SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): July 6, 2004
THE SPORTS CLUB COMPANY, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
1-13290 95-4479735
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(Commission File Number) (IRS Employer Identification Number)
11100 Santa Monica Boulevard, Suite 300, Los Angeles, California 90025
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(Address of Principal Executive Offices, Including Zip Code)
(310) 479-5200
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Index of Exhibits on Page 3
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ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
On July 6, 2004, The Sports Club Company, Inc. (the "Company") notified
KPMG LLP ("KPMG") that the Company would not be renewing its engagement of KPMG
as its principal accountants for the audit of the Company's consolidated
financial statements for the year ending December 31, 2004. KPMG's dismissal
will be effective upon KPMG's completion of its review of the Company's
unaudited condensed consolidated interim financial statements to be included in
the Company's Form 10-Q for the quarter ended June 30, 2004, which is expected
to be filed on or before August 14, 2004. The Company's Audit Committee of the
Board of Directors (the "Audit Committee") approved the termination of KPMG as
the Company's principal accountants.
KPMG audited the Company's consolidated financial statements for the two
most recent fiscal years ended December 31, 2002 and December 31, 2003,
respectively. During KPMG's engagement by the Company and in the subsequent
interim period through July 6, 2004:
(1) KPMG's audit reports on the consolidated financial statements of the
Company and its subsidiaries as of and for the years ended December 31, 2002 and
December 31, 2003, respectively, did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles, except KPMG's report on the consolidated
financial statements of the Company and subsidiaries as of and for the years
ended December 31, 2003 and 2002, contained separate paragraphs stating (a) "as
discussed in Note 2 to the consolidated financial statements, the Company
restated its 2002 consolidated financial statements," (b) "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", and (c) "the Company has suffered recurring net
losses, has 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."
(2) The Company did not have any disagreements with KPMG on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to KPMG's
satisfaction, would have caused it to make a reference to the subject matter of
the disagreements in connection with its reports.
(3) 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. A reportable
condition, which may or may not be determined to be a material weaknesses,
involves matters relating to significant
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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 on the
financial statement. The reportable condition, which was considered to be a
material weakness, noted 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. Specifically, KPMG stated
that during their quarterly review for the quarter ended March 31, 2003, they
noted the Company had not properly accounted for private training revenues. In
addition, during their 2003 audit, KPMG noted we were not properly accounting
for our management arrangement for The Sports Club/LA - Miami, that we had not
properly implemented Statement of Financial Accounting Standard No. 142,
relating to goodwill and not properly accounted for the accretion of dividends
on Series C Preferred Stock. KPMG indicated that we enhance our financial and
accounting personnel staffing levels or take other actions (i.e. attend training
seminars on new accounting pronouncements) to ensure that the Company has
appropriate resources to implement new accounting standards and apply existing
accounting standards to new transactions.
A letter from KPMG is attached as Exhibit 16.1 to this Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Not Applicable
(b) Pro Forma Financial Information
Not Applicable
(c) Exhibits
Exhibit 16.1 Letter from KPMG.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: July 12, 2004 THE SPORTS CLUB COMPANY, INC.
By: /s/ Timothy M. O'Brien
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Timothy M. O'Brien
Chief Financial Officer
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EXHIBIT 16.1
(KPMG LLP Letterhead)
July 12, 2004
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We are currently principal accountants for The Sports Club Company, Inc. and,
under the date of May 24, 2004, we reported on the consolidated financial
statements of The Sports Club Company, Inc. as of and for the years ended
December 31, 2003 and 2002. On July 6, 2004, we were notified that the
auditor-client relationship with KPMG LLP will cease upon completion of the
review of The Sports Club Company, Inc.'s consolidated financial statements as
of and for the three-month and six-month periods ended June 30, 2004, and the
filing of the Company's Form 10-Q. We have read The Sports Club Company, Inc.'s
statements included under Item 4 of its Form 8-K dated July 12, 2004, and we
agree with such statements, except that we are not in a position to agree or
disagree with The Sports Club Company, Inc.'s statement that their Form 10-Q for
the quarter ended June 30, 2004 is expected to be filed on or before August 14,
2004 or that our termination as the Company's principal accountants was approved
by the Audit Committee of the Board of Directors.
Very truly yours,
/s/ KPMG LLP
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