<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1997
COMMISSION FILE # 1-13290
THE SPORTS CLUB COMPANY, INC.
A DELAWARE CORPORATION - I.R.S. NO. 95-4479735
11100 SANTA MONICA BLVD., SUITE 300, LOS ANGELES, CA 90025
(310) 479-5200
Indicate by check mark whether the company (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
company was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- --------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares
Outstanding at
Class May 9, 1997
- ---------------------------------- ------------------------------------
Common stock, $.01 par value 11,358,000
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THE SPORTS CLUB COMPANY, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets - 3
December 31, 1996 and March 31, 1997
Condensed Consolidated Statements of Operations - 4
Three Months ended March 31, 1996 and 1997
Condensed Consolidated Statements of Cash Flows - 5
Three Months ended March 31, 1996 and 1997
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 9
RESULTS OF OPERATIONS
PART II. OTHER INFORMATION 13
SIGNATURES 14
</TABLE>
2
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THE SPORTS CLUB COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1996 1997
---- ----
(Restated) (Restated)
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,146 $ 3,145
Accounts receivable, net of allowance for doubtful accounts
of $57 and $155 at December 31, 1996 and March 31, 1997 1,376 1,528
Inventories 395 467
Other current assets 381 467
Due from affiliates 1,043 876
-------- --------
Total current assets 7,341 6,483
Property and equipment, at cost, net of accumulated depreciation and
amortization of $4,700 and $5,445 at December 31, 1996 and March 31, 1997 72,736 73,245
Equity interest in unconsolidated subsidiary 642 623
Costs in excess of net assets acquired, less accumulated amortization
of $454 and $542 at December 31, 1996 and March 31, 1997 13,552 13,464
Other assets, at cost, net 1,426 1,498
-------- --------
$ 95,697 $ 95,313
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable and capitalized
lease obligations $ 2,470 $ 2,380
Accounts payable 1,431 1,006
Accrued liabilities 2,777 3,090
Deferred membership revenues 7,481 7,797
-------- --------
Total current liabilities 14,159 14,273
Notes payable and capitalized lease obligations,
less current installments 36,027 35,482
Deferred lease obligations 3,309 3,221
Minority interest 1,000 924
-------- --------
Total liabilities 54,495 53,900
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, $.01 par value, 40,000,000 shares authorized;
11,358,000 shares issued and outstanding at
December 31, 1996 and March 31, 1997 114 114
Additional paid-in capital 36,935 36,935
Retained earnings 4,153 4,642
Less: Treasury stock, at cost, 60,487 shares -- (278)
-------- --------
Total shareholders' equity 41,202 41,413
-------- --------
$ 95,697 $ 95,313
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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THE SPORTS CLUB COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31,
1996 1997
---- ----
(Restated) (Restated)
<S> <C> <C>
Revenues $ 9,354 $ 13,864
Operating expenses:
Direct 5,778 9,972
Selling, general and administrative 1,452 1,561
Depreciation and amortization 616 912
-------- --------
Total operating expenses 7,846 12,445
-------- --------
Income from operations 1,508 1,419
Other income (expense):
Interest (657) (801)
Minority interests (38) 38
Equity interest in net income of unconsolidated subsidiary 81 161
-------- --------
Income before income taxes 894 817
Provision for income taxes 367 310
-------- --------
Net income $ 527 $ 507
======== ========
Net income per share $ 0.05 $ 0.04
======== ========
Weighted average number of common shares outstanding 11,355 11,348
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
THE SPORTS CLUB COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31,
1996 1997
---- ----
(Restated) (Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 527 $ 507
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 616 912
Accrued management fees (199) --
Equity interest in net income of unconsolidated subsidiary (81) (161)
Distributions from unconsolidated subsidiary 184 179
Minority interest in New York Partnership -- (76)
(Increase) decrease in:
Accounts receivable, net 9 (152)
Inventories 11 (72)
Other current assets (246) (232)
Increase (decrease) in:
Accounts payable (578) (425)
Accrued liabilities 406 313
Deferred membership revenues (322) 316
Deferred lease obligations 79 (88)
-------- --------
Net cash provided by operating activities 406 1,021
Cash flows from investing activities:
Capital expenditures (410) (1,259)
Stock re-purchase -- (295)
-------- --------
Net cash used for investing activities (410) (1,554)
Cash flows from financing activities:
(Increase) decrease in due from affiliates (361) 167
Proceeds from notes payable and capital lease obligations 23,029 --
Repayments of notes payable and capital lease obligations (22,360) (635)
-------- --------
Net cash provided by (used for) financing activities 308 (468)
-------- --------
Net increase (decrease) in cash and cash equivalents 304 (1,001)
Cash and cash equivalents at beginning of period 1,545 4,146
======== ========
Cash and cash equivalents at end of period $ 1,849 $ 3,145
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 731 $ 833
======== ========
Cash paid for income taxes $ 159 $ 202
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
THE SPORTS CLUB COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND MARCH 31, 1997
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The condensed consolidated financial
statements should be read in conjunction with the Company's December 31, 1996,
consolidated financial statements and notes thereto, included on Form 10-K/A
(SEC File Number 1-13290). Certain information and footnote disclosures which
are normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to SEC rules and regulations. The Company believes that the disclosures made are
adequate to make the information presented not misleading. The information
reflects all adjustments which, in the opinion of Management, are necessary for
a fair presentation of the financial position and results of operations for the
interim period set forth herein. All such adjustments are of a normal and
recurring nature. The results for the three month period ended March 31, 1997,
are not necessarily indicative of the results for the entire fiscal year ending
December 31, 1997.
2. EQUITY INTEREST IN UNCONSOLIDATED SUBSIDIARY
Equity interest in unconsolidated subsidiary consists of a 46.1%
interest in a Spectrum Club located in Manhattan Beach, California. The Company
allocates profits and losses on a basis defined in its joint venture agreement
relating to this unconsolidated subsidiary. Summary financial information of the
Spectrum Club/Manhattan Beach is as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1996 1997
---- ----
(Amounts in thousands)
<S> <C> <C>
Revenues...................................................... $1,347 $1,559
Net income.................................................... 190 349
December 31, March 31,
1996 1997
---- ----
(Amounts in thousands)
Current assets................................................ $522 $641
Non-current assets............................................ 2,653 2,644
---------- ----------
Total assets............................................... $3,175 $3,285
========== ==========
Current liabilities........................................... $1,444 $1,590
Non-current liabilities....................................... 539 554
---------- ----------
Total liabilities.......................................... 1,983 2,144
Partners' capital............................................. 1,192 1,141
---------- ----------
$3,175 $3,285
========== ==========
</TABLE>
<PAGE> 7
3. RELATED PARTY TRANSACTIONS
Due from affiliates are summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
---- ----
(amounts in thousands)
<S> <C> <C>
Note receivable from the Company's CEO, with interest payable at 5.3%, was due
on April 3, 1997. This note was cancelled and a new note due April 3, 1998,
was issued, secured by a pledge of 300,000 shares of the Company's common
stock....................................................................... $ 624 $ 632
Advances to affiliates made in the normal course of business,
payable on demand .......................................................... 419 244
------ ------
$1,043 $ 876
====== ======
</TABLE>
The Company manages the operation of the Spectrum Club/Manhattan Beach,
of which it owns a 46.1% interest. The Company receives a fee of $33,332 per
month plus 4.5% of the Club's gross revenues for managing this Club.
4. NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS
Notes payable and capitalized lease obligations are summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
---- ----
(Amounts in thousands)
<S> <C> <C>
The Sports Club/LA note....................................... $23,070 $22,896
The Sports Club/Irvine note................................... 5,375 5,250
The Spectrum Club/Agoura Hills note........................... 2,550 2,549
Secured bank notes............................................ 245 154
Equipment financing and
capitalized lease obligations.............................. 4,303 4,059
Other notes payable........................................... 2,954 2,954
---------- ----------
38,497 37,862
Less current installments..................................... 2,470 2,380
---------- ----------
$36,027 $35,482
========== ==========
</TABLE>
The Company also has a $3.0 million revolving line of credit for working
capital and new club development and a $2.0 million non-revolving line for
funding mergers and acquisitions. No amounts are outstanding under these
agreements.
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5. NET INCOME PER SHARE
Net income per share is based on the weighted average number of common
and common equivalent shares outstanding. Fully diluted net income per share is
not presented as it does not differ materially from primary net income per
share.
6. INCOME TAXES
Income taxes were computed using the effective tax rate estimated to be
applicable for the full fiscal year, which is subject to ongoing review and
evaluation by management.
7. RECENT DEVELOPMENTS
On March 13, 1997, the Company entered into an agreement to sell
2,105,263 shares of its common stock to Millennium Entertainment Partners, L.P.,
("MEP"). MEP currently owns a 9.9% Partnership interest in the Reebok-Sports
Club/NY Partnership. The Company will receive $5.0 million cash, MEP's 9.9%
Partnership interest, a $2.5 million note due from the Partnership and MEP's
rights to certain accrued management fees due from the Partnership in exchange
for the newly issued shares The Company also announced it signed a letter of
intent to jointly develop Sports Clubs in Washington D.C. and San Francisco,
California on properties currently under development by an affiliate of MEP.
Consummation of the agreements is expected in May 1997, but is subject to
certain conditions including the negotiation of leases for the Washington D.C.
and San Francisco, California Sports Clubs.
The Financial Accounting Standards Board recently issued Statement No.
128, "Earnings Per Share" (FAS 128), in February 1997 which is effective for
both interim and annual periods ending after December 15, 1997. The Company will
adopt FAS 128 in the fourth quarter of 1997. FAS 128 requires the presentation
of "Basic" earnings per share which represents income available to common
stockholders divided by the weighted average number of common shares outstanding
for the period. A dual presentation of "Diluted" earnings per share will also be
required. The Diluted presentation is similar to the current presentation of
fully diluted earnings per share. FAS 128 requires restatement of all
prior-period earnings per share data presented. Management believes the adoption
of FAS 128 will not have a material impact on the Company's financial position
or results of operations.
8. CHANGE IN ACCOUNTING FOR INITIATION FEES
The Company receives a one-time non-refundable initiation fee and
monthly 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, in operations over an
estimated membership period of between two and one half and three years. Dues
that are received in advance are recognized on a pro-rata basis over the periods
in which services are to be provided.
The Company's accounting policy for one-time non-refundable initiation
fees was recently adopted and in accordance with certain provisions of
Accounting Principles Board Opinion No. 20, Accounting Changes, operating
results for the three months ended March 31, 1996 and 1997 have been restated
retroactively to reflect the current policy. Such change was made to: (i) better
match revenues with related costs over an estimated period of membership;
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(ii) conform with the current practices of others in the industry; and (iii)
comply with recently communicated guidance from the Securities and Exchange
Commission. The impact on the three months ended March 31, 1996 and 1997
financial statement is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
As Reported As Restated
----------- -----------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $9,306 $14,056 $9,354 $13,864
Net income 409 583 527 507
Earnings per share 0.04 0.05 0.05 0.04
Total assets $83,891 $95,214 $83,936 $95,313
======= ======= ======= =======
Total liabilities $43,509 $53,240 $43,917 $53,900
Total equity 40,382 41,974 40,019 41,413
------ ------ ------ ------
Total liabilities and equity $83,891 $95,214 $83,936 $95,313
======= ======= ======= =======
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto appearing
elsewhere in this Form 10-Q/A. The Company's consolidated financial statements
reflect the operations of The Sports Clubs, The Spectrum Clubs and HealthFitness
Organization of America, Inc. ("HFA"). The Reebok-Sports Club/NY was accounted
for under the equity method of accounting until December 30, 1996, at which time
the Company acquired a majority ownership position and the operations of
Reebok-Sports Club/NY were consolidated with and into the Company. The Spectrum
Club/Manhattan Beach is accounted for under the equity method of accounting.
The comparability of the Company's operating results, financial
condition and capital requirements is impacted by the transaction described
above and the number of clubs which the Company operates. Seasonal factors have
not had a significant effect on the Company's operating results.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1997 to Three Months Ended March 31,
1996
Revenues for the three months ended March 31, 1997, were $13.9 million,
compared to $9.4 million in 1996, an increase of $4.5 million or 47.9%. The
increase resulted primarily from revenue from Reebok Sports Club/NY, which was
consolidated into the Company's revenues following the acquisition of a
controlling interest in the Club on December 30, 1996. Revenue growth from HFA
also contributed to the overall increase.
Direct operating expenses increased to $10.0 million in the three months
ended March 31, 1997, versus $5.8 million in 1996. The increase resulted
primarily from the addition of operating expenses at Reebok Sports Club/NY.
Direct operating expenses as a percentage of revenues increased to 71.9% in 1997
compared to 61.8% in 1996 due to lower margins at Reebok Sports
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Club/NY. Newer Clubs historically operate at lower margins until the membership
base reaches a mature level.
Selling, general and administrative expenses were $1.6 million in the
three months ended March 31, 1997, versus $1.5 million in 1996. The Company's
general and administrative costs increased by $63,000 in 1997 with the remaining
increase due to the consolidation of direct selling expenses incurred at Reebok
Sports Club/NY. These costs decreased as a percentage of revenue from 15.5% in
1996 to 11.3% in 1997. The Company was managing Reebok Sports Club/NY in 1996
and therefore, the revenue growth which resulted from consolidating this Club
was not accompanied by an increase in general and administrative expenses.
Depreciation and amortization expenses were $912,000 in the three months
ended March 31, 1997, versus $616,000 in 1996. The increase is due primarily to
the addition of depreciation and amortization at Reebok Sports Club/NY. Interest
expense was $801,000 in the three months ended March 31, 1997, versus $657,000
in 1996. Interest expense of $150,000 at Reebok Sports Club/NY was responsible
for this increase.
Equity interest in net income of unconsolidated subsidiary was $161,000
in the three months ended March 31, 1997 versus $81,000 in 1996. The 1996 and
1997 amounts are associated with the Spectrum Club/Manhattan Beach's operations
and the increase reflects the Company's share of the improved profitability at
that Club.
The Company's net income before income taxes was $817,000 for the three
months ended March 31, 1997, versus $894,000 in 1996. The Company's estimated
income tax rate is 38% for the three months ended March 31, 1997, and 41% for
1996, resulting in a net income of $507,000 for the three months ended March 31,
1997, versus net income of $527,000 in 1996. The lower tax rate in 1997 results
from the reduction of valuation allowances on certain deferred income tax
assets.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1996, and the three months ended
March 31, 1997, the Company generated $8.1 million and $2.5 million of earnings
before interest, depreciation, amortization and income taxes, respectively. At
March 31, 1997, the Company had a cash balance of $3.1 million of which $302,000
is in a special construction account for the development of a Spectrum Club in
Valencia, California and $306,000 relates to Reebok-Sports Club/NY Partnership.
The remaining $2.5 million is available for general corporate purposes. The
Company anticipates its cash balance on hand plus cash generated from operations
and the amount available under the credit facility will be adequate to fund the
Company's current operating activities, debt service, developmental capital
requirements, and recurring capital expenditures for the next twelve months.
In connection with the acquisition of The Sports Club/Irvine, MKDG
Partners agreed to pay the Company for each of the years ending December 31,
1994, 1995 and 1996, the lesser of approximately $1.0 million or the amount by
which The Sports Club/Irvine's earnings before depreciation and the Company's
administrative overhead relating to the Club for such year is less than
approximately $2.9 million. The Company has made a claim for approximately
$687,000 in 1997 relating to the 1996 shortfall.
The Company currently owns a 50.1% interest in the Reebok-Sports Club/NY
Partnership. At March 31, 1997, the Partnership owed $3.1 million under a loan
secured by equipment and owed $4.0 million to the partners in the form of notes
payable. The Partnership is also in arrears in
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the payment of priority Partnership distributions for 1996 in the amount of $1.0
million. Notes payable in the amount of $2.5 million and the $1.0 million
priority distribution are recorded as liabilities on the Company's March 31,
1997 consolidated balance sheet. The Reebok Sports Club/NY achieved a positive
cash flow in September 1995 and has improved its operations since that date. The
Club is expected to continue to improve its operating results in the future as
membership levels increase (although no assurance as to such future increases
can be given). The future cash flows of the Partnership will first be used to
satisfy the principal and interest requirements of the equipment loan in the
amount of $75,000 per month. Additional cash flows will be used to pay the past
due priority Partnership distribution and the future priority distributions of
$2.1 million in 1997 and $3.0 million per year thereafter. The remaining future
cash flows will be returned to the partners to satisfy the notes payable,
accrued management fees and certain additional priority distributions. At March
31, 1997, these amounts total $14.4 million, of which the Company is entitled to
$8.9 million. After these amounts are paid, the Company will be entitled to
50.1% of future cash distributions.
On March 13, 1997, the Company entered into an agreement to sell
2,105,263 shares of its common stock to Millennium Entertainment Partners, L.P.,
("MEP"). MEP currently owns a 9.9% interest in the Partnership. The Company will
receive $5.0 million cash, MEP's 9.9% Partnership interest, a $2.5 million note
due from the Partnership and MEP's right to certain accrued management fees due
from the Partnership in exchange for the newly issued shares. Once the
transaction is consummated, the Company will be entitled to substantially all of
the $14.4 million currently due to the partners for notes payable, accrued
management fees and certain additional priority distributions. These amounts
will be paid as cash flow of the Partnership is available.
The Company's long-term capital needs are to provide funds for the
retirement of existing long-term debt and to secure funds for the development of
new clubs and acquisition of existing clubs. The Company intends to continue its
efforts to pursue joint venture arrangements with strategic partners as a means
of financing the development of new clubs or enter into lease agreements for
such facilities. The Company has secured a $5.0 million credit facility with a
commercial bank. The credit facility will be available to provide funds for the
development and acquisition of new clubs and for general corporate purposes.
In the first quarter of 1996, the Company began development of a 57,000
square foot Spectrum Club in Valencia, California. The Company will own and
manage the Club operations in a building which will be leased from The Newhall
Land and Farming Company. Through March 31, 1997, the Company has deposited $1.9
million into a special construction escrow account of which $1.6 million has
been expended on the project. The Company anticipates that it will be able to
fund its remaining portion of this development, estimated to be approximately
$100,000, from operating cash flows. In August 1996, the Company announced plans
to develop a Sports Club in Houston, Texas. The Company's portion of development
costs for this Club is estimated to be $3.6 million and will be funded starting
in early 1998. In March 1997, the Company announced its intent to develop Sports
Clubs in Washington D.C. and San Francisco, California. These projects should
start near the end of 1997 or early 1998. The Company's portion of the
development costs for these Clubs is preliminarily estimated to be approximately
$10.0 million. Operating cash flow, the $5.0 million proceeds from the sale of
common stock to MEP, and the $5.0 million revolving credit facility will be
utilized to finance the Company's portion of these three developments. The
Company does not expect these Clubs to contribute significantly to revenues or
net income until 1999.
Other than as described above and for normal replacement of fitness
equipment and remodeling of clubs, the Company has no commitments for capital
expenditures. Equipment financing has generally been available under capital
lease arrangements. In 1996, the Company
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invested approximately $1.6 million in capital expenditures other than those
related to new club development. In the three months ended March 31, 1997,
capital expenditures, other than those related to new club development, were
$619,000. In 1996, the Company secured a $500,000 lease facility to be used to
finance capital expenditures. As of March 31, 1997, the Company had utilized
approximately $158,000 of this facility. While capital expenditures may
fluctuate from time to time, generally the Company expects to spend
approximately 4% of revenues on facility and equipment upgrades and
replacements. Expansion of the Company's operations beyond existing clubs will
require expenditures above this level.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement No.
128, "Earnings Per Share" (FAS 128), in February 1997 which is effective for
both interim and annual periods ending after December 15, 1997. The Company will
adopt FAS 128 in the fourth quarter of 1997. FAS 128 requires the presentation
of "Basic" earnings per share which represents income available to common
stockholders divided by the weighted average number of common shares outstanding
for the period. A dual presentation of "Diluted" earnings per share will also be
required. The Diluted presentation is similar to the current presentation of
fully diluted earnings per share. FAS 128 requires restatement of all
prior-period earnings per share data presented. Management believes the adoption
of FAS 128 will not have a material impact on the Company's financial position
or results of operations.
FORWARD LOOKING STATEMENTS
The foregoing discussion contains forward-looking statements relating to
the future operations of the Company, including Reebok Sports Club/NY, estimated
development expenses for new clubs, the adequacy of the Company's cash for its
anticipated requirements, and other matters. These forward-looking statements
are based on a series of projections and assumptions regarding the economy,
other statements which are not historical facts, the Company's operations and
the sports and fitness industry in general. These projections and assumptions
involve certain risks and uncertainties that could cause actual results to
differ materially from those included in the forward-looking statements.
Furthermore, actual results may differ from projected results due to unforeseen
developments relating to demand for the Company's services and competitive
pricing trends in the health and fitness market; increased expenses; the success
of planned advertising, marketing and promotional campaigns; changes in
personnel or compensation; business interruptions resulting from earthquakes,
landlord disputes or other causes; general market acceptance of new and existing
clubs operated by the Company; changes in membership growth patterns; the
success of new products; and regulatory or legal proceedings and rulings which
might adversely affect the Company. Investors are also directed to consider
other risk and uncertainties discussed in all documents filed by the Company
with the SEC. The Company expressly disclaims any obligation to update any
forward-looking statements as a result of developments after the date hereof.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
THE SPECTRUM CLUB COMPANY, INC., a California corporation, v. CENTURY
ENTERTAINMENT CENTER, L. P. (Los Angeles Superior Court). In August 1995,
Century City Spectrum ("CCS"), a subsidiary of the Company, closed the Century
City Spectrum Club. In connection with the bankruptcy of the landlord, CCS's
rights under the lease related to this Club were acquired by Century
Entertainment Center, L.P. ("Century"). On August 10, 1995, CCS filed an action
against Century alleging breach of the lease by the prior landlord. Century
filed a cross-complaint against CCS for rent due and against the Company as a
guarantor of CCS's obligations under the lease. The Cross-Complaint seeks in
excess of $800,000 through December 1995, rent thereafter for the term of the
lease (which term expires on October 31, 2002), of approximately $39,000 per
month, attorneys fees and interest. The trial court ruled CCS's right of first
refusal cannot be asserted against Century. CCS's primary remaining defense is
based upon Century's obligation to re-lease the subject space. In addition, CCS
may appeal the trial court's ruling following trial. The Company is conducting
discussions with Century to settle this matter. However, there can be no
assurance that the Company will not be held liable for all amounts sought by
Century from CCS. Such liability would have a material, adverse effect upon the
Company.
For information concerning other legal proceedings, see Item 3 of the
Company's December 31, 1996 Form 10-K/A (SEC File Number 1-13290).
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE SPORTS CLUB COMPANY, INC.
Date: October 14, 1997 by /s/ David Michael Talla
---------------------------------
David Michael Talla
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: October 14, 1997 by /s/ Timothy M. O'Brien
---------------------------------
Timothy M. O'Brien
Chief Financial Officer
(Principal Financial and
Accounting Officer)
14
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<S> <C>
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0
0
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