a provider of
Automated Teller Machine services. He has served as a member of the Board of
Directors and Executive Committee for the long distance industry trade
association, COMPTEL, and on the advisory committees for the masters programs in
telecommunications at Colorado University and Golden Gate University.

         Charles A. Norris was elected to the Board of Directors in August 2002.
Mr. Norris currently serves as Chairman of the Board of Directors of Glacier
Water Services, Inc. Previously, Mr. Norris was President of McKesson Water
Products Company and a Senior Vice President of McKesson Corporation. He is past
President and served on the Board of Directors and Executive Committee of the
International Bottled Water Association. Mr. Norris is also a member of the
Board of Directors of the AEM/DC Sports, a mid sized auto after market company.
As part of the sale of the Series D Convertible Preferred Stock in March 2004,
we agreed that Kayne Anderson, one of the three principal purchasers of the
Series D would be entitled to designate one director to serve on our Board of
Directors. Mr. Norris is currently serving as Kayne Anderson's designee pursuant
to this agreement.

         Christopher M. Jeffries became a member of the Board of Directors in
April 2004. Mr. Jeffries has founded, owned and managed several real-estate
development companies. He founded Millennium Partners in 1990 to meet the
lifestyle demands of affluent urbanites by creating luxury mixed-use properties
in the New York marketplace. The Millennium portfolio now includes projects in
New York, Boston, Washington D.C., Miami and San Francisco. Mr. Jeffries
graduated from Columbia College in 1968 and the University of Michigan Law
School in 1972. As part of the sale of the Series D Convertible Preferred Stock
in March 2004, we agreed that Millennium has the right to designate two
directors (one of whom must be independent) to serve on our Board of Directors.
Mr. Jeffries is a principal of Millennium and is currently serving as one of
Millennium's two designees pursuant to this agreement.

         Charles J. Ferraro became a member of the Board of Directors in April
2004. Mr. Ferraro has been with the Four Seasons Hotels and Resorts since 1980
and currently serves as its Senior Vice President of Operations with operating
responsibilities in Texas, California, Hawaii, Washington, Florida, the
Caribbean, Mexico, Central America and South America. Mr. Ferraro graduated from
Paul Smith's College of Hotel and Restaurant Management. As part of the sale of
the Series D Convertible Preferred Stock in March 2004, we agreed that
Millennium has the right to designate two directors (one of whom must be
independent) to serve on our Board of Directors. Mr. Ferraro meets the criteria
of "independent" as defined by the Securities and Exchange Commission and the
American Stock Exchange and is serving as Millennium's independent designee
pursuant to this agreement.



                                       29
<PAGE>



         The rules of the American Stock Exchange generally require that a
majority of the directors of a listed company be independent directors, that
nominations for members of the Board of Directors must be selected or
recommended either by a nominating committee comprised solely of independent
directors or by a majority of independent directors on the Board, that the
compensation of all officers must be determined or recommended to the Board for
determination either by a compensation committee comprised of independent
directors or by a majority of the independent directors on the Board and that
the Chief Executive Officer may not be present during discussion of his
compensation. However, a company in which over 50% of the voting power is held
by a "group" (a "Controlled Company") is not required to comply with these
general rules.

         Rex A. Licklider ("Licklider"), Millennium and Kayne Anderson Capital
Advisors, L.P. and its affiliates ("Kayne") own Common Stock and various series
of voting Convertible Preferred Stock, which in the aggregate, constitute 63.7%
of the voting power of the Company. In connection with their purchase of the
Series D Convertible Preferred Stock on March 12, 2004, Licklider, Millennium
and Kayne entered into an Investors' Rights Agreement with us, which affords
each of them certain consent rights with respect to the operation of our
business. In addition, the Investors' Rights Agreement affords each of Licklider
and Kayne the right to designate one director and affords Millennium the right
to designate two directors, one of whom must be an independent director, in each
case so long as certain specified Common Stock ownership thresholds are
maintained. As a result of the provisions of the Investors' Rights Agreement,
Licklider, Millennium and Kayne are a group that holds over 50% of the voting
power of the Company within the meaning of the rules of the American Stock
Exchange.

         We have determined that we are a Controlled Company and as such we are
entitled to take advantage of the exceptions set forth above. Therefore, it is
likely that nominations for members of our Board as well as officers'
compensation will be determined by the entire Board and not solely by our
independent directors.

         Both the Securities and Exchange Commission and the American Stock
Exchange require that a public company maintain a permanent independent audit
committee. The designation of a company as a Controlled Company does not negate
this responsibility. The Board has appointed Messrs. Vasilakos, Turner and
Norris to the Audit Committee and has charged them with the responsibility of
(i) reviewing our annual audit and appointing our independent auditors, and (ii)
reviewing our internal controls and financial management practices and (iii)
implementing and maintaining procedures for the reporting and treatment of any
complaints or concerns regarding accounting matters or otherwise as specified
under the Sarbanes-Oxley Act of 2002.

         The Board has created two other permanent committees: Compensation and
Nominating and Governance. The Compensation Committee, composed of Messrs.
Turner, Vasilakos and Norris (Mr. Collins also served on this Committee until
his resignation in April 2004), recommends compensation for key-employees,
oversees the management bonus program and administers our stock incentive plans.
The Nominating and Governance Committee, composed of Messrs. Norris, Vasilakos
and Turner, insures that the Board meets its fiduciary responsibilities to our
stockholders and that we are in full compliance with standard governance
policies and procedures.

         Pending adoption by the stockholders at the next annual meeting, the
Board of Directors on April 8, 2004, approved an amendment to the our Restated
Certificate of Incorporation providing for the annual election of directors.
Previously the directors had been divided into three classes with the
stockholders electing approximately one-third of the members of the Board of
Directors at each annual meeting. If approved, the Amendment would call for the
annual election of each member of the Board of Directors, with each Director
being elected to serve a one-year term.



                                       30
<PAGE>



          In August of 2002, the Board approved certain cash compensation to be
paid to non-employee directors. Because of the declared Controlled Company
status, in April 2004 the Board modified the plan so that only independent
directors were eligible for cash compensation. This action in effect results in
Mr. Jeffries, a principal of Millennium, not receiving any cash award. Our
independent directors (currently, Messrs. Ferraro, Norris, Turner and Vasilakos)
will be paid the following compensation: (i) an annual directorship retainer of
$12,000, (ii) an annual committee chair retainer of $4,000, (iii) $1,000 for
each Board and committee meeting attended and (iv) an annual option award of
2,000 shares under our 2001 Incentive Stock Plan. All directors are entitled to
reimbursement of expenses for attending meetings.

         Additionally, in December 2002, the Board created a special committee
and in recognition of the added responsibilities and demands of the work to be
performed by this committee, its members will receive additional compensation
of: (i) $1,000 for each meeting of the special committee attended in person,
(ii) $500 for each telephonic meeting, and (iii) $1,000 for each day committee
members devote a material portion of their business day to the affairs of the
committee.

Section 16(a) Beneficial Ownership Reporting Compliance

         Under Section 16(a) of the Securities Exchange Act of 1934 our
directors, executive officers and any persons holding more than 10% of our
Common Stock (who we refer to as "Reporting Persons") are required to report
their initial ownership and any subsequent changes in that ownership to the
Securities and Exchange Commission. Such Reporting Persons are also required to
furnish us with copies of all Section 16(a) forms they file. Specific due dates
for these reports have been established and we are required to identify all
Reporting Persons who failed to timely file these reports.

         To our knowledge, based solely on review of copies of such reports
furnished to us and written representations that no other reports were required,
during the fiscal year ended December 31, 2003, all the Reporting Persons
complied with applicable filing requirements, except:

         D. Michael Talla, a director and executive officer, did not timely file
a Form 4 relating to a March 18, 2003 transaction.

         Rex A. Licklider, a director and executive officer, did not timely file
a Form 4 relating to an April 8, 2003 transaction.

         Philip J. Swain, an executive officer, did not timely file a Form 4
relating to an April 8, 2003 transaction.

         Millennium did not timely file Forms 4 with respect to various
transactions that occurred in 2001 and 2002.

         Each party subsequently filed the required report.



                                       31
<PAGE>



Code of Ethics

         We have drafted a written code of ethics that applies to our principal
executive officers, principal financial officer, principal accounting officer
and other persons performing similar functions. This code of standards fulfills
the requirements recently imposed by the Securities and Exchange Commission and
covers such topics as conflict of interest, confidentiality, compliance with
legal requirements and other business ethics subjects. We have also drafted a
Code of Business Conduct for members of our Board of Directors. This code of
conduct seeks to guide our Board members in (i) recognizing and dealing with
ethical issues, (ii) fulfilling their fiduciary and oversight responsibilities
and (iii) establishing and maintaining mechanisms for reporting by our employees
of unethical conduct. Once approved, we intend to post these codes on our
website www.thesportsclubla.com in connection with our investor relations
materials. We further intend to promptly disclose on our website (i) the nature
of any amendment to these codes and (ii) the nature of any waiver, including an
implicit waiver, from a provision of our codes that is granted, the name of such
person who is granted the waiver and the date of the waiver. We presently rely
on the written policies in our Employee Handbook, as well as informal policies
and procedures, our directors' awareness of their fiduciary duties and our
employees' understanding of their responsibilities to the Company and our
shareholders to fulfill our duties as a public company. These policies may not
adequately protect us from all conflict of interest situations; therefore, it is
our intention in addition to the code of financial conduct and the code of
business conduct to also adopt: (i) corporate governance principles that will
establish oversight responsibilities for the conduct of our business and (ii) a
code of standards that will expand our current Employee Handbook and define how
all employees and directors will act in areas of professional conduct.

         To demonstrate our commitment to operating fairly and ethically, we
currently require that each employee acknowledge receipt of our Employee
Handbook, which sets forth, among other things, our professional standards
requiring proper business conduct and confidentiality of proprietary
information. We are in the process of finalizing a contract with an independent
outside hotline provider to implement an anonymous avenue for the reporting of
employee concerns relating to our financial reporting.

ITEM 11.  EXECUTIVE COMPENSATION

The  table  below  shows,  for the  last  three  fiscal  years,  the  amount  of
compensation  earned by the Chairman,  the Chief Executive  Officer 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."
<TABLE>
<CAPTION>

                                                                              Long-Term
                                                                            Compensation
                                                                               Shares             All Other
                                             Annual Compensation             Underlying         Compensation
 Name & Position               Year       Salary($)       Bonus($)         Options Awards          ($)(a)
 ---------------               ----   --------------- ---------------    -----------------       -----------
<S>                            <C>       <C>          <C>                   <C>                  <C>
D. Michael Talla..........     2003      200,000(b)          --                  --               15,281
  Chairman of the Board        2002      200,000(b)          --                  --               17,814
                               2001      240,000(b)          --                115,000            17,979

Rex A. Licklider..........     2003      200,000             --                  --               11,321
  Chief Executive Officer and  2002      200,000             --                  --               14,184
  Vice Chairman of the Board   2001      240,000             --                115,000            14,613

Philip J. Swain...........     2003      160,000             --                  --               14,885
  President and                2002      160,000           20,000                --               17,385
  Chief Operating Officer      2001      200,000             --                21,733             16,923

Nanette Pattee Francini...     2003      160,000             --                  --                9,925
  Executive Vice President     2002      160,000           20,000                --               11,906
                               2001      200,000             --                21,733             12,195

Mark S. Spino.............     2003      160,000             --                  --               14,291
  Senior Vice President of     2002      160,000           20,000                --               13,962
  Development                  2001      200,000             --                21,733             17,913

Timothy M. O'Brien........     2003      160,000             --                  --               12,102
  Chief Financial Officer      2002      160,000           20,000                --               15,953
  and Assistant Secretary      2001      200,000             --                21,733             17,913
</TABLE>

                                       32
<PAGE>

----------
(a) Represents value of (i) amounts paid by us on behalf of the Named Executive
    Officer and dependents for medical and life 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

         There were no option grants made to any Named Executive Officer during
the last fiscal year.

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, 2003.
<TABLE>
<CAPTION>

                               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                               (#)             (#)              ($)             ($)
----                        --------------- ---------------  ---------------   --------------
<S>                                <C>               <C>           <C>              <C>
D. Michael Talla........           326,667           38,333       -0-              -0-
Rex A. Licklider........            76,667           38,333       -0-              -0-
Philip J. Swain.........           212,756            7,244       -0-              -0-
Nanette Pattee Francini.           202,756            7,244       -0-              -0-
Mark S. Spino...........           202,756            7,244       -0-              -0-
Timothy M. O'Brien......           232,756            7,244       -0-              -0-
----------
</TABLE>

(a)  All options were granted pursuant to one of our two Stock Incentive Plans.

(b)  The closing  price of our Common  Stock on the American  Stock  Exchange on
     December 31, 2003 was $1.81.  Since all options have been granted at prices
     above $1.81, there are no options considered to be in-the-money.

Employment Agreements

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

   Rex A. Licklider            Chief Executive Officer                   200,000
   Philip J. Swain             President and Chief Operating Officer     180,000
   Nanette Pattee Francini     Executive Vice President                  160,000
   Mark S. Spino               Senior Vice President                     160,000
   Timothy M. O'Brien          Chief Financial Officer                   160,000

         On March 16, 2004, D. Michael Talla, founder and Chairman of the Board,
relinquished his position as Co-Chief Executive Officer. In light of this
change, the Compensation Committee is reviewing Mr. Talla's current salary
package and is expected to present their recommendations for future compensation
based solely on services rendered as Chairman at the next meeting of our Board
of Directors. Until our Board makes this determination, Mr. Talla will continue
to receive his current annual salary of $200,000.

                                       33
<PAGE>



<PAGE>


Compensation of Directors

Our independent directors receive the following compensation:

o    Annual retainer fee of $12,000,
o    Annual retainer fee of $4,000 for each committee chair,
o    $1,000 for each Board and committee meeting attended,
o    Reimbursement of expenses for attending Board and committee meetings,
o    Annual option award of 2,000 shares  under our 2001 Incentive  Stock Plan
     (timing of such grant is at the discretion of the Board, and as of June 15,
     2004 no option awards have been granted).

         Messrs. Turner, Vasilakos, Norris and Ferraro currently serve on the
Board as independent directors. Prior to April 2004, compensation for services
on the Board was given to non-employee directors. Therefore, Mr. Licklider
received amounts due non-employee directors until his appointment to Co-Chief
Executive Officer in February 2000; and until his resignation in June 2002, Mr.
Dennison T. Veru also received amounts due non-employee directors. From 2001
through his resignation in 2004, Mr. Collins, because of his executive position
with Millennium, waived all cash compensation. All directors receive
reimbursement of reasonable out-of-pocket expenses incurred in connection with
meetings of the Board.

         In December 2002, Messrs. Turner and Vasilakos were appointed to a
special committee, and in recognition of the added responsibilities and demands
of the work to be performed by them, Messrs. Turner and Vasilakos are to receive
the following additional compensation: $1,000 for each meeting of the special
committee attended in person, $500 for each telephonic meeting and $1,000 per
day on which they devote a material portion of their business day to the affairs
of the committee.

         Following are the amounts paid to all directors for each of the last
three years:

                           Year                   Amount
                           ----                   ------
                           2001               $   56,863
                           2002                   68,502
                           2003                  112,675

         Under the Amended and Restated 1994 Stock Compensation Plan an
aggregate of 50,000 shares of Common Stock was issued to non-employee directors
through December 31, 2003. There are no more shares available for issuance under
this current plan.

Compensation 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.  Vasilakos
was appointed on August 2, 2002 following the  resignation of Dennison Veru. Mr.
Norris was appointed to the Committee on February 25, 2003. Mr. Collins had been
a member of the Committee from 1998 until his resignation in April 2004. None of
these individuals has ever been an officer or employee.



                                       34
<PAGE>



ITEM 12.  SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table shows the shares of our Common Stock beneficially
owned as of June 15, 2004 by our directors and Named Executive Officers. It also
shows other individuals or entities that beneficially owned more than 5% of our
Common Stock.
<TABLE>
<CAPTION>

                                                                           Shares
                                                                          Issuable
                                                     Shares Issuable        upon
                                            Shares         Upon           Exercise     Shares Held   Total and Percent of
          Name and Address                  Owned      Conversion of     of Options       Under        Stock Ownership
                                                                                                       ---------------
       of Beneficial Owner(a)             Directly    Preferred Stock    within 60        401-K        Number      Percent
       ----------------------             ---------   ---------------    ----------       ------     ---------------------
                                             (b)                          days(c)        Plan(d)
                                             ---                          -------        -------

<S>                                        <C>            <C>              <C>            <C>        <C>            <C>
D. Michael Talla (e)..................     4,629,019      346,365          365,000        8,126      5,348,510      32.78
Nanette Pattee Francini (e)...........       256,107           --          210,000        4,086        470,193      32.78
Mark S. Spino (e).....................       227,969           --          210,000        6,030        443,999      32.78
Philip J. Swain (e)...................       112,164           --          220,000        6,002        338,166      32.78
Voting Trust (e)......................     5,225,259      346,365        1,005,000       24,244      6,660,868      32.78
Timothy O'Brien.......................         3,000           --          240,000        6,242        249,242       1.31
The Licklider Living Trust
  Dated May 2, 1986 ..................     2,055,132    1,192,730          115,000           --      3,362,862      16.74
Andrew L. Turner......................         7,500           --               --           --          7,500          *
Charles A. Norris(f)..................         3,500      173,183               --           --        176,683      21.53
George J. Vasilakos...................       327,400           --               --           --        327,400       1.74
Christopher M. Jeffries (g)...........        29,000           --               --           --         29,000      42.28
Charles J. Ferraro....................            --           --               --           --             --          *
All Directors and Executive Officers as
a Group (11 persons)..................     7,650,791    1,712,278        1,360,000        30,486    10,753,555      49.20
Millennium (g)........................     6,243,749    2,942,730               --           --      9,186,479      42.28
Kayne Anderson Capital Advisors, L.P.        797,128    4,136,833               --           --      4,933,961      21.53
(f)....................................
</TABLE>

----------

 *    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.

(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 person's spouse has voting and investment  power, or
     3. the shares are held by other members of the named person's immediate
        family.

(c)  Includes shares that can be acquired through stock option exercises through
     August 14, 2004.

(d)  Includes  shares  issued  pursuant  to our  401(k)  Profit  Sharing  Plan's
     discretionary match as of June 15, 2004.

(e)  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.

(f)  Kayne Anderson Capital  Advisors,  L.P. and several of their affiliates are
     owners of our Convertible  Preferred Stock.  Kayne Anderson is deemed to be
     the  beneficial  owner  of  the  shares.  Mr.  Norris  is  also  deemed  to
     beneficially  hold  these  shares  because  of his  affiliation  with Kayne
     Anderson.  Mr.  Norris'  ownership has therefore been reflected (1) next to
     his name so that the table  accurately  reflects the share ownership of our
     officers and directors and (2) in the totals for Kayne Anderson so that the
     Kayne Anderson  total  accurately  reflects their joint  ownership as noted
     below. The address of all such entities is 1800 Avenue of the Stars, Second
     Floor, Los Angeles, California 90067.



                                       35
<PAGE>



      The Preferred Stock carries voting rights and is convertible into shares
      of Common Stock. The following table reflects the ownership of the Kayne
      affiliates as to outstanding Common Stock currently owned and Common Stock
      into which the preferred shares are convertible:
<TABLE>
<CAPTION>


                                    Outstanding
                                       Common       Series B         Series D
                                      Directly    Convertible      Convertible
               Owner                    Held        Preferred       Preferred         Total
               -----                    ----        ---------       ---------         -----
<S>                                   <C>           <C>                             <C>
 Kayne Anderson Capital
   Advisors, L.P............          793,628       3,073,990           --          3,867,618
 Ric Kayne......................         --           346,365           --            346,365
 Charles Norris.................        3,500         173,183           --            176,683
 Howard Zelikow.................         --            34,636           --             34,636
 David Shladovsky...............         --             8,659           --              8,659
 Arbco Associates, L.P..........         --            --            166,668          166,668
 Kayne Anderson Non-
   Traditional Investments, L.P.         --            --            166,666          166,666
 Kayne Anderson Select
   Investments A, L.P....                --            --            166,666          166,666
                                    ---------     -----------    -----------     ------------
      Total.....................      797,128       3,636,833        500,000        4,933,961
                                    =========     ===========    ===========     ============
</TABLE>


(g)   Millennium Entertainment Partners and several of their affiliates are
      owners of our Common and our Preferred Stock. Millennium is deemed to be
      the beneficial owner of the shares. Mr. Jeffries because of his position
      with Millennium is also deemed to be a beneficial owner of these shares.
      Mr. Jeffries' ownership has therefore been reflected (1) next to his name
      so that the table accurately reflects the share ownership of our officers
      and directors, and (2) in the totals for Millennium so that the Millennium
      total accurately reflects their joint ownership as noted below. The
      address of all such entities is c/o Millennium Partners Management LLC,
      1995 Broadway, New York, New York, 10023.

      The Preferred Stock carries voting rights and is convertible into shares
      of Common Stock. The following table reflects the ownership of the
      Millennium affiliates as to outstanding Common Stock currently owned and
      Common Stock into which the preferred shares are convertible:

<TABLE>
<CAPTION>

                               Outstanding
                                  Common         Series C       Series D
                                 Directly      Convertible     Convertible
           Owner                   Held          Preferred      Preferred          Total
           -----                   ----          ---------      ---------          -----

<S>                             <C>            <C>              <C>             <C>
 Christopher M. Jeffries...         29,000          --             --               29,000
 Millennium Partners LLC...      2,253,863          --             --            2,253,863
 Millennium Development
  Partners L.P.............        978,900          --             --              978,900
 MDP Ventures I LLC........         72,100          --             --               72,100
 MDP Ventures II LLC.......      2,284,886        692,730       2,250,000        5,227,616
 Millennium Entertainment
  Partners L.P.............        625,000          --             --              625,000
                             -------------     -------------------------------------------

                                 6,243,749        692,730        2,250,000       9,186,479
                             =============     ==========     ============   =============

</TABLE>


                                       36
<PAGE>



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
have 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.

         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.

         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 capital investment in the Boston and Washington
D.C. Clubs and an 11% annual return on the capital investment and an amount
equal to our operating investment in the Clubs and a 10% annual return on the
operating 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 these Clubs.
Under the amended lease agreements, their percentage increases to 25% for the
Washington and Boston Clubs and 60% for the San Francisco Club. Millennium has
not received any payments to date under these provisions.

         On November 24, 2003, we opened The Sports Club/LA - Miami as part of
the exclusive new Four Seasons Hotel and Tower in Miami, Florida. We operate
this 40,000 square foot Club pursuant to a management agreement with Millennium,
the developer of the project. We will receive a fee of 6% of gross revenues and
a participation in the Club's net cash flow.

         Mr. Talla. We have a 50.1% interest in the partnership that owns The
Sports Club/LA - 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 annual 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. The
Company has the option to redeem the preferred partnership interest in the
partnership held by Mr. Talla. The option expires as of January 31, 2006. The
preferred partnership interest is carried at its redemption amount, which is
$600,000 at December 31, 2003.

         As of May 4, 2001, we entered into a ten-year sublease for space
located in the building in which The Sports Club/LA - Upper East Side is
located. The sublease provides for two five-year renewal options and one
seven-year renewal option, 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 owned by Mr. Talla.



                                       37
<PAGE>



         Messrs. Talla and Licklider. 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.

         Kayne Anderson. On March 18, 2002, we sold an aggregate of 10,500
shares of Series B Convertible Preferred Stock to Kayne Anderson Capital
Advisors and four affiliates thereof for aggregate offering proceeds of $10.5
million. The shares of Series B Preferred may, at the option of the holder, be
converted into shares of our Common Stock at a rate of $2.8871 per share;
entitle each holder to one vote for each share of Common Stock into which such
Series B Preferred could then be converted; and provide for the payment of
dividends at an annual rate of $90.00 per share. Dividends are cumulative, do
not accrue interest and, at our discretion, may be paid in additional shares of
Series B Preferred.

         Messrs. Talla and Licklider and Millennium. In consideration of
executing a guaranty in favor of Comerica-Bank - California (the "Bank") in
connection with the Bank's renewal of our $15.0 million credit facility (the
"Credit Facility"), Messrs. Talla and Licklider and MDP Ventures II, LLC, an
affiliate of Millennium, entered into agreements with us as of July 3, 2001,
pursuant to which we were obligated to pay an 1% percent annual commitment fee
to each of the guarantors. In addition to the commitment fee, we were obligated
to pay to each guarantor a usage fee equal to 2% per annum of such guarantor's
pro rata portion of any amounts advanced to us by the Bank. At our discretion
all earned commitment fees and usage fees under the agreements were paid in
restricted shares of Common Stock with each guarantor receiving in the aggregate
86,392 shares. In June 2003, we replaced the Credit Facility and, as of February
15, 2004, all payment obligations due the guarantors have been met.

         Upon termination of the Credit Facility, on June 12, 2003, we entered
into a new promissory note with another financial institution. The new note is
for $20.0 million (the "Loan") and is guaranteed by Messrs. Talla and Licklider.
Messrs. Talla and Licklider entered into agreements with us as of December 1,
2003, pursuant to which we are obligated to pay a quarterly fee to each
guarantor equal to 3% per annum of their pro rata portion of the average
outstanding principal balance of the Loan. At our discretion, such fees may be
paid in Common Stock, cash or a combination thereof. The third quarter 2003 fee
was paid in stock with each guarantor receiving 28,509 shares. On May 20, 2004,
we paid the fourth quarter 2003 and the first quarter 2004 fees in Common Stock
and each guarantor received 80,269 shares. These obligations have been funded
out of Treasury Shares.

         On September 6, 2002, we sold an aggregate of 5,000 shares of Series C
Convertible Preferred Stock to three of our major shareholders, D. Michael
Talla, Rex Licklider and MDP Ventures II, LLC, an affiliate of Millennium, for
aggregate offering proceeds of $5.0 million. The shares of Series C Preferred
may, at the option of the holder, be converted into shares of our Common Stock
at a rate of $2.8871 per share; entitle each holder to one vote for each share
of Common Stock into which such Series C Preferred could then be converted; and
provide for the payment of dividends at an annual rate of $90.00 per share.
Dividends are cumulative, do not accrue interest and, at our discretion, may be
paid in additional shares of Series C Preferred.



                                       38
<PAGE>



         Mr. Licklider , Millennium and Kayne Anderson. On March 12, 2004, we
sold an aggregate of 65,000 shares of Series D Convertible Preferred Stock to
these three shareholders for aggregate proceeds of $6.5 million. The shares of
Series D Preferred may, at the option of the holders, be converted into shares
of our Common Stock at a rate of $2.00 per share; entitle each holder to one
vote for each share of Common Stock into which such Series D Preferred could
then be converted; and provide for the payment of dividends at an annual rate of
$9.00 per share. Dividends are cumulative, do not accrue interest and, at our
discretion, may be paid in additional shares of Series D Preferred. Each share
of Series D Preferred shall automatically be converted into shares of Common
Stock upon the consummation of a qualified secondary stock offering of at least
$50.0 million or if the closing price of our Common Stock for a period of thirty
consecutive trading days exceeds $4.00 per share until March 15, 2005, or $6.00
per share thereafter, and at least 150,000 shares of Common Stock have been
traded during such applicable thirty day period. As part of the sale of the
Series D Preferred, we agreed that for so long as certain specified Common Stock
ownership is maintained, Mr. Licklider and Kayne Anderson each have the right to
designate one director and Millennium has the right to designate two directors,
one of whom must be independent. Pursuant to this agreement, Mr. Licklider is
currently serving as the designee of Mr. Licklider; Mr. Norris is currently
serving as the designee of Kayne Anderson and Messrs. Jeffries and Ferraro (an
independent board member) are currently serving as Millennium's designees.



                                       39
<PAGE>



                                     PART IV


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         We were billed for the following services provided by KPMG LLC, our
principal independent accountants, during 2002 and 2003:

                                                      2002           2003
                                                      ----           ----
             Audit fees(1)....................   $   129,500    $   161,500
             Audit related fees...............         3,000          3,000
             Tax fees.........................            --             --
             All other fees...................            --             --
                                                 -----------    -----------

             Total............................   $   132,500    $   164,500
                                                 ===========    ===========


(1)  Audit fees include fees for (i) the audits of the Company's consolidated
     financial statements, (ii) review of the unaudited condensed consolidated
     interim financial statements included in quarterly reports and (iii) the
     review of debt agreements and issuance of compliance letters.

         The Audit Committee's policy is to pre-approve all audit and
permissible non-audit services provided by the independent accountants. These
services may include audit services, audit-related services, tax services, and
other services. Pre-approval is generally provided for up to one year and is
detailed as to the particular service or category of services. The Audit
Committee may also pre-approve particular services on a case-by-case basis. The
Audit Committee pre-approved 100% of the audit fees for the fiscal year ended
December 31, 2003.

         The Audit Committee determined that the provision of services discussed
above is compatible with maintaining the independence of KPMG LLC from the
Company.

ITEM 15. 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 other 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.
<TABLE>
<CAPTION>

 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date       Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ---------

<S>                                                           <C>            <C>             <C>               <C>
   3.1          Restated Certificate of Incorporation           S-1           33-79552        10/13/94
                of the Registrant.

   3.2          Bylaws of the Registrant.                       S-1           33-79552        10/13/94

   3.3          Amendment to Bylaws dated February 1,          10-K/A         1-13290         10/14/97
                1995.

   3.4          Certificate of Designation of Series            8-K           1-13290         03/26/02
                B Convertible Preferred Stock of the
                Registrant.

                                       40
<PAGE>

 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

   3.5          Corrected Certificate of Designation            8-K           1-13290         09/09/02
                of Series B Convertible Preferred
                Stock of the Registrant.

   3.6          Certificate of Designation of Series            8-K           1-13290         09/09/02
                C Convertible Preferred Stock of the
                Registrant.

   3.7          Amendment No. 2 to Bylaws dated July            10-K          1-13290         03/31/03
                21, 1999.

   3.8          Certificate of Designation of Series            8-K           1-13290         03/18/04
                D Convertible Preferred Stock of the
                Registrant

   4.1          Specimen Common Stock Certificate.              S-1           33-79552        10/13/94

   4.2          Rights Agreement by and between the             8-K           1-13290         10/06/98
                Registrant and American Stock
                Transfer & Trust dated as of October
                6, 1998.

   4.3          First Amendment to Rights Agreement             8-K           1-13290         03/15/99
                by and between the Registrant and American
                Stock Transfer & Trust entered into as of
                February 18, 1999.

   4.4          Indenture by and among Registrant,              8-K           1-13290         04/14/99
                U.S. Bank Trust National Association and the
                Subsidiary Guarantors referred to therein,
                dated as of April 1, 1999.

   4.5          Registration Rights Agreement by and            8-K           1-13290         04/14/99
                among the Registrant, Jeffries &
                Company, Inc. and CIBC Oppenheimer
                Corp., dated as of April 1, 1999.

   4.6          Purchase Agreement by and among the             8-K           1-13290         04/14/99
                Registrant, Jeffries & Company, Inc.
                and CIBC Oppenheimer Corp., dated
                March 29, 1999.

   4.7          Second Amendment to Rights Agreement            10-K          1-13290         03/28/00
                by and between the Registrant and American
                Stock Transfer & Trust entered into as of
                July 2, 1999.



                                       41
<PAGE>





 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

   4.8          Third Amendment to Rights Agreement             10-K          1-13290         03/30/01
                by and between the Registrant and American
                Stock Transfer & Trust made and entered into
                as of April 27, 2000.

   4.9          Fourth Amendment to Rights Agreement            8-K           1-13290         07/17/01
                by and between the Registrant and American
                Stock Transfer & Trust entered into as of
                June 27, 2001.

   4.10         Fifth Amendment to Rights Agreement             8-K           1-13290          09/9/02
                by and between the Registrant and American
                Stock Transfer & Trust entered into as of
                September 6, 2002.

   4.11         Sixth Amendment to Rights Agreement             10-K          1-13290         03/31/03
                by and between the Registrant and American
                Stock Transfer & Trust entered into as of
                March 5, 2003.

   4.12         Seventh Amendment to Rights Agreement           8-K           1-13290         04/17/03
                by and between the Registrant and American
                Stock Transfer & Trust entered into as of
                April 14, 2003.

   4.13         Eighth Amendment to Rights Agreement            8-K           1-13290         06/02/03
                by and between the Registrant and American
                Stock Transfer & Trust entered into as of
                May 30, 2003.

   4.14         Ninth Amendment to Rights Agreement             8-K           1-13290         07/31/03
                by and between the Registrant and American
                Stock Transfer & Trust entered into as of
                July 30, 2003.

   4.15         Tenth Amendment to Rights Agreement             8-K           1-13290         10/03/03
                by and between the Registrant and American
                Stock Transfer & Trust entered into as of
                September 30, 2003.



                                       42
<PAGE>





 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

   4.16         Eleventh Amendment to Rights                    8-K           1-13290         12/03/03
                Agreement by and between the Registrant
                and American Stock Transfer & Trust entered
                into as of November 25, 2003.

   4.17         Twelfth Amendment to Rights Agreement           8-K           1-13290         03/04/04
                by and between the Registrant and American
                Stock Transfer & Trust entered into as of
                March 3, 2004.

   4.18         Thirteenth Amendment to Rights                  8-K           1-13290         03/18/04
                Agreement by and between the Registrant and
                American Stock Transfer & Trust entered into
                as of March 10, 2004.

   9.1          Voting Agreement among D. Michael               S-1           33-79552        10/13/94
                Talla, Nanette Pattee Francini, Mark
                S. Spino, Peter Feinstein, Philip J.
                Swain and FP II.

   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               S-1           33-79552        10/13/94
                between the Registrant and its
                directors and certain officers.

   10.6         Indemnification Agreement between the           S-1           33-79552        10/13/94
                Registrant and D. Michael Talla.

   10.7         Indemnification Agreement between               S-1           33-79552        10/13/94
                Registrant and Rex A. Licklider.

   10.8         Lease of premises for Reebok Sports             S-1           33-79552        10/13/94
                Club/NY located at 160 Columbus
                Avenue, New York 10023 dated June 3,
                1992.

   10.9         Management Agreement effective as of            S-1           33-79552        10/13/94
                June 3, 1992, between R-SC/NY, Ltd.
                and Pontius Realty, Inc.



                                       43
<PAGE>





 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

  10.10         License Agreement between Reebok                S-1           33-79552        10/13/94
                Fitness Centers, Inc. and R-SC/NY,
                Ltd. dated June 3, 1992.

  10.11         Letter Agreement regarding R-SC/NY              S-1           33-79552        10/13/94
                dated June 3, 1992.

  10.12         Memorandum of Agreement between                 S-1           33-79552        10/13/94
                Reebok Fitness Centers, Inc. and the
                Company dated as of June 3, 1992.

  10.13         Seventh Amendment and Restated                  S-1           33-79552        10/13/94
                Agreement of Limited Partnership of
                L.A./Irvine Sports Club, Ltd., a
                California Limited Partnership, dated
                as of October 12, 1994.

  10.14         First Amendment to Seventh Amended              S-1           33-79552        10/13/94
                and Restated Agreement of Limited
                Partnership of L.A./Irvine Sports
                Club, Ltd., a California Limited
                Partnership, dated as of October 12,
                1994.

  10.15         Form of Option Agreement by and                 S-1           33-79552        10/13/94
                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.

  10.16         Amended and Restated Agreement of               S-1           33-79552        10/13/94
                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.

  10.17         First Amended and Restated Agreement            S-1           33-79552        10/13/94
                of Limited Partnership of
                Reebok-Sports Club/NY, Ltd. Dated as
                of October 12, 1994.

  10.18         Letter Agreement by and between                 S-1           33-79552        10/13/94
                Reebok Fitness Centers, Inc. and the
                Company dated October 12, 1994.



                                       44
<PAGE>





 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

  10.19         Amendment to First Amended and                  S-1           33-79552        10/13/94
                Restated Agreement of Limited
                Partnership of Reebok-Sports Club/NY,
                Ltd. dated as of October 12, 1994.

  10.20         Letter Agreement by and between                 S-1           33-79552        10/13/94
                Reebok Fitness Centers, Inc. and the
                Company, which became effective on
                October 29, 1994.

  10.21         License Agreement by and between                S-1           33-79552        10/13/94
                Reebok Fitness Centers, Inc. and the
                Company, which became effective on
                October 20, 1994.

  10.22         Agreement by and among Reebok-Sports           10-K/A         1-13290         10/14/97
                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.

  10.23         Letter Agreement between Millennium            10-K/A         1-13290         10/14/97
                Entertainment Partners, L.P. and the
                Registrant dated as of March 13, 1997.

  10.24         First Amendment to Option Agreement             10-K          1-13290         02/26/98
                between D. Michael Talla and TTO
                Partners dated May 27, 1997.

  10.25         Amendment of Lease between Lincoln              10-K          1-13290         02/26/98
                Metrocenter Partners, L.P. and
                Reebok-Sports Club/NY Ltd. as of
                January 31, 1998.

  10.26         Lease Agreement between RCPI Trust              10-K          1-13290         03/25/99
                and the Registrant as of February 27,
                1998.

  10.27         Amended and Restated Net Operating              10-K          1-13290         03/25/99
                Lease among Hirschfeld Realty Club
                Corporation and 328 E. 61 Corp., and
                Vertical Fitness and Racquet Club,
                Ltd., dated March 26, 1985.



                                       45
<PAGE>





 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

  10.28         Lease Modification Agreement by and             10-K          1-13290         03/25/99
                among Hirschfeld Realty Corporation
                and 328 E. 61 Corp., and Vertical
                Fitness and Racquet Club, Ltd., dated
                July 1, 1990.

  10.29         Assignment and Assumption of Lease by           10-K          1-13290         03/25/99
                and between Vertical Fitness and
                Racquet Club, Ltd., and Bally
                Entertainment Corporation dated
                January 8, 1996.

  10.30         Assignment of Lease executed by                 10-K          1-13290         03/25/99
                Hilton Hotels Corporation, as successor
                to tenant, and agreed to and accepted by
                the Registrant, dated April 15, 1998.

  10.31         Second Amendment to Amended and                 10-K          1-13290         03/25/99
                Restated Net Operating Lease by and
                among Hirschfeld Realty Club
                Corporation and 328 E. 61 Corp., and
                the Registrant dated April 15, 1998.

  10.32         Note Payable issued by the Registrant           10-K          1-13290         03/25/99
                to Hilton Hotels Corporation dated
                April 15, 1998.

  10.33         Amended and Restated 1994 Stock                 10-K          1-13290         03/25/99
                Incentive Plan as of June 2, 1998. #

  10.34         Letter Agreement between the                    10-K          1-13290         03/25/99
                Registrant and Millennium Partners
                LLC dated as of October 27, 1998.

  10.35         First Amendment to Lease between RCPI           10-K          1-13290         03/25/99
                Trust and the Registrant dated
                October 30,1998.

  10.36         Second Amendment to Lease between               10-K          1-13290         03/25/99
                RCPI Trust and the Registrant dated
                March 4, 1999.

  10.37         Lease between CB-1 Entertainment                10-K          1-13290         03/25/99
                Partners LP and S.F. Sports Club,
                Inc. dated June 1, 1997.

  10.38         Lease between 2200 M Street LLC and             10-K          1-13290         03/25/99
                Washington D.C. Sports Club, Inc.
                dated March 1999.

                                       46
<PAGE>


 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

  10.39         Fourth Amended and Restated Loan                8-K           1-13290         04/14/99
                Agreement by and among the Registrant,
                certain of its subsidiaries and Comerica
                Bank-California, dated April 1, 1999.

  10.40         Intercreditor Agreement by and among            8-K           1-13290         04/14/99
                the Registrant, certain of its
                subsidiaries, Comerica
                Bank-California and U.S. Bank Trust
                National Association, dated April 1,
                1999.

  10.41         Amended and Restated 1994 Stock                 10-K          1-13290         03/28/00
                Compensation Plan. #

  10.42         Lease Agreement as of September 24,             10-K          1-13290         03/28/00
                1999 between The Spectrum Club
                Company, Inc. and West Hollywood
                Property Limited Partnership and 2400
                Willow Lane Associates Limited
                Partnership.

  10.43         Lease Agreement as of November 5,               10-K          1-13290         03/28/00
                1999 by and between New Commonwealth
                Center Limited Partnership and
                Washington D.C. Sports Club, Inc.

  10.44         Letter Agreement dated March 11, 1999           10-K          1-13290         03/28/00
                amending the October 27, 1998 Letter
                Agreement between the Registrant and
                Millennium Partners, LLC.

  10.45         Amendment adopted November 4, 1999 to           10-K          1-13290         03/28/00
                the Registrant's 1994 Stock Incentive
                Plan. #

  10.46         Certificate representing Series B               10-K          1-13290         03/28/00
                Senior Secured Notes.

  10.47         First Amendment to Fourth Amended and           10-K          1-13290         03/28/00
                Restated Loan Agreement among the
                Registrant and certain of its
                subsidiaries and Comerica Bank -
                California as of December 3, 1999.

  10.48         Form of The Sports Club Membership              10-K          1-13290         03/28/00
                Agreements.



                                       47
<PAGE>





 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

  10.49         Second Amendment to Fourth Amended              10-K          1-13290         03/30/01
                and Restated Loan Agreement among the
                Registrant and certain of its subsidiaries
                and Comerica Bank-California as of August 10,
                2000.

  10.50         Reaffirmation of Intercreditor and              10-K          1-13290         03/30/01
                Subordination Agreement dated as of
                August 10, 2000 among the Registrant
                and certain of its subsidiaries and
                U.S. Bank Trust, National Association.

  10.51         First Supplemental Agreement of Lease           10-K          1-13290         03/30/01
                made as of the 27th day of March,
                2001 between CB-1 Entertainment
                Partners, LP and S.F. Sports Club,
                Inc.

  10.52         First Supplemental Agreement of Lease           10-K          1-13290         03/30/01
                made as of the 27th day of March 2001
                between New Commonwealth Center
                Limited Partnership and Washington
                D.C. Sports Club, Inc.

  10.53         First Supplemental Agreement of Lease           10-K          1-13290         03/30/01
                made as of the 27th day of March 2001
                between 2200 M Street LLC and
                Washington D.C. Sports Club, Inc.

  10.54         Third Amendment to Fourth Amended and           8-K           1-13290         07/17/01
                Restated Loan Agreement entered into
                as of June 1, 2001 by and among
                Registrant and various of its
                subsidiaries and Comerica Bank -
                California.

  10.55         Indemnification and Contribution                8-K           1-13290         07/17/01
                Agreement entered into as of July 3,
                2001 by and among the Registrant.,
                Rex A. Licklider, D. Michael Talla
                and MDP Ventures II LLC.

  10.56         The Sports Club Company, Inc. 2001              10-K          1-13290         03/29/02
                Stock Incentive Plan. #



                                       48
<PAGE>





 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

  10.57         Preferred Stock Purchase Agreement              8-K           1-13290         03/26/02
                made as of March 18, 2002 by and among
                Registrant and the holders of the Series B
                Convertible Preferred Stock.

  10.58         Investor Rights Agreement made as of            8-K           1-13290         03/26/02
                the 18th day of March 2002 by and between
                the Registrant and the holders of the Series B
                Convertible Preferred Stock.

  10.59         Asset Purchase Agreement dated as of            10-K          1-13290         03/29/02
                January 25, 2002, by and between SCC
                Nevada, Inc. and LSI-Nevada, LLC.

  10.60         Standard Form Lease between the                 10-K          1-13290         03/29/02
                Registrant and Club at 60th St., Inc.
                for space located at 333 East 60th Street,
                New York, dated May 4, 2001.

  10.61         First Amendment to Lease by and among           10-K          1-13290         03/29/02
                Registrant and Club at 60th St., Inc.
                dated as of March 1, 2002.

  10.62         Waiver of Covenant Compliance Letter            10-K          1-13290         03/29/02
                Agreement between the Registrant and
                Comerica Bank - California dated
                March 14, 2002.

  10.63         Fourth Amendment to Fourth Amended              8-K           1-13290         06/04/02
                and Restated Loan Agreement and First
                Amendment to Amended and Restated
                Revolving Loan between the Registrant
                and certain of its Subsidiaries and
                Comerica Bank - California dated May
                31, 2002.

  10.64         Fifth Amendment to Fourth Amended and           8-K           1-13290         09/04/02
                Restated Loan Agreement between the
                Registrant and certain of its
                Subsidiaries and Comerica Bank -
                California dated August 30, 2002.



                                       49
<PAGE>





 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

  10.65         Reaffirmation of Intercreditor and              8-K           1-13290         09/04/02
                Subordination Agreement dated as of
                August 30, 2002 among the Registrant
                and certain of its Subsidiaries and
                U.S. Bank Trust, National Association.

  10.66         Investors' Rights Agreement made as             8-K           1-13290         09/09/02
                of September 6, 2002 by and between the
                Registrant and the holders of the Series C
                Convertible Preferred Stock.

  10.67         Preferred Stock Purchase Agreement              8-K           1-13290         09/09/02
                made as of September 6, 2002 by and among the
                Registrant and the holders of the Series C
                Convertible Preferred Stock.

  10.68         Sixth Amendment to Fourth Amended and           8-K           1-13290         11/12/02
                Restated Loan Agreement by and among
                the Registrant and certain of its
                Subsidiaries, Comerica Bank -
                California and KASCY, L.P. dated
                October 31, 2002.

  10.69         Consent and Reaffirmation of                    8-K           1-13290         11/12/02
                Intercreditor and Subordination
                Agreement dated as of October 31,
                2002 among the Registrant and certain
                of its Subsidiaries, Comerica Bank -
                California and U.S. Bank Trust,
                National Association.

  10.70         Fitness Club and Spa Management and             10-K          1-13290         06/21/04
                Pre-Opening Service Agreement between
                Terramark Brickell II, Ltd. and the
                Registrant effective as of January 1,
                2003.

  10.71         First Supplement to Fitness Club and            10-K          1-13290         06/21/04
                Spa Management and Pre-Opening
                Services Agreement effective as of
                January 1, 2003.

  10.72         Waiver of Covenant Compliance Letter            10-K          1-13290         03/31/03
                from Comerica Bank - California dated
                March 26, 2003.

  10.73         Promissory Note dated June 12, 2003             8-K           1-13290         06/18/03
                in favor of Orange County's Credit
                Union in the amount of $20,000,000.



                                       50
<PAGE>





 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

  10.74         Deed of Trust, Assignment of Rents,             8-K           1-13290         06/18/03
                Security Agreement and Fixture Filing
                dated as of June 12, 2003, made by
                Irvine Sports Club, Inc. for the
                benefit of Orange County's Credit
                Union.

  10.75         Reserve and Security Agreement made             8-K           1-13290         06/18/03
                as of June 12, 2003 by Irvine Sports
                Club, Inc. in favor of Orange
                County's Credit Union.

  10.76         Pledge and Security Agreement made as           8-K           1-13290         06/18/03
                of June 12, 2003 by the Registrant
                and Irvine Sports Club, Inc. in favor
                of Orange County's Credit Union.

  10.77         Indemnity and Guaranty Agreement                10-K          1-13290         06/21/04
                entered into as of December 1, 2003
                among the Registrant, Irvine Sports
                Club, Inc., Rex A. Licklider and D.
                Michael Talla.

  10.78         Supplemental Indenture dated as of              8-K           1-13290         04/04/03
                March 28, 2003 between the
                Registrant, the Subsidiary Guarantors
                and U.S. Bank Trust National
                Association.

  10.79         Supplemental Indenture dated as of              10-K          1-13290         06/21/04
                February 4, 2004 between the
                Registrant, the Subsidiary Guarantors
                and U.S. Bank National Association.

  10.80         Third Supplemental Indenture made as            8-K           1-13290         03/18/04
                of March 9, 2004 between the
                Registrant, the Subsidiary Guarantors
                and U.S. Bank National Association.

  10.81         Investors' Rights Agreement made as             8-K           1-13290         03/18/04
                of March 10, 2004, by and among the
                Registrant and the holders of the Series D
                Convertible Preferred Stock.

  10.82         Preferred Stock Purchase Agreement              8-K           1-13290         03/18/04
                made as of March 10, 2004 by and among the
                Registrant and the holders of the Series D
                Convertible Preferred Stock.



                                       51
<PAGE>





 Exhibit                                                              Incorporated by Reference
                                                            ----------------------------------------------      Filed
  Number                 Exhibit Description                    Form          File No.       Filing Date      Herewith
-----------     ---------------------------------------     -------------    -----------    --------------    ----------

  10.83         Consent Letter dated March 10, 2004             8-K           1-13290         03/18/04
                by holders of the Series B
                Convertible Preferred Stock.

  10.84         Consent Letter dated March 10, 2004             8-K           1-13290         03/18/04
                by holders of the Series C
                Convertible Preferred Stock.

   21.1         Subsidiaries of the Registrant.                 10-K          1-13290         06/21/04

   23.1         Consent of Independent Registered               10-K          1-13290         06/21/04
                Public Accounting Firm.

   31.1         Certification of Rex A. Licklider                                                                 X
                Pursuant to Section 302 of the
                Sarbanes - Oxley Act of 2002.

   31.2         Certification of Timothy O'Brien                                                                  X
                Pursuant to Section 302 of the
                Sarbanes - Oxley Act of 2002.

   32.1         Certification of Rex A. Licklider                                                                 X
                Pursuant to 18 U.S.C. Section 1350,
                as adopted Pursuant to Section 906 of
                the Sarbanes - Oxley Act of 2002.

   32.2         Certification of Timothy O'Brien                                                                  X
                Pursuant to 18 U.S.C. Section 1350, as
                adopted Pursuant to Section 906 of the
                Sarbanes - Oxley Act of 2002.
</TABLE>

------------------

#        Compensation agreement or plan.


                                       52
<PAGE>



(b)      Reports on Form 8-K

     The following reports on Form 8-K were filed from October 1, 2003 through
December 31, 2003:

o    On  October  3,  2003,  we filed a report  on Form 8-K  announcing  that on
     September  29,  2003,  the  Special  Committee  of our  Board of  Directors
     approved an amendment  to our Rights  Agreement  adopted on  September  29,
     1998. The Amendment  provides that until November 30, 2003, the Rights Plan
     will  not be  triggered  as a result  of any  non-binding  "going  private"
     negotiations   or   understandings   between   and  among   the   principal
     shareholders,  so long as such negotiations or  understandings  relate to a
     transaction  that has been,  or is intended to be,  proposed to our special
     committee.

o    On October 9, 2003,  we filed a report on Form 8-K stating  that on October
     8, 2003,  we issued a press  release  announcing  the opening of The Sports
     Club/LA - Beverly  Hills.  The new Club  opened on  October  7, 2003 and is
     located in Beverly Hills,  California.  The Club, a two-story 40,000 square
     foot  luxury  sports  and  fitness   complex  offers  a  state-of-the   art
     environment including a Bar and Lounge and spa services.

o    On October 14, 2003,  we filed a report on Form 8-K stating that on October
     13, 2003, we issued a press release  announcing that we had mutually agreed
     with Palisade  Concentrated  Equity Partnership,  L.P.  ("Palisade") to set
     aside the  previously  announced  offer of "going  private." We also stated
     that we expected to receive an amended  letter of intent  setting forth the
     revised terms and conditions  under which Palisade would propose to make an
     $18.5 million equity investment in us, subject to an additional  investment
     by certain of our  existing  stockholders,  the  proceeds of which would be
     retained by us to fund operations.

o    On November 3, 2003, we filed a report on Form 8-K stating that on November
     3, 2003, we issued a press  release  announcing  operating  results for the
     third quarter and nine months ending September 30, 2003.

o    On  December  3,  2003,  we filed a report on Form 8-K  announcing  that on
     November 25, 2003, the Special Committee of our Board of Directors approved
     an amendment to our Rights  Agreement  adopted on September  29, 1998.  The
     Amendment  provides that until  February 29, 2004, the Rights Plan will not
     be triggered as a result of any non-binding "going private" negotiations or
     understandings  between and among the  principal  shareholders,  so long as
     such negotiations or understandings relate to a transactions that has been,
     or is intended to be, proposed to our Special Committee.

                                       53
<PAGE>

(c)  Exhibits

Index to Exhibits of Form 10-K/A

Exhibit
Number          Exhibit
------          -------

31.1 Certification of Rex A. Licklider Pursuant to Section 302 of the Sarbanes -
     Oxley Act of 2002.

31.2 Certification  of Timothy O'Brien Pursuant to Section 302 of the Sarbanes -
     Oxley Act of 2002.

32.1 Certification  of Rex A. Licklider  Pursuant to 18 U.S.C.  Section 1350, as
     adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.

32.2 Certification  of Timothy  O'Brien  Pursuant to 18 U.S.C.  Section 1350, as
     adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.



                                       54
<PAGE>



                                   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/A to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 18th
day of August 2004.


                                                  THE SPORTS CLUB COMPANY, INC.



                                                  /s/ Rex A. Licklider
                                                  ------------------------------
                                                  Rex A. Licklider
                                                  Chief Executive Officer

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

Signature                                    Title                                           Date
----------------------------------------------------------------------------------------------------------------

<S>                                          <C>                                            <C>
/s/ Rex A. Licklider                         Vice Chairman of the Board                      August 18, 2004
--------------------------------------------
Rex A. Licklider                             and Chief Executive Officer


/s/ Timothy O'Brien                          Chief Financial Officer                         August 18, 2004
--------------------------------------------
Timothy M. O'Brien                           (Principal Financial and Accounting Officer)


/s/ D. Michael Talla                         Chairman of the Board                           August 18, 2004
--------------------------------------------
D. Michael Talla


/s/ Charles Ferraro                          Director                                        August 18, 2004
--------------------------------------------
Charles Ferraro


/s/ Christopher M. Jeffries                  Director                                        August 18, 2004
--------------------------------------------
Christopher M. Jeffries


/s/ Charles Norris                           Director                                        August 18, 2004
--------------------------------------------
Charles Norris


/s/ Andrew L. Turner                         Director                                        August 18, 2004
--------------------------------------------
Andrew L. Turner


/s/ George Vasilakos                         Director                                        August 18, 2004
--------------------------------------------
George Vasilakos
</TABLE>




                                       55
<PAGE>



                                     EXHIBIT
                                      31.1

                                CERTIFICATION OF
                                  REX LICKLIDER




<PAGE>






                                 CERTIFICATIONS

I, Rex A. Licklider,  Chief Executive  Officer of The Sports Club Company,  Inc.
certify that:

     1.   I have reviewed this annual report on Form 10-K/A (Amendment 1) of The
          Sports Club Company, Inc.;

     2.   Based on my  knowledge,  this  report  does  not  contain  any  untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this report,  fairly  present in all material
          respects the financial condition, results of operations and cash flows
          of the  registrant  as of,  and for,  the  periods  presented  in this
          report;

     4.   The registrant's  other  certifying  officer and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined  in  Exchange  Act  Rules  13a-15(e)  and  15d-15(e))  for the
          registrant and have:

          (a)  Designed such disclosure controls and procedures,  or caused such
               disclosure  controls  and  procedures  to be  designed  under our
               supervision,  to ensure that material information relating to the
               registrant,  including  its  consolidated  subsidiaries,  is made
               known to us by others within those entities,  particularly during
               the period in which this report is being prepared;

          (b)  Evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls  and   procedures  and  presented  in  this  report  our
               conclusions  about the  effectiveness of the disclosure  controls
               and  procedures  (as of the  end of the  period  covered  by this
               report based on such evaluation); and

          (c)  Disclosed in this report any change in the registrant's  internal
               control  over  financial   reporting  that  occurred  during  the
               registrant's most recent fiscal quarter (the registrant's  fourth
               fiscal  quarter  in  the  case  of an  annual  report)  that  has
               materially  affected,  or  is  reasonably  likely  to  materially
               affect,   the   registrant's   internal  control  over  financial
               reporting; and;

     5.   The registrant's other certifying officer and I have disclosed,  based
          on our most recent  evaluation  of  internal  control  over  financial
          reporting,  to the  registrant's  auditors and the
<PAGE>

          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent functions):

          (a)  All  significant  deficiencies  and  material  weaknesses  in the
               design or operation of internal controls over financial reporting
               which are reasonably  likely to adversely affect the registrant's
               ability  to  record,  process,  summarize  and  report  financial
               financial information; and

          (b)  Any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls over financial reporting.


Dated, August 18, 2004

/s/ Rex A. Licklider
--------------------------------------
Rex A. Licklider
Chief Executive Officer
<PAGE>

                                     EXHIBIT
                                      31.2

                                CERTIFICATION OF
                                 TIMOTHY O'BRIEN

<PAGE>


                                 CERTIFICATIONS

I, Timothy  O'Brien,  Chief Financial  Officer of The Sports Club Company,  Inc.
certify that:

     1.   I have reviewed this annual report on Form 10-K/A (Amendment 1) of The
          Sports Club Company, Inc.;

     2.   Based on my  knowledge,  this  report  does  not  contain  any  untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this report,  fairly  present in all material
          respects the financial condition, results of operations and cash flows
          of the  registrant  as of,  and for,  the  periods  presented  in this
          report;

     4.   The registrant's  other  certifying  officer and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined  in  Exchange  Act  Rules  13a-15(e)  and  15d-15(e))  for the
          registrant and have:

          (a)  Designed such disclosure controls and procedures,  or caused such
               disclosure  controls  and  procedures  to be  designed  under our
               supervision,  to ensure that material information relating to the
               registrant,  including  its  consolidated  subsidiaries,  is made
               known to us by others within those entities,  particularly during
               the period in which this report is being prepared;

          (b)  Evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls  and   procedures  and  presented  in  this  report  our
               conclusions  about the  effectiveness of the disclosure  controls
               and  procedures  (as of the  end of the  period  covered  by this
               report based on such evaluation); and

          (c)  Disclosed in this report any change in the registrant's  internal
               control  over  financial   reporting  that  occurred  during  the
               registrant's most recent fiscal quarter (the registrant's  fourth
               fiscal  quarter  in  the  case  of an  annual  report)  that  has
               materially  affected,  or  is  reasonably  likely  to  materially
               affect,   the   registrant's   internal  control  over  financial
               reporting; and;

     5.   The registrant's other certifying officer and I have disclosed,  based
          on our most recent  evaluation  of  internal  control  over  financial
          reporting,  to the  registrant's  auditors and the audit  committee of
          registrant's  board of directors (or persons performing the equivalent
          functions):
<PAGE>


          (a)  All  significant  deficiencies  and  material  weaknesses  in the
               design or operation of internal controls over financial reporting
               which are reasonably  likely to adversely affect the registrant's
               ability  to  record,  process,  summarize  and  report  financial
               financial information; and
          (b)  Any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls over financial reporting.

Dated, August 18, 2004

/s/ Timothy O'Brien
--------------------------------------
Timothy O'Brien
Chief Financial Officer



<PAGE>


                                     EXHIBIT
                                      32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


<PAGE>




                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of The Sports Club Company, Inc. (the
"Company") on Form 10-K/A for the period ending December 31, 2003 filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Rex A.
Licklider, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. (Section Mark) 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act
of 2002, that to my knowledge:



          i.  The Report fully complies with the  requirements of section 13(a)
               or 15(d) of the Securities Exchange Act of 1934; and

          ii.  The information contained in the Report fairly represents, in all
               material  respects,   the  financial   condition  and  result  of
               operations of the Company.


                             /s/ Rex A. Licklider
                             ---------------------------------
                             The Sports Club Company, Inc.
                             Chief Executive Officer
                             August 18, 2004




<PAGE>


                                     EXHIBIT
                                      32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

<PAGE>




                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of The Sports Club Company, Inc. (the
"Company") on Form 10-K/A for the period ending December 31, 2003 filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Timothy
O'Brien, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
(Section Mark) 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:



          (i)  The Report fully complies with the  requirements of section 13(a)
               or 15(d) of the Securities Exchange Act of 1934; and

          (ii) The information contained in the Report fairly represents, in all
               material  respects,   the  financial   condition  and  result  of
               operations of the Company.


                               /s/ Timothy O'Brien
                               ------------------------------------------
                               The Sports Club Company, Inc.
                               Chief Financial Officer
                               August 18, 2004


<PAGE>