UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549










Form
      10-KSB




(Mark
      One)


x
            ANNUAL
                REPORT UNDER SECTION 13
                OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934




For
      the fiscal year ended December 31, 2007




o
            TRANSITION
                REPORT UNDER SECTION
                13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934




For
      the transition period from 
      to




Commission
      file number 000-52548







SALON
      CITY, INC.


(Name
      of Small Business Issuer in its Charter)







Nevada
            
            20-2107795(State
                or Other Jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)





909
      N. Palm Ave., Suite 311,
      W. Hollywood, CA. 90069


(Address
      of Principal Executive Offices)





(310)
      358-9017


(Issuer’s
      Telephone Number)







Securities
      registered under Section 12(b) of the Act:




Title
                of each
                class
            
            Name
                of each exchange
              on
                which
                registeredNone
            
            Not
                Applicable




Securities
      registered under Section 12(g) of the Exchange Act:


Common
      Stock, $.001 par value


Preferred
      Stock, $.001 par value


(Title
      of Class)




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.):    Yes  o   No  x




Check
      whether the issuer (1) filed all reports required to be filed by
      Section 13 or 15 (d) of the Exchange Act during the past 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.
    YesxNoo




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of the registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. x




The
      Registrant’s revenues for its fiscal year ended December 31, 2007 were
      $467,322.




The
      aggregate market value of the issuer’s common stock held by non-affiliates:
      $1,072,297





Number
      of
      shares of common stock outstanding as of March 13, 2008:
      986,783,258




Transitional
      Small Business Disclosure Format (check one):    oYesxNo








CAUTIONARY
      STATEMENT REGARDING FORWARD LOOKING INFORMATION





The
      discussion contained in this 10-KSB under the Securities Exchange Act of 1934,
      as amended, (the "Exchange Act") contains forward-looking statements that
      involve risks and uncertainties. The issuer's actual results could differ
      significantly from those discussed herein. These include statements about our
      expectations, beliefs, intentions or strategies for the future, which we
      indicate by words or phrases such as "anticipate," "expect," "intend," "plan,"
      "will," "we believe," "the Company believes," "management believes" and similar
      language, including those set forth in the discussion under "Description of
      Business," including the "Risk Factors" described in that section, and
      "Management's Discussion and Analysis or Plan of Operation" as well as those
      discussed elsewhere in this Form 10-KSB. We base our forward-looking statements
      on information currently available to us, and we assume no obligation to update
      them. Statements contained in this Form 10-KSB that are not historical facts
      are
      forward-looking statements that are subject to the "safe harbor" created by
      the
      Private Securities Litigation Reform Act of 1995.









1




TABLE
      OF CONTENTS


PART
                IItem 1
            
            Description
                of
                Business
            
            3Item 2
            
            Description
                of
                Property
            
            9Item 3
            
            Legal
                Proceedings
            
            9Item 4
            
            Submissions
                of Matters to a Vote
                of Security Holders
            
            9PART IIItem 5
            
            Market
                for Common Equity, Related
                Stockholder Matters And Small Business Issuer Purchases of Equity
                Securities
            
            10Item 6
            
            Management’s
                Discussion and Analysis or Plan
                of Operation
            
            12Item 7
            
            Financial
                Statements
            
            16Item 8
            
            Changes
                in and Disagreements with
                Accountants on Accounting and Financial Disclosure
            
            26Item 8A
            
            Controls
                and
                Procedures
            
            26Item 8B
            
            Other
                Information
            
            26PART IIIItem 9
            
            Directors,
                Executive Officers,
                Promoters and Control Persons; Compliance With Section 16(a) of the
                Exchange Act
            
            27Item 10
            
            Executive
                Compensation
            
            28Item 11
            
            Security
                Ownership of Certain
                Beneficial Owners and Management
            
            28Item 12
            
            Certain
                Relationships and Related
                Transactions
            
            29Item 13
            
            Exhibits,
                Lists and Reports on
                Form 8-K
            
            29Item 14
            
            Principal
                Accountant Fees and
                Services
            
            30





2
 Table
          of Contents




PART
      I




Item 1.
      Description of Business.





Introduction





Introduction
      toSalonCity





Salon
      City Inc., headquartered inLos Angeles,California,
      publishesSalonCitymagazine,
      where Life is Beautiful(SM).
      It isdistributed nationally
      by Time/Warner Retail, a Time Warner Company, and by Kable Distribution
      Services, an AmRep company, internationally. As an emerging media company for
      beauty entertainment and a lifestyle brand for future products and services,we want to appeal to a global audience of consumers who want to be
      empowered to lead a healthier, more positive lifestyle.





Salon
      City, Inc. was incorporated inNevadaon
      January 4, 2005.  Salon
      City, Inc. (“we,”“us,”"SalonCity"
      or "SC") represents the
      formal incorporation of a
      10-year-old media, entertainment and distribution sole proprietorship. From
      our
      inception in 1997, known then as Salon City Press Club, we have published print
      and online media, most notably through our trade publicationSalon
      City
      Starmagazine,
      which was redesigned in 2007
      and becameSalon
      Citymagazine, a consumer
      publication, which currently generates most of the company’s
      revenues through print advertising
      sales, retail newsstand sales and subscriptions.





Prior
      to preparing to take the company public,
      a smaller
      percentage of revenues had been generated from event sales, publicity
      memberships and special corporate sponsorships. These revenues have been reduced
      by a planned delay of programs in 2006-2007 so we could focus our time
      and
      resources on becoming publicly traded.
      We intend to reintroduce and expand our delayed programs to build revenues
      from
      these areas in the next five years.





Profits
      have been impacted by two
      planned expense sectors: debt servicing and the initial legal,accounting and administrative
      costs of
      taking the company public.  Additional planned expenses have
      been incurred for the expansion of the magazine and potential new
      revenue-producing products.





Revenue





Revenue
      patterns are still evolving.
      Total revenuesrecorded for
      the year ended December 31, 2007were
      $467,322.
      We recorded revenues of $404,681for
      theyearendedDecember
      31, 2006.Thisrepresentsan
      increase of 16%in
      2007. Higher ad page rates,
      sponsorships and
      newsstand sales contributed to the increase of our 2007 results.
      However, it will
      be months before the company starts seeing predictable results from its
      expanding media initiatives and investment spending in 2007.





Net
      Loss





Planned
      expenses were incurred in
      2007.
      We had a net(loss)of
      $(810,027)for
      the year ended December 31,
      2007.
      The net loss in this period was due
      primarily to selling, general and administrative expenses, which included a
      larger than normal issuance of common stock for services associated with going
      public. Our net cash flows
      provided by (used in) operating activities were
      $(254,980).





We
      had net(loss)
      of $(2,533,681)for
      theyearendedDecember 31,
      2006.
      The net (loss) in this
      period was due primarily to
      operational expenses, which were $2,660,344for
      theyear ended December 31,
      2006.





HowSalonCityStarted





We
      originally launched operations in the
      fall of 1997 as Salon City Press Club, which provided publicity and public
      relations services to salons and individuals. In 2000, we began producing the
      SunFun Media Artist Group
      (MAG) Conference (a summer networking and educational conference held inLas Vegas).





We
      license theSalonCityregistered
      trademark from SC
      Communications, a sole proprietorship owned by current management. A copy of
      the
      license agreement is included as Exhibit 10.7 to our
      amendment to Form
      10-SB filed on September 11, 2007. In addition, SC Communications is pursuing
      registrations of the following intellectual property in the form of names:
      Beautymaker, Celebeauty, SunFun, Media Artist Group, Salon CityPress
      Club and Salon City
      Network.  Currently there are no licenses agreements in place for
      these names; however, once the registrations are acquired, SC Communications
      and
      Salon City, Inc. intend to negotiate licensing arrangements for the use of
      thesenames
      at prevailing market
      rates.





In
      2001, we began publishingSalon
      City Starmagazine–a
      professional trade/consumer magazine
      for salons, spas, and their clients. From 2001-2006,Salon
      City
      Starwas sold on selected
      newsstands in Southern California andNew York City, mailed
      to high-grossing
      salons and nationally offered at no charge to salons by our informal network
      of
      independent beauty distributors, known as Salon City Distribution
      Partners.





Our
      distribution partnerswill be
      recruited and selected tobe exclusively licensed to representSalonCityin their markets. Outside of any
      relationship withSalonCity,
      they currently sell professional
      beauty products to an aggregate domestic market of up to 250,000 salons and
      spas. The professional salon industry
      has annual revenues exceeding $150
      billion dollars in services and retail. To increase our exposure and involvement
      in this market, we intend to use our media affiliations and products to position
      theSalonCitybrand to professional
      beautymakers.





3
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          of Contents




By
      building our name among
      consumers,
      includingprofessional beautymakers and their clients,and inviting distributors and members
      to join our network, we plan to grow Salon City’s
      brand globally and to also assist
      independent artists, salons and distributorsto gain more media exposure,
      clients,
      market share, sales growth and wealth producing opportunities. We are also
      setting the stage to help promote their people, products and programs, some
      of
      which will be plannedSalonCityproducts and
      services.





To
      reach consumers, many of
      whom are the
      end-users for salons and spas, we entered into a three year agreement on
      November 24, 2006 with Time/Warner Retail to have them distributeSalon Citymagazine
      tothousands of
      bookstores and newsstands in America andCanada.
      And on February 15, 2007 we also
      entered in to a three year agreement with Kable Distribution Services to
      distributeSalon
      Citymagazine
      internationally. The magazine is currently sold in approximately 4800 bookstores
      and newsstands throughout theUSAandCanada,
      and in additional locations
      internationally in over 30 countries, including, but not limited to,Australia,Dubai,Germany,Hong
      Kong,Italy,Mexico,New
      Zealand,Singaporeand theUnited Kingdom.





In
      March 2007, the company re-positioned
      the six-year old
      professional trade publication (Salon
      City
      Star) to the new web site,
      and then launched the first edition of the 100% consumer-focused publication,SalonCity.
      Until spring 2008, the company will
      still be in the yearlong rollout stages of establishing the magazine’s
      presence in retail stores. We are also
      establishing our revenue goals based on projected frequency, circulation,
      distribution points, advertisers and sales.  With a‘consumer
      only’magazine,
      our business-to-business
      ("B2B") revenue wasreduced
      from 2005-2006. Beginning in
      2008, the company intends to gain back its‘professional’revenue—and
      even more—set
      the stage to develop new business in
      this sector.




Distribution
      Agreements





Our
      recent distribution agreements with Time/Warner Retail and Kable Distribution
      Services should provide an attractive platform for the distribution of Salon City magazine in the
      U.S.A, Canada and internationally.   We have a distribution
      agreement with Time/Warner Retail Sales & Marketing, Inc., dated November
      24, 2006, for a term of three years with three automatic three year extensions
      (which are terminable on notice) to provide distribution services for our
      magazine.  In the agreement, Time/Warner Retail agrees to provide both
      wholesale and retail distribution of our magazine in exchange for compensation
      based on the number of magazines sold.  In addition, Time/Warner
      Retail agrees to bill and collect all payments from our customers and to remit
      payments to us.  The distribution territory is defined as the USA, the
      Commonwealth of Puerto Rico, Canada and foreign and domestic U.S. military
      bases*.





We
      have a
      Distribution Agreement with Kable Distribution Services, Inc. dated February
      15,
      2007, pursuant to which Kable has the sole and exclusive right to purchase
      from
      us and to resell and distribute throughout a territory our
      magazine.  The territory is defined as Puerto Rico, U.S. military
      bases overseas and all accounts outside the USA and Canada.  The
      Agreement is for a term of three years and it is automatically continued for
      successive terms of three years (which are terminable on
      notice).  Kable contemplates distributing our magazine eight times per
      year at a cover price of $3.99.  We agree to pay all transportation
      costs, among other things, relating to the shipment of each issue to Kable’s
      sales outlets. Kable agrees to pay us based on the number of magazines
      sold.





In
      both
      of the agreements discussed above, Salon City retains the right to sell copies
      of its publications to individual and group subscribers at subscription
      prices.





*
            Time/Warner
                Retail originally was
                to have the rights to distribute our magazine internationally, including
                Puerto Rico and foreignU.S.military
                bases; however, they were
                unable to acquire a company for international distributionso they voluntarily
                released their
                rights, allowing us to seek another international distributor. Time/Warner
                Retail chose not to amend our agreement with regard to the two specific
                areas.  Both companies are aware that there are two overlapping
                territories
                and neither company
                objects.




License
      Agreement





On
      September 7, 2007, we entered into a
      License Agreement (the “Agreement”)
      with SC Communications for the use of
      the “SalonCity”mark
      and name in connection with our
      business.  In the Agreement, SC Communications, as the
      owner of the
      trademark and service mark “Salon City,”granted
      us a non-exclusive,
      non-transferable license to use the mark “Salon City”as
      our corporate name and in connection
      with publications, award shows, beauty salons, beauty relating
      industrial promotions and beauty
      related products, in return for consideration of three percent (3%) of our
      annual revenues but not less than a minimum of $15,000 a year.  The
      initial term of the Agreement is for two years and is renewable annually
      thereafter
      upon notice of renewal by SC
      Communications to us during December prior to the next year term of the
      license.  The Agreement may be terminated by us with written notice to
      SC Communications at least thirty (30) days prior to the anniversary date
      ofthe
      Agreement. SC Communications has the
      right to terminate the Agreement for cause upon thirty (30) days written notice
      to us.




Marketing
      Concepts and Positioning forSalon City





Salon City's
      concept arises from our core mission
      to offer the public positively oriented news and
      products that
      relate to a consumer’s
      desire to live a life of health and
      wellness. We intend to organize a consumer membership consisting of salons,
      spas
      and clients–what
      we call the “Salon City Society”–as
      it grows and emerges inthe
      world of beauty, entertainment and
      lifestyle branding. We are in the process of building a globally respected
      brand
      associated with a positive, balanced lifestyle and vision for both the public
      and the beauty industry. While our redesigned consumer publication,Salon
      Citymagazine, has generated
      most of our revenues in 2007, other initiatives, including our new web shows,
      online entertainment and publication, will be unfolding in 2008 and 2009. We
      believe our expanded media and product platform will addto our overall
      revenues.





ExistingSalonCityMedia
      Products





Publishing





SalonCityMagazine
      (redesigned in 2007 and currently in its first year rollout
      stage)





After
      six years as a trade publication,Salon
      CityStarmagazine
      was renamed, redesigned andrelaunched on February
      27,
      2007. Our Hollywood-based magazine,SalonCity,
      is now 100% consumer focused.Salon
      Cityis currently sold
      through thousands of national retailers like Hudson News, Barnes & Noble,
      Borders, Target, Kmart, Rite Aid and major grocery and drug chainsthroughout
      the USA and Canada, and in
      additional locations internationally in over 30 countries,including, but not limited
      to,
      Australia, Dubai, Germany, Hong Kong, Italy, Mexico, New Zealand, Singapore
      and
      the United Kingdom.SalonCityfeatures
      news from celebrities, everyday
      people and world beautymakers in music, art, literature and politics. Beauty
      entertainment and lifestyle news is the focus.SalonCity,currently
      in its 2007-2008 rollout
      stages, has an introductory circulation ofapproximately 75,000
      copies per issue
      and a frequency of eight times per year, resulting in a total annual circulation
      of 600,000.Over the next five years the magazine is being strategically
      positioned to become a high sales volume publication with circulation in excess
      of 750,000 copies per issue.




Online
      Entertainment





Saloncity.com
      (currently being revamped for expanded programming)





The
      magazine’s
      revenues will also be enhanced
      beginning in 2008 with a digital edition, which can be purchased on our
      internet site,www.saloncity.com.
      Additional media products are being
      planned to be sold on the site, including a professional-only publication and
      regularly produced webisodes ofSalonCity’s
      new TV program featuring original content.





We
      are in the final stages of
      development before going live with the new website, web show and Salon City
      Network (consisting of Salon City produced video programs that will appear
      as
      part of our online entertainment) in the fourth quarter of 2007.  All of our
      online initiatives will be self-funded (magazine advertising revenue). In 2008,
      the company will invite sponsors and advertisers to participate in the branding
      of their products in exchange for contractual agreements that may generate
      revenue. It is our opinion that
      the initial estimated cost for the planning and development of our new website,
      web show and Salon City Network will be under $100,000.





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          of Contents




Projects
      Scheduled or in
      Development





The
      projects listed below will be
      self-funded during their
      developmental stages. We intend to proceed in a conservative manner with regard
      to the financing of these projects and we estimate that the developmental costs
      at this stage will be under $100,000 per project. Therefore, we do not intendto
      launch these initiatives until we have
      the necessary contractual agreements and financial backing in
      place.





Salon City’s
      Beautymaker(1)Magazine





Our
      professional trade magazine,Beautymaker,scheduled
      for release in the first half
      of 2008, will be featured
      in selected salons and eventually distributed and sold by our network of
      distributors.Beautymakerfeatures artists and
      educators from the industry and will attract the professional advertisers that
      we had to give up this year with our consumer focus.Beautymaker,currently
      in its design stages, will
      have an initial circulation per issue ofup to 25,000 copies per region.The magazine is being prepared for its
      final design, which will be presented to prospective advertisers prior to its
      launch. Our aimis to
      strategically position the magazine to become a high sales volume publication
      with combined circulation in excess of hundreds of thousands of copies
      distributed in multiple regions to selected salons for their
      clients.





(1)Working
      title only, nameyet to be finalized.





SalonCityNetwork
      Affiliates (Professional Beauty Distributors)





We
      plan to establish a network of
      independent distributors acrossNorth Americaand
      internationally under the Salon City
      Network banner. Distributors will be selectedand licensed to representSalon Cityin
      an agreed to region. In exchange for
      a licensing fee they will pay toSalon City,
      these distributors will have the right
      to generate revenue by representing our products, events, and education in
      their
      local markets.In
      turn, they will be a source for local
      news and information, which will be fed into the network for dissemination
      through our various media outlets. We have held press events in local markets
      across the country in preparation to launch and expand the program.SalonCityhas
      long-standing relationships withsalons and distributorsin
      many markets, which we intend to target for our licensing partnerships. This
      initiative is scheduled for development in 2008 for an anticipated rollout
      in
      2009.





Press
      Events,
      SunFun
      Conference andSalonCityExpos





We
      currently produce Press Events around
      theUnited
      States. We have produced
      our SunFun Conference and other programs in the past in places such asLos Angeles,New
      York,Miami,
      andLas Vegas.
      Our aim is to bring beautymakers and consumers
      together to
      meet and share ideas, products and vision and to increase our revenues as a
      result of producing these types of venues. We are currently in the initial
      development stage to produce more of these events in 2008–2009.For
      this period, we are also in the
      initial stages of development to have our distribution partners sponsor local
      versions of these events in their respective regions. Our aim is to have theSalon Citybrand
      seen and experienced through these
      events, withinitial
      emphasis being focused on
      domestic markets such asLos Angeles,New
      York,Washington,DC,Chicago,Dallas,Houston,Miami,Las
      Vegasand a host of other
      cities.




World
      Beautymaker Awards





We
      are in the initial discussion stages
      to develop an‘original
      content’awards
      event, the World Beautymaker
      Awards. The date for this event is being targeted forfall2009
      inHollywood.
      The World Beautymaker Awards will be
      preceded by local Beautymaker of the Year events in regional areas where we
      have
      distribution
      partners.  The event is devoted to recognizing people who positively
      contribute to society our basic core values of inner beauty, truth, and
      goodness. Our intention is to invite beautymakers and their clients, city
      mayors, heads of civic organizations,and
      local first responders, proactive
      celebrities, and local media. We have designed an originally sculpted award
      statuette of a beautiful woman holding a threefold flame (signifying inner
      light), standing on a pedestal with the words beauty, truth and goodness
      circling the perimeter. We intend
      to generate revenue from the licensing of this statuette's image and likeness
      as
      well as through event sponsorships, media syndication rights and local‘Beautymaker
      of the Year’awards
      programs.





Media
      Artists Group(MAG)





We
      have had a history of helping
      publicize individual salon professionals who have been members of our
“media artists
      group,”MAG. These members
      are selected for their ability to communicate well and their desire to have
      recognition throughSalon City's
      media outlets.This
      is a paid for service and in the
      past has contributed toSalonCity's
      revenue. We are in the early stages
      of development to reintroduce and expand the MAG program in 2009, following
      the
      anticipated year long rollout of our professional salon
      publication.




Future
      Projects





Salon CityPress
      Club





In
      the past, we offered our
“Salon City Press
      Club”services to those
      salon businesses who were seeking press and media exposure on a regular basis.
      We wrote and publicized informational news updates, which were
      seen in local
      area media outlets as well as ourSalonCitymedia
      outlets. We have yet to begin
      discussions on the reintroduction of these services until the anticipated
      rollout of the professional salon publication has taken
      place.





Product
      Manufacturing Partnerships





Salon Cityintends
      to have its own line of
      products.  In the future,Salon Citywill
      be looking to develop strategic
      marketing partnerships with companies that manufacture products that have
      synergy withSalon City's
      audience, media and promotional
      concepts,
      such as clothing, accessories, merchandising items and consumable goods that
      promote theSalonCitybrand.
      We envision a partnership whereby
      we will also feature our manufacturingpartner’sproducts
      in our media and will have the opportunity
      to offer their
      goods and services through our future online marketplace, which is part of
      our
      plans for Saloncity.com (see Saloncity.com above under Projects Scheduled or
      In
      Development).





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          of Contents




SalonCitySociety





We
      are contemplatingthe establishment a consumer
      group
      called Salon City Society in the next five years. We intend to collect "opt-in"
      data through our various media outlets and offer the group a membership
      opportunity that will provide benefitssuch as special invitations,product
      and service discounts and
      additional media products.  We envision generating revenue through
      membership fees and the groups' purchasing ofSalonCityproducts, services and
      programs.





Competition





The
      beauty and fashion magazine business
      can be highly competitive.We face broad
      competition for audiences and advertising revenue from
      other media companies that produce magazines, newspapers and online content.
      Overall competitive factors include product positioning, editorial quality,
      circulation, price and customer service. Competition for advertising dollars
      is
      primarily based on advertising rates, the nature and scope of readership, and
      reader response to advertisers’ products and services. We compete with our
      competitors based upon the price of our magazine, the quality of the articles
      and information that we publish, and the design features of our
      magazines.





Salon Cityis
      currently sold in the
      women’s
      interest and lifestyle sections of
      retail outlets. Our point of difference is that we have attracted the beauty professionals,
      who are
      highly sought after by upscale advertisers, to our magazine; this highly sought
      after market has traditionally been considered one with strong barriers of
      entry. Moreover, we believe we appeal to a broad demographic ofmainstream
      sophisticated consumersthat many advertisers are seeking.





Employees





We
      currently have over 40 independent
      contractors working with the company, yet we are able to keep staffing costs
      to
      a minimum with only two full time employees. The 40 or so independent consultants
      work in
      numerous capacities inSalonCity’s
      publishing, online, media and
      events.





We
      have never experienced any material
      labor disruption and believe that relations with our employees and independent
      contractors are good.





GoingConcern
      Opinion





Overall,
      we have funded all of our cash
      needs from inception
      through December 31, 2007
      with proceeds from issuances of common stock. For theyearsendedDecember
      31,
      2007 and 2006, we had revenues of
      $467,322and
      $404,681,
      and a net lossof $(810,027)
      and $(2,533,681),
      respectively. Our independent
      certified public accountants stated in their report on the 2007 and 2006
      financial statements that due to recurring losses from operations, there is
      substantial doubt about our ability to continue as a going concern. We believe
      that we are addressing the going concern issue in various ways. For the year
      ended December 31, 2007, we have seen advertising sales increase approximately
      6% over the period through December 31, 2006. We have signed two major
      distribution agreements, which we believe will provide improved profit margins.
      Because of our significant losses incurred since inception, we have become
      substantially dependent on loans from officers to fund operations.





In
      the
      event that our future operations are unable to generate sufficient cash flow
      to
      meet our requirements we will have to continue the sale of equity interests
      in
      the company and consider the possibility of a debt offering or bank loan, in
      addition to negotiating with strategic partners who could bring capital to
      our
      company.




Risk
      Factors





Our
      business depends
      upon the continued active participation of our president.





Our
      success is heavily dependent upon
      the continued active participation of our president, Steven Casciola. Mr.
      Casciola has over twenty five years of experience in the beauty industry. The
      loss of Mr. Casciola’s services could have a material adverse effect upon the
      development of our business and its future growth. We currently do not have
      an
      employment agreement with Mr. Casciola. We do not carry a key-man life insurance
      policy on Mr. Casciola.





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If
      we are unable to compete successfully
      against other businesses that sell the type of magazine that we sell, we could
      lose customers and our sales and profits maydecline.





The
      sale of beauty magazines is highly
      competitive based on many factors, including name recognition, availability,
      store location and price. Competitors are abundant in this
      area.





Competitors
      include national magazines
      such as Vanity Fair, Vogue,Glamour and Cosmopolitan
      among many
      others on the newsstands. Although we believe we compete effectively on the
      basis of magazine quality, including the knowledge and expertise of our
      employees, availability, location and convenience, and price; some
      competitors
      may have competitive advantages,
      such as greater financial and marketing resources, connections with larger
      stores with bigger newsstands, longer operating histories, and more effective
      advertising. If we are unable to continue to develop competitive
      strategies, or if our competitors
      develop more effective strategies, we could lose customers and our sales and
      profits may decline.




Market
      mergers among
      advertisers may negatively impact our business.





Some
      of our advertising revenues is
      currentlygenerated from
      the professional salon industry and may be impacted due to mergers and
      acquisitions of numerous manufacturers and distributors. We do not know the
      lasting impact that these mergers will have. If professional magazine
      competitors are able toachieve
      better efficiencies relating to
      the mergers, there may be greater competitive pressures in certain cases where
      they have established relationships. We are addressing these challenges with
      creative content, multiple media opportunities and integrated
      branding campaigns that attract larger
      advertising clients, both professional and
      consumer.




War
      or acts of terrorism or the threat
      of either may negatively impact availability of magazine distribution and
      adversely impact our sales.





War,
      or acts ofterrorism or the threat
      of either, may
      have a negative impact on our ability to distribute our magazines for sale
      in
      store newsstands. Some of our magazines are placed in other countries. If it
      becomes difficult or impossible to distribute inside our outof
      theUnited States,
      our sales and profit margins may be
      negatively affected.





Lack
      of adequate
      capitalization.





We
      will require additional funding over
      the next 12 months estimated to be equal to $1,000,000 to develop new business.
      Presently, we have only
      $111,735worth
      of liquid assets with which to pay
      our expenses.Currently, our available and anticipated capital from our
      business operations would be sufficient to sustain us for 12 months. Although
      our officers will continue to loan us funds sufficient to sustain our current
      operations, they are under no legal obligation to do so. If we are unable to
      secure additional working capital as needed, our ability to develop new
      business, increase sales, meet our operating and financing obligations as they
      become due or continue our business and operations could be in
      jeopardy.





In
      addition, we have no credit facility
      or other committed sources of capital sufficient to fund our business plan.
      We
      may be unable to establish credit arrangements on satisfactory terms. If capital resources
      are insufficient
      to meet our future capital requirements, we may have to raise funds to continue
      growth of our operations. To the extent that additional capital is raised
      through the sale of equity and/or debt securities, the issuance
      of such securities could result in
      dilution to our shareholders and/or increased debt service commitments. If
      adequate funds are not available, we may be unable to sufficiently develop
      our
      operations to become profitable.





We
      have several business
      initiatives that are in the
      development stage, which, if unsuccessful, could result in loss of
      profit.





Salon
      City Distribution Partners,
      Beautymaker Magazine and World Beautymaker Awards are all early stage business
      initiatives, which may or may not succeed. There is a risk that these
      projects could
      be delayed, cancelled, or incur startup costs that are unrecoverable and would
      ultimately result in loss of profit.In the event that future contracts
      involve any of these multimedia initiatives that Salon City is pursuing, there
      is a risk that if any one of the initiatives is delayed or cancelled, it could
      adversely affect the agreement with a particular advertiser or sponsor, which
      could affect overall revenues as a result.





We
      face aggressive, better-financed
      competitors, who could
      drive us out of business.





The
      beauty and media industries are
      filled with many aggressive competitors, a large number of whom have better
      resources and funding than we do. They compete with us for advertisers and
      content, and there isalways
      a substantial risk that such competitors could take away so much of our
      advertising and content that it could hurt or even eliminate our
      business.





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Our
      management currently owns, and will
      continue to own, a controlling share of our stock.





Currently,
      our management team of Steve and
      Annie Casciola collectively own 808,072,122shares
      of our common stock, representing
      approximately 82%
      of the outstanding 986,783,258shares
      of our capital
      stock.




We
      only license the name “Salon City”from
      SC Communications pursuant to a license
      agreement and
      upon expiration of such agreement after a two year period, SC Communications
      has
      no obligation to continue providing such license under reasonable terms or
      at
      all.  Termination of our license to use the name “Salon City”would
      have a material adverse effect on
      our business.





SC
      Communications, an independent
      company controlled by Steven and Annie Casciola, our president and vice
      president, licenses the mark and name “Salon City”to
      us for use as our corporate name
      and in connection with
      our
      publications and beauty related promotions.  SC Communications is not
      obligated to continue providing such a license to us under reasonable terms
      or
      at all, other than for the current two year term.  There is a risk
      that SC Communications
      will deny us the use of the
“Salon City”trademark
      at some point in the future
      and such trademark is the hallmark of our business. Any such denial would have
      a
      material adverse effect upon our business.





Market
      demand for our magazine or beauty
      products may diminish, thus
      hurting our business.





A
      major risk facing our expansion plans
      is that the current level of market acceptance and demand for our magazine
      could
      diminish significantly.





Future
      Dilution.





We
      intend to use our stock to acquire
      cash and services in the
      future, but there is no guarantee that this will occur.It is absolutely
      critical that adequate capital be raised in order for us to realize our full
      business plan.Ifcapital cannot be raised through an
      equity offering there is no guarantee that we will succeed.
      It is
      anticipated that the shares offered in a future offering, to raise additional
      capital, will dilute existing shareholders.





No
      Dividends.





We
      have no plans to pay dividends on our
      common stock, now or in the foreseeablefuture. Our stockholders
      may never
      receive a return on their investment.





Difficulty
      Managing
      Growth.





Management,
      though experienced in this
      field, is small and may not be able to handle fast growth in time to train
      additional managers. This could bringundue strain on us that
      could derail
      growth.





Our
      shares are designated as penny stock.





Our
      shares are designated as "penny stock" and thus may be more illiquid.  The
      SEC has adopted rules (Rules 15g-1 through l5g-9 of the Exchange Act) which
      regulate broker-dealer practices in connection with transactions in "penny
      stocks."  Penny stocks generally are any non-NASDAQ equity securities with
      a price of less than $5.00, subject to certain exceptions. The penny stock
      rules
      require a broker-dealer to deliver a standardized risk disclosure document
      prepared by the SEC, to provide the customer with current bid and offer
      quotations for the penny stock, the compensation of the broker-dealer and its
      salesperson in the transaction, monthly account statements showing the market
      value of each penny stock held in the customer’s account, to make a special
      written determination that the penny stock is a suitable investment for the
      purchaser and receive the purchaser's written agreement to the transaction.
       These disclosure requirements may have the effect of reducing the level of
      trading activity, if any, in the secondary market for a stock that is subject
      to
      the penny stock rules.  Since our shares are subject to the penny stock
      rules, persons holding or receiving such shares may find it more difficult
      to
      sell their shares.  The market liquidity for the shares could be severely
      and adversely affected by limiting the ability of broker-dealers to sell the
      shares and the ability of shareholders to sell their stock in any secondary
      market.





There
      is only limited trading of our common stock.





Although
      our common stock is quoted on over-the-counter market "pink
      sheets" under the ticker symbol SLON.PK, there is only limited trading of
      the stock and no assurance that trading volume will increase in the future.
      Therefore, the nature of our common stock is highly illiquid. Our shares are
      appropriate only for an investor who has no need for liquidity in the shares
      and
      who has adequate means of providing for his or her current needs and
      contingencies, even if the receipt of such shares results in a total loss to
      the
      shareholder.




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The
      market for our shares is volatile.





The
      over-the-counter market for securities, such as the one on which our shares
      are
      quoted, has historically experienced extreme price and volume fluctuations
      during certain periods.  These broad market fluctuations and other factors,
      such as acceptance of our products, and trends in the beauty industry, and
      the
      investment markets generally, as well as economic conditions and quarterly
      variations in its results of operations, may adversely affect the market price
      of our common stock.





Our
      financial statements include a "Going Concern" Limitation.





Our
      financial statements have been prepared based upon the assumption that we will
      achieve a level of profitable operations and/or obtain new capital.  We
      have not yet established a source of revenues sufficient to cover our operating
      costs and allow us to continue as a going concern.  We had a net loss of $(810,027)
      and $(2,533,681)for theyears
      endingDecember
      31,
      2007 and 2006, respectively,which raises substantial doubt as to whether we can continue as a going
      concern.  Our auditor has noted in the audit report that such factors
      raise substantial doubt about our ability to continue as a going
      concern.




RESEARCH
      AND DEVELOPMENT





We
      have
      spent no funds on research and development.





REPORTS
      TO SECURITY HOLDERS




We
      are
      not required to deliver an annual report to security holders and will not
      voluntarily deliver a copy of the annual report to security holders. If we
      should choose to create an annual report, it will contain audited financial
      statements. We intend to file all of our required information with the SEC.
      We
      plan to file our Forms 10-KSB, 10-QSB, and all other forms that are or may
      become applicable with the SEC.




The
      public may read and copy any materials that are filed by us with the SEC at
      the
      SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The
      Public may obtain information on the operation of the Public Reference Room
      by
      calling the SEC at 1-800-SEC-0330. The statements and forms filed by us with
      the
      SEC have been filed electronically and are available for viewing or copy on
      the
      SEC maintained Internet site that contains reports, proxy and information
      statements, as well as other information regarding issuers that file
      electronically with the SEC. The Internet address for this site can be found
      at http://www.sec.gov.




Item 2.
      Description of Property





Currently
      we occupy approximately 1,000
      square feet of sales
      and executive office space inWest Hollywood,Californiathat
      our President and majority
      shareholder has contributed to us free of charge.The effects of rent expense
      are
      immaterial to the financial statements taken as a whole and the imputedeffects thereof are not
      credited to our additional paid in capital under generally accepted accounting
      principles. We do not
      have a written lease agreements, but rather occupy the space on a month-to-month
      basis. If we lost the use of our office and executive space, we believe
      we could replace
      the property at competitive rates. However, there is no certainty that our
      President and majority shareholder would pay for any new
      location.




Item 3.
      Legal Proceedings




As
      of the
      date of this report, we are not a party to any pending legal proceeding and
      are
      not aware of any threatened legal proceeding.




Item 4.
      Submission of Matters to a Vote of Security
      Holders




None.




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PART
      II




Item 5.
      Market for Common Equity, Related Stockholder
      Matters and Small Business Issuer Purchases of Equity
      Securities.





MARKET
      INFORMATION





Our
      common stock is traded on the pink sheets. We plan to have our shares of common
      stock quoted on the Over-The-Counter Bulletin Board. The Over-The-Counter
      Bulletin Board is a quotation medium for subscribing members only. And only
      market makers can apply to quote securities on the Over-The-Counter Bulletin
      Board. We cannot guarantee that we will obtain a market maker or such a
      quotation. Although we will seek a market maker for our securities, our
      management has no agreements, understandings or other arrangements with market
      makers to begin making a market for our shares. There is limited trading
      activity in our securities, and there can be no assurance that a regular trading
      market for our common stock will ever be developed, or if developed, will be
      sustained.




A
      shareholder in all likelihood, therefore, will not be able to resell their
      securities should he or she desire to do when eligible for public resale.
      Furthermore, it is unlikely that a lending institution will accept our
      securities as pledged collateral for loans unless a regular trading market
      develops. We have no plans, proposals, arrangements or understandings with
      any
      person with regard to the development of a trading market in any of our
      securities.





AGREEMENTS
      TO REGISTER.




Not
      applicable.





HOLDERS.




As
      of
      December 31, 2007 there were 255 holders of record of our common
      stock.





SHARES
      ELIGIBLE FOR FUTURE SALE.




In
      general, under Rule 144 as currently in effect, any of our affiliates and any
      person or persons whose sales are aggregated with our affiliates, who has
      beneficially owned his or her restricted shares for at least six months, may
      be
      entitled to sell in the open market within any three-month period a number
      of
      shares of common stock that does not exceed the greater of (i) 1% of the then
      outstanding shares of our common stock, or (ii) the average weekly trading
      volume in the common stock during the four calendar weeks preceding such sale.
      Sales under Rule 144 are also affected by limitations on manner of sale, notice
      requirements, and availability of current public information about us.
      Non-affiliates who have held their restricted shares for one year may be
      entitled to sell their shares under Rule 144 without regard to any of the above
      limitations, provided they have not been affiliates for the three months
      preceding such sale.





Further,
      Rule 144A as currently in effect, in general, permits unlimited resales of
      restricted securities of any issuer provided that the purchaser is an
      institution that owns and invests on a discretionary basis at least $100 million
      in securities or is a registered broker-dealer that owns and invests $10 million
      in securities. Rule 144A allows our existing stockholders to sell their shares
      of common stock to such institutions and registered broker-dealers without
      regard to any volume or other restrictions. Unlike under Rule 144, restricted
      securities sold under Rule 144A to non-affiliates do not lose their status
      as
      restricted securities.





We
      estimate thatapproximately 10,000,000shares
      of common stock may be permitted
      to be sold every three month period under Rule 144.




DIVIDENDS.




We
      have
      not declared any cash dividends on our common stock since our inception and
      do
      not anticipate paying such dividends in the foreseeable future. We plan to
      retain any future earnings for use in our business. Any decisions as to future
      payment of dividends will depend on our earnings and financial position and
      such
      other factors, as the Board of Directors deems relevant.





DIVIDEND
      POLICY.




All
      shares of common stock are entitled to participate proportionally in dividends
      if our Board of Directors declares them out of funds legally available. These
      dividends may be paid in cash, property or additional shares of common stock.
      We
      have not paid any dividends since our inception and presently anticipate that
      all earnings, if any, will be retained to develop our business. Any future
      dividends will be at the discretion of our Board of Directors and will depend
      upon, among other things, our future earnings, operating and financial
      condition, capital requirements, and other factors.





Our
      Shares are "Penny Stocks" within the Meaning of the Securities Exchange Act
      of
      1934




Our
      Shares are "penny stocks" within the definition of that term as contained in
      the
      Securities Exchange Act of 1934, generally equity securities with a price of
      less than $5.00. Our shares will then be subject to rules that impose sales
      practice and disclosure requirements on certain broker-dealers who engage in
      certain transactions involving a penny stock.





Under
      the
      penny stock regulations, a broker-dealer selling penny stock to anyone other
      than an established customer or "accredited investor" must make a special
      suitability determination for the purchaser and must receive the purchaser's
      written consent to the transaction prior to the sale, unless the broker-dealer
      is otherwise exempt. Generally, an individual with a net worth in excess of
      $1,000,000 or annual income exceeding $200,000 individually or $300,000 together
      with his or her spouse is considered an accredited investor. In addition, unless
      the broker-dealer or the transaction is otherwise exempt, the penny stock
      regulations require the broker-dealer to deliver, prior to any transaction
      involving a penny stock, a disclosure schedule prepared by the Securities and
      Exchange Commission relating to the penny stock market. A broker-dealer is
      also
      required to disclose commissions payable to the broker-dealer and the Registered
      Representative and current bid and offer quotations for the securities. In
      addition a broker-dealer is required to send monthly statements disclosing
      recent price information with respect to the penny stock held in a customer's
      account, the account’s value and information regarding the limited market in
      penny stocks. As a result of these regulations, the ability of broker-dealers
      to
      sell our stock may affect the ability of Selling Security Holders or other
      holders to sell their shares in the secondary market. In addition, the penny
      stock rules generally require that prior to a transaction in a penny stock,
      the
      broker-dealer make a special written determination that the penny stock is
      a
      suitable investment for the purchaser and receive the purchaser's written
      agreement to the transaction.




These
      disclosure requirements may have the effect of reducing the level of trading
      activity in the secondary market for a stock that becomes subject to the penny
      stock rules. These additional sales practice and disclosure requirements could
      impede the sale of our securities, if our securities become publicly traded.
      In
      addition, the liquidity for our securities may be adversely affected, with
      concomitant adverse affects on the price of our securities. Our shares may
      someday be subject to such penny stock rules and our shareholders will, in
      all
      likelihood, find it difficult to sell their securities.





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VOTING
      RIGHTS.




Each
      share of common stock entitles the holder to one vote at meetings of
      shareholders. The holders are not permitted to vote their shares cumulatively.
      Accordingly, the holders of common stock holding, in the aggregate, more than
      fifty percent of the total voting rights can elect all of our directors and,
      in
      such event, the holders of the remaining minority shares will not be able to
      elect any of such directors. The vote of the holders of a majority of the issued
      and outstanding shares of common stock entitled to vote thereon is sufficient
      to
      authorize, affirm, ratify or consent to such act or action, except as otherwise
      provided by law.





MISCELLANEOUS
      RIGHTS AND PROVISIONS.





Holders
      of common stock have no preemptive or other subscription rights, conversion
      rights, or redemption provisions. In the event of our dissolution, whether
      voluntary or involuntary, each share of common stock is entitled to share
      proportionally in any assets available for distribution to holders of our equity
      after satisfaction of all liabilities and payment of the applicable liquidation
      preference of any outstanding shares of preferred stock.





There
      is
      no provision in our charter or by-laws that would delay, defer or prevent a
      change in our control.





DEBT
      SECURITIES.




We
      have
      not issued any debt securities.





DIVIDEND
      RIGHTS.





The
      common stock has no rights to dividends, except as the Board may decide in
      its
      discretion, out of funds legally available for dividends. We have never paid
      any
      dividends on our common stock,
      and have no plans to pay any dividends in the foreseeable future.





Common
      StockDescription





We
      are authorized to issue 1,000,000,000
      shares of common stock, $.001 par value, of which
      986,783,258
      shares are currently issued and
      outstanding. The holders of shares of common stock have one vote per share.
      None
      of the  shares  have preemptive or  cumulative
      voting  rights,  have any rights of redemption or are
      liable
      for  assessments  or  further  calls.
      The holders of common stock are entitled to dividends, when and as declared
      by
      the Board of Directors
      from funds legally available, and
      upon liquidation of us to share pro rata in any distribution to
      shareholders.




Preferred
      StockDescription





We
      are authorized to issue 50,000,000
      shares of preferred stock, $.001 par value, of which none is issued and
      outstanding. If issued, our preferred shares may include certain shareholder
      privileges to be determined by our board of directors such
      as cumulative
      dividend payments and conversion features.





Island
      Stock Transfer,100 Second AvenueSouth,Suite104N,St.
      Petersburg,Florida,33701,
      is our transfer agent and registrar
      for our common stock.





Warrants.




Weissued
      6,900,000 stock warrants during
      the year 2006.
      No warrants were issued in 2007. These warrants expire on June 30, 2011 and
      the
      exercise price is $.10 per warrant. No warrants expired during 2007 or
      2006.




During
      the year ended December 31, 2006,werecorded
      an expense of $170,795, equal
      to the
      estimated fair value of the options at the date of grants. The fair market
      value
      was calculated using the Black-Scholes options pricing model, assuming
      approximately 4.5% risk-free interest, 0% dividend yield, 55%
      volatility,
      and a life of five years. The
      remaining life of the warrants as of December 31, 2007 is 3.5
      years.




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Item 6.
      Management’s Discussion and Analysis or Plan of Operation.





FORWARD
      LOOKING STATEMENTS


Certain
      statements in this report, including statements of our expectations, intentions,
      plans and beliefs, including those contained in or implied by "Management's
      Discussion and Analysis" and the Notes to Consolidated Financial Statements,
      are
      "forward-looking statements", within the meaning of Section 21E of the
      Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
      subject to certain events, risks and uncertainties that may be outside our
      control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”,
“will”, and similar expressions identify forward-looking statements. Readers are
      cautioned not to place undue reliance on these forward-looking statements,
      which
      speak only as of the date on which they are made. We undertake no obligation
      to
      update or revise any forward-looking statements. These forward-looking
      statements include statements of management's plans and objectives for our
      future operations and statements of future economic performance, information
      regarding our expansion and possible results from expansion, our expected
      growth, our capital budget and future capital requirements, the availability
      of
      funds and our ability to meet future capital needs, the realization of our
      deferred tax assets, and the assumptions described in this report underlying
      such forward-looking statements. Actual results and developments could differ
      materially from those expressed in or implied by such statements due to a number
      of factors, including, without limitation, those described in the context of
      such forward-looking statements, our expansion strategy, our ability to achieve
      operating efficiencies, our dependence on distributors, capacity, suppliers,
      industry pricing and industry trends, evolving industry standards, domestic
      and
      international regulatory matters, general economic and business conditions,
      the
      strength and financial resources of our competitors, our ability to find and
      retain skilled personnel, the political and economic climate in which we conduct
      operations and the risk factors described from time to time in our other
      documents and reports filed with the Securities and Exchange Commission (the
      "Commission"). Additional factors that could cause actual results to differ
      materially from the forward-looking statements include, but are not limited
      to:
      1) our ability to successfully develop, manufacture and deliver our magazines
      on
      a timely basis and in the prescribed condition; 2) our ability to compete
      effectively with other companies in the same industry; 3) our ability to raise
      sufficient capital in order to effectuate our business plan; and 4) our ability
      to retain our key executives.





CRITICAL
      ACCOUNTING POLICIES





Revenue
      recognition





Revenue
      is recognized when advertising services are earned and measurable based upon
      completed performance. All revenue transactions are reviewed for credit
      worthiness prior to commencement of the revenue process.





Property,
      Plant, and
      Equipment





Fixed
      assets are recorded at cost and include expenditures that substantially increase
      the productive lives of the existing assets. Maintenance and repair costs are
      expensed as incurred. Depreciation is provided using the straight-line method.
      Depreciation of equipment is calculated over the management prescribed recovery
      periods, which range from 5 years for equipment to 7 years for furniture and
      fixtures.





Expenditures
      for maintenance and repairs are expensed as incurred.





OUR
      COMPANY


Headquartered
      inLos Angeles,California,wepublishSalonCitymagazine,
      where Life is Beautiful(SM).
      It is distributed nationally by Time/Warner Retail, a Time WarnerCompany, andinternationallyby
      Kable Distribution Services, an AmRep
      company.  As an emerging media company for beauty entertainment and a
      lifestyle brand for future products and services,we want to appeal to a
      global audience of consumers who want to be empowered to lead a healthier,
      more
      positive lifestyle.





We
      wereincorporated inNevadaon
      January 4,
      2005.Werepresent
      the formal
      incorporation of a 10-year-old media, entertainment and distribution sole
      proprietorship. From our inception in 1997, known then as Salon City
      Press Club, we have
      published print and online media, most notably through our trade publicationSalon
      City Starmagazine.In
      March 2007,were-positioned
      the six-year old
      professional trade publication (Salon
      City
      Star) to the new
      web site, and then launched
      the first edition of the 100% consumer-focused publication,Salon
      City. Until spring 2008,
      the company will still be in the yearlong rollout stages of establishing the
      magazine’s
      presence in retail
      stores.





To
      reach consumers, many of whom are the end-users
      for salons
      and spas, we entered into a three year agreement with Time/Warner Retail to
      have
      them distributeSalonCitymagazine
      tothousands of
      bookstores and newsstands in America andCanada.We
      also entered in to a three
      yearagreement with Kable
      Distribution Services to distributeSalonCitymagazine internationally. The magazine
      is currently sold in approximately 4800 bookstores and newsstands throughout
      theUSAandCanada,
      and in additional locations
      internationally in over30
      countries, including, but not limited to,Australia,Dubai,Germany,Hong
      Kong,Italy,Mexico,New
      Zealand,Singaporeand theUnited Kingdom.





Competition





The
      beauty and fashion magazine business
      can be highly competitive.We face broad competition for audiences and
      advertising revenue from other media companies that produce magazines,
      newspapers and online content. Overall competitive factors include product
      positioning, editorial quality, circulation, price and customer service.
      Competition for advertising dollars is primarily based on advertising rates,
      the
      nature and scope of readership, and reader response to advertisers’ products and
      services. We compete with our competitors based upon the price of our magazine,
      the quality of the articles and information that we publish, and the design
      features of our magazines.





Salon Cityis
      currently sold in the
      women’s
      interest and lifestyle sections of
      retail outlets. Our point of difference is that we have attracted the beauty
      professionals, who are highlysought after by upscale
      advertisers, to
      our magazine; this highly sought after market has traditionally been considered
      one with strong barriers of entry. Moreover, we believe we appeal to a broad
      demographic of mainstream sophisticated consumersthat many advertisers
      are seeking.





12
 Table
          of Contents




Employees





We
      currently have over 40 independent
      contractors working with the company, yet we are able to keep staffing costs
      to
      a minimum with only two full time employees. The 40 or so independent
      consultants work in numerous capacities inSalon City’s
      publishing, online, media and
      events.





We
      have never experienced any material
      labor disruption and believe that relations with our employees are
      good.





RESULTS
      OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006





The
      following discussion should be read in conjunction with the audited financial
      statements included in this report and is qualified in its entirety by the
      foregoing.





Revenues
      (for the years ended December 31, 2007 and 2006).





We
      recorded revenues of $467,322and
      $404,681for
      theyears
      endedDecember
      31,
      2007 and 2006, respectively.The increase
      in revenues was attributable to
      the planned delay in launching the new consumer publication in the first quarter
      of 2007 (Salon City Magazine), which replaced last year’s
      professional magazine (Salon City
      Star). The‘professional
      to consumer’transition
      lost some of its‘professional
      only’advertisements
      at this
      time.





To
      inform the reader and provide more
      decision usefulness herein, the following paragraphs were written describing more of
      what we do, the
      services we provide and the magazine we distribute.





Salon City's
      concept arises from our core mission
      to offer the public positively oriented news and products that relate to a
      consumer’s
      desire to live a life of
      health and wellness. We
      intend to organize a consumer membership consisting of salons, spas and
      clients–what
      we call the “Salon City Society”–as
      it grows and emerges in the world of
      beauty, entertainment and lifestyle branding. We are in the process of
      building
      a globally respected brand associated
      with a positive, balanced lifestyle and vision for both the public and the
      beauty industry. While our redesigned consumer publication,Salon
      Citymagazine, has generated
      most of our revenues in 2007, other initiatives, including our new
      web shows, online
      entertainment and publication, will be unfolding in 2008 and 2009. We believe
      our expanded media and product platform will add to our overall
      revenues.





After
      six years as a trade publication,Salon
      City Starmagazine
      was renamed, redesigned and relaunched
      on February 27, 2007. Our Hollywood-based magazine,Salon City,
      is now 100% consumer focused.Salon
      Cityis currently sold
      through thousands of national retailers like Hudson News, Barnes & Noble,
      Borders, Target, Kmart,
      Rite Aid and major grocery and drug chainsthroughout the USA and
      Canada, and in
      additional locations internationally in over 30 countries,including, but not limited
      to,
      Australia, Dubai, Germany, Hong Kong, Italy, Mexico, New Zealand, Singapore
      andthe United
      Kingdom.Salon Cityfeatures
      news from celebrities, everyday
      people and world beautymakers in music, art, literature and politics. Beauty
      entertainment and lifestyle news is the focus.Salon City,currently
      in its 2007-2008 rollout
      stages, hasan introductory
      circulation of approximately 75,000 copies per issue and a frequency of eight
      times per year, resulting in a total annual circulation of 600,000.Over
      the next five years the magazine is being strategically positioned to become
      a
      high sales volume publication with circulation in excess of 750,000 copies
      per
      issue.





The
      magazine’s
      revenues will also be enhanced
      beginning in 2008 with a digital edition, which can be purchased on our internet
      site,www.saloncity.com.
      Additional media products are being
      planned to be sold on the site, including a professional-only publication and
      regularly produced webisodes ofSalonCity’s
      new TV program featuring original
      content.





We
      are in the final stages of
      development before going
      live with the new website, web show and Salon City Network (consisting of Salon
      City produced video programs that will appear as part of our online
      entertainment) in the fourth quarter of 2007. All of our online initiatives
      will
      be self-funded
      (magazine advertising revenue). In
      2008, the company will invite sponsors and advertisers to participate in the
      branding of their products in exchange for contractual agreements that may
      generate revenue.





Steve
      and Annie Casciola, our majority
      shareholders, officers and
      directors, have each been in the professional beauty industry over twenty five
      years.Steve
      Casciolawas college trained
      in electrical engineering/business atArizona StateUniversity.Steve
      Casciolaopened two salons inSeattle’s
      PikeStreet Market and U-District.In
      1981 through 1995,Steve
      Casciolalater accepted corporate
      positionsandas
      Vice President of Marketing and Sales
      for top hair care companies.





Annie
      Casciola was trained as a
      hairstylist at Vidal Sassoon inLondon.
      She was Vidal Sassoon’s
      first lady barber for men inNew York City,
      and later pursued her career on the
      West Coast.





All
      sales
      transactions were with unrelated parties.





13
 Table
          of Contents




Cost
      of Sales (for the years ended December 31, 2007 and 2006).





Cost
      of goods sold for theyears
      endedDecember
      31,
      2007 and 2006 were $616,869and
      $278,018, respectively.
      Gross margin decreased to a net loss
      in theyearendedDecember
      31,
      2007 from a positive margin in theyear ended December
      31,
      2006. The reason for the deterioration
      in gross margin for theyearendedDecember
      31,
      2007 is duetothe
      new magazine being more expensive to
      produce and revenuestaking
      additional quartersto catch
      up with the newand
      expandedproduction.




Expenses
      (for the years ended December 31, 2007 and 2006).





Operating
      expenses for theyears
      endedDecember
      31,
      2007 and 2006 were $660,480and
      $2,660,344,
      respectively.Professional
      fees were the primary reason
      for the
      decreases in the2007
      yearin that we issued $1,969,228worth
      of our common shares for
      services rendered by
      consultantsduring
      theyearendedDecember
      31, 2006 compared to only
      $275,800 in 2007. The
      consultantsprovided
      advice to undertake for and
      consult with us concerning management, marketing, consulting, strategic
      planning, corporate organization and structure, financial
      matters in
      connection with the operation of our business, expansion of services,
      acquisitions and business opportunities, and review and advise us regarding
      its
      overall progress, needs and condition. This approximated the fairvalue
      of services
      received.





Several
      key factors influenced
      2007'sperformance:




1.
            Fountain
                Capital Fund did not fulfill its promise to place up to $3.5 million
                worth
                of ads and sponsorships by the end of 2006, resulting in some projects
                being delayed, other projects' budgets being diminished and others
                cancelled.





2.
            The
                significant increase in startup costs to launch the new consumer
Salon City magazine
                worldwide.





3.
            Marketing
                and promotional costs to launch the multimedia platform of print,
                online,
                webisodes and events.





4.
            The
                temporary loss of advertising revenue from advertisers who could
                not place
                professional-only trade show and product ads in a consumer
                magazine.





5.
            There
                was a delay in derived revenue due to the transition of the last
                issue of
                the professional publication in December 2006 and consumer publication
                in
                December 2007.





We
      do not
      have any lease agreements for our principal office.





During
      the year ended December 31, 2006,werecorded
      an expense of $170,795, equal
      to the estimated fair value of theoptions at the date of
      grants. The fair
      market value was calculated using the Black-Scholes options pricing model,
      assuming approximately 4.5% risk-free interest, 0% dividend yield, 55%
      volatility, and a life of five years. The remaining life of the warrants
      as of December 31, 2007 is 3.5
      years.





Income
      Taxes (for the years ended December 31, 2007 and 2006).




We
      had no
      provision for income taxes for the year ended December 31, 2007 and 2006,
      respectively, due to our net loss.





If
      we
      incur losses, we may have a deferred tax asset. Deferred tax assets are reduced
      by a valuation allowance when, in the opinion of management, it is more likely
      than not that, some portion or all of the deferred tax asset will not be
      realized. Deferred tax assets and liabilities are adjusted for the effect of
      changes in tax laws and rates on the date of enactment. We do not currently
      have
      any net deferred tax assets.


Income/Losses
      (for the years ended December 31, 2007 and 2006).





We
      had a net (loss) of $(810,027)
      and $(2,533,681)
      for theyears
      endedDecember
      31,
      2007 and 2006, respectively. The net
      (loss) in these periods was due primarily to operational expenses, which were
      $660,480and
      $2,660,344for
      theyears
      endedDecember 31,
      2007 and 2006, respectively. It is
      also a function of
      revenues, cost of sales and other expenses as described in the upcoming
      paragraphs below.





Impact
      of Inflation.





We
      believe that inflation has had a negligible effect on operations since
      inception. We believe that we can offset inflationary increases in the cost
      of
      operations by increasing sales and improving operating
      efficiencies.




14
 Table
          of Contents




Liquidity
      and Capital Resources (for the years ended December 31, 2007 and
      2006).





Net
      cash flows (used in) operating
      activities were $(254,980)
      and $(188,447)
      for theyears
      endedDecember
      31,
      2007 and 2006, respectively. This was
      primarily attributable to net (losses), which were $(810,027)
      and $(2,533,681)
      for theyears
      endedDecember
      31,
      2007 and 2006, respectively, offset by
      the non-cash charges for common sharesissued for services rendered
      during theyears
      endedDecember
      31,
      2007and 2006 in theamountsof
      $275,800 and $1,969,228,
      respectively,as discussed
      above.





Net
      cash flows(used
      in)investing
      activities for theyears ending
      December 31,
      2007 and 2006 were$11,243
      and $856,
      respectively. The cash flows used in
      investing activities for theyears
      endedDecember
      31,
      2007and 2006 was solely
      used for the purchase of office
      related
      equipment.





Net
      cash flows provided by financing
      activities were $288,642and
      $242,727for
      theyears ended December
      31,
      2007, and 2006, respectively. This
      was mainly attributable
      to
      $345,000in proceeds from
      the sale of common stockin
      2006, $225,903in
      receipt of loans from an
      officerin 2007,
      and $64,693in
      proceeds from bank loans
      for theyearendedDecember
      31,
      2007.




Overall,
      we have funded all of our cash
      needs from inception
      through December 31, 2007
      with proceeds from issuances of commonstock and shareholder
      loans.




On
      December 31,
      2007, we had cash of $111,735on
      hand. We donot have or anticipate
      having within the
      next twelve months any cash flow or liquidity problems and we are not in default
      or in breach of any note, loan, lease or other indebtedness or financing
      arrangement requiring us to make payments.





We
      will requireadditional funding over
      the next 12
      months estimated to be equal to $1,000,000 to develop new business. Presently,
      we have only $111,735worth
      of liquid assets with which to pay
      our expenses.Currently, our available and anticipated capital from our
      business operations would be sufficient to sustain us for twelve months.
      Although our officers will continue to loan us funds sufficient to sustain
      our
      current operations, they are under no legal obligation to do so. If we are
      unable to secure additional working capital as needed, our ability to develop
      new business, increase sales, meet our operating and financing obligations
      as
      they become due or continue our business and operations could be in
      jeopardy.




We
      may
      also attempt to raise additional working capital through the sale of equity,
      debt or a combination of equity and debt. We do not presently have any firm
      commitments for additional working capital and there are no assurances that
      such
      capital will be available to us when needed or upon terms and conditions which
      are acceptable to us. If we are able to secure additional working capital
      through the sale of equity securities, the ownership interests of our current
      stockholders will be diluted. If we raise additional working capital through
      the
      issuance of debt or additional dividend paying securities, our future interest
      and dividend expenses will increase.




If
      we are
      unable to secure additional working capital as needed, our ability to increase
      sales, meet our operating and financing obligations as they become due or
      continue our business and operations could be in jeopardy.





No
      significant amount of our trade
      payables has been unpaid within the stated trade term. We are not subject to
      any
      unsatisfied judgments, liens or settlement obligations.





Going
      concern





As
      shown
      in the accompanying consolidated financial statements, we have suffered
      recurring losses from operation to date. We have a net deficiency of $621,504
      as
      of


December
      31, 2007. These factors raise substantial doubt about our ability to continue
      as
      a going concern.





Management's
      plans in regard to this matter are to raise equity capital and seek strategic
      relationships and alliances in order to increase revenues in an effort to
      generate positive cash flow. Additionally, we must continue to rely upon equity
      infusions from investors in order to improve liquidity and sustain operations.
      The consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




15
 Table
          of Contents




Item 7.
      Financial Statements.





FINANCIAL
      SUMMARY
      INFORMATION.




Because
      this is only a financial summary, it does not contain all the financial
      information that may be important to you. It should be read in conjunction
      with
      the consolidated financial statements and related notes presented in this
      section.





Audited
      Financial Summary Information for the Years Ended December 31, 2007 and
      2006





Statements
                of Operations
            
            For
                the year ended December 31, 2007
            
            
            For
                the year ended December 31, 2006Revenues
            
            $
            467,322
            
            
            $
            404,681Cost
                of Sales
            
            $
            (616,869)
            
            
            $
            (278,018)Gross
                profit
            
            $
            (149,547)
            
            
            $
            126,663Operating
                expenses
            
            $
            660,480
            
            
            $
            2,660,344(Loss)
                from operations
            
            $
            (810,027
            )
            
            $
            (2,533,681)Other
                expense, net
            
            $
            --
            
            
            $
            --Net
                (loss)
            
            $
            (810,027
            )
            
            $
            (2,533,681)Net
                loss per common share
            
            
            **
            
            
            
            **





**
      Less
      than $.01





Balance
                Sheet
            
            As
                of December 31, 2007Cash
            
            $
            111,735Total
                current assets
            
            $
            120,284Other
                assets
            
            $
            8,748Total
                Assets
            
            $
            129,032Current
                liabilities
            
            $
            726,703Long
                term liabilities
            
            $
            23,833Stockholders’
                (deficit)
            
            $
            (621,504)Total
                liabilities and stockholders’ deficit
            
            $
            129,032







REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To
        the
        Board of Directors and
 Stockholders
        of Salon City, Inc.
 
 We
        have
        audited the accompanying balance sheet of Salon City, Inc. (the “Company”) as of
        December 31, 2007 and related statements of operations, stockholders’ deficit,
        and cash flows for the years ending December 31, 2007 and 2006. These financial
        statements are the responsibility of the company’s management. Our
        responsibility is to express an opinion on these financial statements 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. The Company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audit included consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the Company’s internal control over financial
        reporting. Accordingly, we express no such opinion. An audit also includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, 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 financial statements referred to above present fairly, in all
        material respects, the financial position of Salon City, Inc. (a Nevada
        corporation) as of December 31, 2007 and the results of its operations and
        its
        cash flows for years ended December 31, 2007 and 2006 in conformity with
        accounting principles generally accepted in the United States of
        America.
 
 The
        accompanying financial statements have been prepared assuming the Company
        will
        continue as a going concern.  The Company has a deficit book value and
        a negative cash flow from operations that have placed substantial doubt as
        to
        whether the Company can continue as a going concern. The ability of the Company
        to continue as a going concern is dependent on increasing revenues, and
        obtaining new capital. Management has enacted a plan to raise capital and
        increase sales.
 
 
 /s/
        Lake & Associates CPA’s LLC
 Lake
        & Associates, CPA’s LLC
 Boca
        Raton, FL
 March
        5,
        2008
 20283
        State Road 7  #300
 Boca
        Raton, Florida 33498
 Phone:
        561.982.9874
 Fax:
        561.982.7985


16
 Table
          of Contents




SALON
                CITY, INC.
                Balance
                  Sheet
                  As
                    of December 31,
                    2007AssetsCurrent
                assetsCash
            
            
            
            
            
            $         111,735Accounts
                receivable-net
            
            
            
            8,549Total
                current
                assets
            
            
            
            
            120,284Fixed
                assetsEquipment
            
            
            
            
            27,631Accumulated
                depreciation
            
            
            
            (18,883)Total
                fixed
                assets
            
            
            
            
            8,748Total
                assets
            
            
            
            
            
            
            $         129,032Liabilities
                and Stockholders'
                (Deficit)Current
                liabilitiesAccounts
                payable and accrued
                expenses
            
            $         409,931Related
                party-advances
            
            
            
            234,903Note
                payable - current
                portion
            
            
            81,869Total
                current
                liabilities
            
            
            
            
            726,703Long-term
                bank loans
                payable
            
            
            
            23,833Total
                liabilities
            
            
            
            
            
            750,536Stockholders'
                (Deficit)Preferred
                stock, (50,000,000
                shares authorized, 0 sharesissued
                or outstanding, par value $
                .001 per share)
            
            -Common
                stock, (1,000,000,000
                shares authorized, 984,083,258 sharesissued
                and 984,083,258
                outstanding, par value $.001 per share)
            984,083Additional
                paid-in
                capital
            
            
            
            2,231,833Treasury
                Stock
            
            
            
            
            (230,972)Retained
                deficit
            
            
            
            
            (3,606,449)Total
                stockholders'
                (Deficit)
            
            
            
            (621,504)Total
                liabilities and
                stockholders' (Deficit)
            
            
            
            $         129,032The
                accompanying notes are an
                integral part of these financial
                statements


17
 Table
            of Contents




SALON
                CITY, INC.
                Statement
                  of
                  Operations
                  For
                    the Years Ended December 31,
                    2007 and 20062007
            
            
            2006RevenuesAdvertising
                income
            
            $
            360,762
            
            
            $
            349,314Distributors,
                conference and other
                income
            
            
            106,560
            
            
            
            55,367Total
                revenue
            
            
            467,322
            
            
            
            404,681Cost
                of goods
                sold
            
            
            (616,869
            )
            
            
            (278,018
            )Gross
                Profit
            
            
            (149,547
            )
            
            
            126,663Operating
                ExpensesSelling,
                general and
                administrative expenses
            
            
            (660,480
            )
            
            
            (2,660,344
            )Net
                (Loss) Before
                Taxes
            
            
            (810,027
            )
            
            
            (2,533,681
            )Income
                Tax
                Expense
            
            
            -
            
            
            
            -Net
                (Loss)
            
            $
            (810,027
            )
            
            $
            (2,533,681
            )Net
                Loss Per Common
                ShareBasic
                and fully
                diluted
            
            
            **
            
            
            
            ****
                Less than
                .01Weighted
                Average Common Shares
                Outstanding
            
            
            982,124,658
            
            
            
            944,890,986The
                accompanying notes are an
                integral part of these financial
                statements




18
 Table
          of Contents


SALON
                  CITY, INC.
                  Statement
                    of Stockholders' Equity
                    (Deficit)
                    For
                      the Years Ended December 31,
                      2007 and 2006Preferred
                  Stock
              
              
              Common
                  Stock
              
              
              Additional
              
              
              Treasury
              
              
              StockPar
                  Value
                  $.001
              
              
              
              
              
              
              
              
              
              
              
              
              
              Paid
                  in
              
              
              Stock
              
              
              Subscriptions
              
              
              RetainedShares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Capital
              
              
              
              
              
              Receivable
              
              
              (Deficit)
              
              
              TotalBalances,
                  December 31,
                  2005
              
              
              -
              
              
              $
              -
              
              
              
              915,795,625
              
              
              $
              915,796
              
              
              $
              (457,546
              )
              
              $
              -
              
              
              $
              (107,551
              )
              
              $
              (262,741
              )
              
              $
              87,958Proceeds
                  from issuance of
                  shares
              
              
              -
              
              
              
              -
              
              
              
              34,500,000
              
              
              
              34,500
              
              
              
              310,500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              345,000Issuance
                  of stock for
                  services
              
              
              -
              
              
              
              -
              
              
              
              28,928,033
              
              
              
              28,928
              
              
              
              1,940,300
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,969,228Fair
                  value of rent provided by
                  officer
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,000Stock
                  subscription
                  uncollectible
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              107,551
              
              
              
              -
              
              
              
              107,551Issuance
                  of warrants for
                  financing
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              170,795
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              170,795Shares
                  returned to the
                  treasury
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (243,128
              )
              
              
              -
              
              
              
              -
              
              
              
              (243,128
              )Net
                  income (loss) for the
                  year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,533,681
              )
              
              
              (2,533,681
              )Balances,
                  December 31,
                  2006
              
              
              -
              
              
              $
              -
              
              
              
              979,223,658
              
              
              $
              979,224
              
              
              $
              1,973,049
              
              
              $
              (243,128
              )
              
              $
              -
              
              
              $
              (2,796,422
              )
              
              $
              (87,277
              )Issuance
                  of stock for
                  services
              
              
              -
              
              
              
              -
              
              
              
              17,016,000
              
              
              
              17,016
              
              
              
              258,784
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              275,800Shares
                  returned to the
                  treasury
              
              
              -
              
              
              
              -
              
              
              
              (12,156,400
              )
              
              
              (12,156
              )
              
              
              -
              
              
              
              12,156
              
              
              
              
              
              
              
              
              
              
              
              (0
              )Net
                  income (loss) for the
                  year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (810,027
              )
              
              
              (810,027
              )Balances,
                  December 31,
                  2007
              
              
              -
              
              
              $
              -
              
              
              
              984,083,258
              
              
              $
              984,083
              
              
              $
              2,231,833
              
              
              $
              (230,972
              )
              
              $
              -
              
              
              $
              (3,606,449
              )
              
              
              (621,504
              )The
                  accompanying notes are an
                  integral part of these financial
                  statements
  19
 Table
            of Contents


SALON
                  CITY, INC.
                  Statement
                    of Cash
                    Flows
                    For
                      the Years Ended December 31,
                      2007 and 20062007
              
              
              2006CASH
                  FLOWS FROM OPERATING
                  ACTIVITIES:Net
                  loss
              
              $
              (810,027
              )
              
              $
              (2,533,681
              )Adjustments
                  to reconcile net
                  (loss) to net cash(used
                  in) operating
                  activities:Common
                  stock issued for
                  services
              
              
              275,800
              
              
              
              1,969,228Uncollectible
                  subscription
                  receivable
              
              
              -
              
              
              
              107,551Warrants
                  issued for financing /
                  services
              
              
              -
              
              
              
              170,795Rent
                  provided by
                  officer
              
              
              9,000
              
              
              
              9,000Allowance
                  for doubtful
                  accounts
              
              
              6,122
              
              
              
              35,292Depreciation
              
              
              2,883
              
              
              
              6,000(Increase)
                  decrease in operating
                  assets:Accounts
                  receivable
              
              
              55,104
              
              
              
              (62,180
              )Prepaid
                  expenses and other
                  assets
              
              
              54,000
              
              
              
              (52,178
              )Increase
                  (decrease) in operating
                  liabilities:Accounts
                  payable and accrued
                  expenses
              
              
              204,923
              
              
              
              108,941Deferred
                  Revenue
              
              
              (52,785
              )
              
              
              52,785NET
                  CASH (USED IN) OPERATING
                  ACTIVITIES
              
              
              (254,980
              )
              
              
              (188,447
              )CASH
                  FLOWS FROM INVESTING
                  ACTIVITIES:Purchases
                  of fixed
                  assets
              
              
              (11,243
              )
              
              
              (856
              )NET
                  CASH PROVIDED BY (USED IN)
                  INVESTING ACTIVITIES
              
              
              (11,243
              )
              
              
              (856
              )CASH
                  FLOWS FROM FINANCING
                  ACTIVITIES:Proceeds
                  from issuance of common
                  stock
              
              
              -
              
              
              
              345,000Loans
                  to
                  officer
              
              
              -
              
              
              
              (100,736
              )Advances
                  from
                  Officer
              
              
              225,903
              
              
              
              -Proceeds
                  from bank
                  loans
              
              
              64,693
              
              
              
              -Repayments
                  of bank
                  loans
              
              
              (1,954
              )
              
              
              (1,537
              )NET
                  CASH PROVIDED BY FINANCING
                  ACTIVITIES
              
              
              288,642
              
              
              
              242,727NET
                  INCREASE IN CASH AND CASH
                  EQUIVALENTS
              
              
              22,419
              
              
              
              53,424CASH
                  AND CASH
                  EQUIVALENTS:Beginning
                  of
                  year
              
              
              89,316
              
              
              
              35,892End
                  of year
              
              $
              111,735
              
              
              $
              89,316SUPPLEMENTAL
                  CASH FLOW DISCLOSURES
                  AND NON-CASHFINANCING  INFORMATION:Common
                  stock issued for
                  services
              
              $
              275,800
              
              
              $
              1,969,228Treasury
                  Stock acquired in
                  exchange for Officer Loan
              
              $
              -
              
              
              $
              243,128Cash
                  paid during the year for
                  interest
              
              $
              35,635
              
              
              $
              4,948Cash
                  paid during the year for
                  income taxes
              
              $
              -
              
              
              $
              -The
                  accompanying notes are an
                  integral part of these financial
                  statements




20
 Table
          of Contents


SALON
        CITY, INC.
 NOTES
        TO AUDITED FINANCIAL
        STATEMENTS
 Forthe
        Year Ended December 31, 2007 and
        2006


NOTE
      1 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Business
      Activity– Salon City, Inc.
      (the “Company”) was incorporated under the laws of the State ofNevadaon
      January 4, 2005. The Company
      originally launched operations in the fall of 1995 as SC Communications, a
      sole
      proprietorship owned by current management. In 2001, the Company began
      publishing Salon City Star magazine –atrade/consumermagazine
      for salons, spas, and their
      clients. For the lastfiveyears
      Salon City Starwas sold on selected
      newsstands in
      Southern California andNew
      York City,mailed
      to high-grossing salons and
      nationally offered at no charge to salons by our network of beauty distributors,
      known as Salon City Network.




Basis
      of
      Presentation- The financial
      statements included herein include the accounts of Salon City, Inc. prepared
      under the accrual basis of accounting.




Management’s
      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
      estimates and assumptions that effect the reported amounts of assets and
      liabilities, 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. Actual results could differ from those
      estimates.





Fair
      Value
      of Financial Instruments–
The carrying amounts
      of financial instruments including accounts receivable,
      prepaid expenses, fixed assets, accounts payable and accrued expenses, and
      deferred revenue are approximated at fair value because of the immediate
      short-term maturity of these instruments.





Income
      Taxes– Income taxes are
      provided for the tax effects of transactions reported in the financial
      statements and consist of deferred taxes related primarily to differences
      between the basis of certain assets and liabilities for financial and tax
      reporting and net operating loss carry-forwards. Deferred taxes represent the
      future tax return consequences of those differences, which will either be
      taxable or deductible when the assets and liabilities are recovered or
      settled.





The
      income tax benefit consists of taxes currently refundable due to net operating
      loss carry back provisions less the effects of accelerated depreciation for
      the
      federal government. Deferred tax assets are reduced by a valuation allowance
      when, in the opinion of management, it is more likely than not that some portion
      or the entire deferred tax asset will not be realized. Deferred tax assets
      and
      liabilities are adjusted for the effect of changes in tax laws and rates on
      the
      date of enactment.




NOTE
      1 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)





Earnings
      (Loss) Per Share- The
      Company reports earnings (loss) per share in accordance with Statementof Financial Accounting
      Standard (SFAS) No.128. This statement requires dual presentation of basic
      and
      diluted earnings (loss) with a reconciliation of the numerator and denominator
      of the loss per share computations. Basic earnings per share amounts arebased
      on the weighted average shares of
      common outstanding. If applicable, diluted earnings per share assume the
      conversion, exercise or issuance of all common stock instruments such as
      options, warrants and convertible securities, unless the effect is toreduce
      a loss or increase earnings per
      share. Accordingly, this presentation has been adopted for the periods
      presented. There were no adjustments required to net income for the period
      presented in the computation of diluted earnings per share. There wereno
      common stock equivalents (CSE)
      necessary for the computation of diluted loss per share.





Fixed
      Assets– Fixed assets are
      recorded at cost and include expenditures that substantially increase the
      productive lives of the existing assets. Maintenance and repair costs are
      expensed as incurred. Depreciation is provided using the straight-line method.
      Depreciation of equipment is calculated over the management prescribed recovery
      periods, which range from 5 years for equipment to 7 years for furniture and
      fixtures.





When
      a fixed asset is disposed of, its
      cost and related accumulated depreciation are removed from the accounts. The
      difference between un-depreciated
      cost and proceeds from
      disposition is recorded as a gain or loss.





Advertising
      Costs-
      Advertising costs are expensed as
      incurred. The Company does not incur any direct-response advertising
      costs.





Revenue
      Recognition- Revenuefrom
      advertisingis recognized when
      advertising services are earned and measurable based upon completed performance.For advertising services,
      performance becomes
      complete when the actual printing of the magazine is complete and the customer
      is billed.Revenue from
      distributors and conference is recognized at the point it is earned and
      measurable based upon completed performance. For revenue from distributors,
      performance becomes complete at the point the magazine is delivered to the
      distributor. Performance becomes complete for conferences at the end of the
      conference.All revenue
      transactions are reviewed for credit worthiness prior to commencement of the
      revenue process.





Comprehensive
      Income (Loss)- The Company
      adopted Financial Accounting Standards Board Statement of Financial Accounting
      Standards No. 130,“Reporting
      Comprehensive Income”,
      which establishes standards for the reporting and display of comprehensive
      income and its components in the financial statements. There were no items
      of
      comprehensive income (loss) applicable to the Company during the year covered
      in
      the financial statements.




21
 Table
          of Contents




SALON
        CITY, INC.
 NOTES
        TO AUDITED FINANCIAL
        STATEMENTS
 Forthe
        Year Ended December 31, 2007 and
        2006




NOTE
      1 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)





Long-Lived
      Assets- In accordance with
      SFAS No. 144, the Company reviews and evaluates its long-lived assets for
      impairment whenever events or changes in circumstances indicate that their
      net
      book value may not be recoverable. When such factors and circumstances exist,
      including those noted above, the Company compares the assets’ carrying amounts
      against the estimated undiscounted cash flows to be generated by those assets
      over their estimated useful lives. If the carrying amounts are greater than
      the
      undiscounted cash flows, the fair values of those assets are estimated by
      discounting the projected cash flows. Any excess of the carrying amounts over
      the fair values are recorded as impairments in that fiscal
      period.





Cash
      and
      Cash Equivalents- For
      purposes of the Statements of Cash Flows, the Company considers liquid
      investments with an original maturity of three months or less to be cash
      equivalents.




Accounts
      Receivable- Accounts
      receivable represent amounts billed for goods sold that have not yet been
      collected.  Accounts receivable are stated at estimated net realizable
      value.  Accounts receivable are comprised of balances due from
      customers net of estimated allowances for uncollectible accounts.  In
      determining the collectibility of the account, historical trends are evaluated
      and specific customer issues are reviewed to arrive at appropriate
      allowances.




Stock-Based
      Compensation- The Company
      accounts for stock-based compensation using the fair value method of Financial
      Accounting Standard No. 123R. Common shares issued for services rendered by
      a
      third party (both employees and non-employees) are recorded at the fair value
      of
      the shares issued or services rendered, whichever is more readily determinable.The Company accounts
      for
      options and warrants under the same authoritative guidance using the
      Black-Scholes Option Pricing Model.




NOTE
      1 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)





Recent
      Accounting Pronouncements (cont.)-





In
      February 2007, FASB issued FASB
      Statement No. 159,The
      Fair Value Option for Financial
      Assets and Financial Liabilities – Including an Amendment of FASB
      StatementNo. 115(“SFAS
      159”). This standard
      permits an entity to choose to measure many financial instruments and certain
      other items at fair value. This option is available to all entities, including
      not-for-profit organizations. Most of the provisions in SFAS 159 are elective;
      however, the amendment to FASB Statement No. 115,Accounting
      for Certain Investments in
      Debt and Equity Securities,
      applies to all entities with available-for-sale and trading securities. Some
      requirements apply differently to entities that do not report net income. The
      FASB’s stated objective in issuing this standard is as follows: “to improve
      financial reporting by providing entities with the opportunity to mitigate
      volatility in reported earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions.”





The
      fair value option established by
      SFAS 159 permits all entities to choose to measure eligible items at fair value
      at specified election dates. A business entity will report unrealized gains
      and
      losses on items for which the fair value option has been elected in earnings
      (or
      another performance indicator if the business entity does not report earnings)
      at each subsequent reporting date. A not-for-profit organization will report
      unrealized gains and losses in its statement of activities or similar statement.
      The fair value option: (i) may be applied instrument by instrument, with a
      few exceptions, such as investments otherwise accounted for by the equity
      method; (ii) is irrevocable (unless a new election date occurs); and
      (iii) is applied only to instruments and not to portions of
      instruments.  SFAS 159 is effective as of the beginning of an entity’s
      first fiscal year that begins after November 15, 2007. Early adoption is
      permitted as of the beginning of the previous fiscal year provided that the
      entity makes that choice in the first 120 days of that fiscal year and also
      elects to apply the provisions of FASB Statement No. 157,Fair Value Measurements(“SFAS
      157”). We are currently assessing
      the impact of SFAS 159 on our financial statements.





In
      December 2007, the FASB issued two new statements: (a.) SFAS No. 141(revised
      2007), Business
      Combinations, and (b.) No. 160, Noncontrolling Interests
      in
      Consolidated Financial Statements.These statements are effective for
      fiscal years beginning after December 15, 2008 and the application of these
      standards will improve, simplify and converge internationally the accounting
      for
      business combinations and the reporting of noncontrolling interests in
      consolidated financial statements.  The Company is in the process of
      evaluating the impact, if any, on SFAS 141 (R) and SFAS 160 and does not
      anticipate that the adoption of these standards will have any impact on its
      consolidated financial statements.





(a.)  SFAS
      No. 141 (R) requires an acquiring entity in a business combination to: (i)
      recognize all (and only) the assets acquired and the liabilities assumed in
      the
      transaction, (ii) establish an acquisition-date fair value as the measurement
      objective for all assets acquired and the liabilities assumed, and (iii)
      disclose to investors and other users all of the information they will need
      to
      evaluate and understand the nature of, and the financial effect of, the business
      combination, and, (iv) recognize and measure the goodwill acquired in the
      business combination or a gain from a bargain purchase.





(b.)
      SFAS
      No. 160 will improve the relevance, comparability and transparency of financial
      information provided to investors by requiring all entities to: (i) report
      noncontrolling (minority) interests in subsidiaries in the same manner, as
      equity but separate from the parent’s equity, in consolidated financial
      statements, (ii) net income attributable to the parent and to the
      non-controlling interest must be clearly identified and presented on the face
      of
      the consolidated statement of income, and (iii) any changes in the parent’s
      ownership interest while the parent retains the controlling financial interest
      in its subsidiary be accounted for consistently.





22
 Table
          of Contents




SALON
        CITY, INC.
 NOTES
        TO AUDITED FINANCIAL
        STATEMENTS
 Forthe
        Year Ended December 31, 2007 and
        2006




NOTE
      2–STOCKHOLDERS’EQUITY





During
      the yearended December 31, 2006,
      the Company
      issued 34,500,000commonshares
      in exchange for $345,000in cash collections,
      respectively, from the sale thereof pursuant to a private placement to
      accredited investors made under Regulation 504.




During
      the years ended December 31,
      2007 and 2006,
      17,016,000and28,928,033common
      shares, respectively, were issued
      to various consultants in exchange for services rendered.




In
      July of 2006, the Company legally
      amended its Articles of Incorporation to increase its authorized common shares
      to 1,000,000,000 shares with a par value of $.001 per share. In addition, the
      Company authorized 50,000,000 shares of preferred stock with a par value of
      $.001 per share. Also, in July of 2006, the Company performed a five for one
      forward split on its common stock. The financial statements herein include
      the
      effects thereof.




NOTE
      3 -
      GOING CONCERN





As
      shown in the accompanying financial
      statements, the Company has suffered recurring losses from operation to date.
      The Company has a net loss and negative cash flows from operations of$810,027and
      $254,980 for the year ending
      December 31, 2007, respectively. These factors raisesubstantial doubt about
      its ability to
      continue as a going concern.





Management's
      plans in regard to this
      matter are to raise equity capital and seek strategic relationships and
      alliances in order to increase revenues in an effort to generate positive cash
      flow. Additionally, we must continue to rely upon equity infusions from
      investors in order to improve liquidity and sustain operations. The financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





NOTE
      4 -
      INCOME TAXES





The
      Company has approximately $3,562,000of
      net operating losses available that
      expire in various years
      through the year 2027.





Due
      to operating losses and the
      inability to recognize an income tax benefit there from, there is no provision
      for current federal or state income taxes for the years ended December
      31, 2007 and
      2006.





Deferred
      income taxes reflect the net
      tax effects of temporary differences between the carrying amounts of assets
      and
      liabilities for financial reporting purposes and the amount used for federal
      and
      state income tax purposes.





The
      Company’s deferred tax
      asset at December 31,
      2007consists of net
      operating loss carry forwards calculated using federal and state effective
      tax
      rates. Because of the Company’s lack of earnings history, the deferred tax asset
      has been fully offset by a valuation allowance.The valuation allowance
      increased by
      approximately $851,544forthe
      year ended December 31,
      2007.




At
      December 31, the approximate deferred
      tax assets
      were as follows:





2007                           
      2006


Net
      operating loss carry
      forwards                                           
$
      1,068,600                
       $217,056


Less:
      valuation
      allowance                                                       
$(1,068,600)$(217,056)





Deferred
      tax
      asset                                                                 $-0-                $    -0-








NOTE
      5 -
      SUPPLEMENTAL CASH FLOW INFORMATION





Supplemental
      disclosures of cash flow
      information for the years
      ended December 31, 2007 and 2006is summarized as
      follows:





Cash
      paid during the years ended
      December 31, 2006 and 2005 for interest and income taxes:





2007                      
      2006


Income
      Taxes                                                                              
$     
  -0-                          
      -0-


Interest                                                                                        
      $   5,635                   
       $4,948




23
 Table
          of Contents




SALON
        CITY, INC.
 NOTES
        TO AUDITED FINANCIAL
        STATEMENTS
 Forthe
        Year Ended December 31, 2007 and
        2006




NOTE
      6 -
      SEGMENT REPORTING





In
      June 1997, the Financial Accounting
      Standards Board issued Statement of Financial Accounting Standards No. 131,“Disclosures
      about
      Segments of anEnterpriseand
      Related
      Information.” This statement requires
      companies
      to report information about operating segments in interim and annual financial
      statements. It also requires segment disclosures about products and services,
      geographic areas, and major customers. The Company determined that ithad the
      followingseparately
      reportable operatingsegments as of December
      31, 2007 and
      2006:





2006                              
       2006


Advertising                                                                $360,762                           
       $349,314


Distributors,
      conference and other
      income                  
$106,560                $  55,367


TOTALS                                                         $467,322                            $404,681





NOTE
      7 –
WARRANTS




The
      Company issued 6,900,000 stock
      warrants during the year 2006.No warrants were issued
      in
      2007.  These
      warrants expire on June 30, 2011 and the exercise price is $.10 per warrant.
      No
      warrants expired during2007 or2006.




During
      the year ended December 31, 2006,
      the Company recorded an expense of $170,795, equal to the estimated fair value
      of the options at the date of grants. The fair market value was calculated
      using
      the Black-Scholes options pricing model, assuming approximately 4.5% risk-free
      interest, 0% dividend yield, 55% volatility, and a life of five years. The
      remaining life of thewarrants as of December
      31, 2007 is
      3.5
      years.




NOTE
      8 –
RELATED PARTY TRANSACTIONS





During
      the year ended December
      31,
      2007, the Company’s
      officers and majority shareholders borrowed
      monies
      tothe Company.The
      advances are payable on
      demand.As
      of December 31, 2007, the balance due
      was $234,903.





During
      the year ended December
      31,
      2006, the Company’s
      officers and majority shareholders borrowed monies from the Company. In December
      of 2006, the Company was fully repaid the entire amount and no balance
      existedas of December 31,
      2006.




NOTE
      9 –
COMMITMENTS





The
      Company has no written lease for its
      sales and executive offices inWest Hollywood,California.
      The Company operates its offices under
      a lease signed personally by one of its officers and majority shareholders.
      The
      effects ofgratuitousrent
      expensehave been imputed in
      the
      accompanyingfinancial
      statementsand during 2006
      wascredited to the
      Company’s additional paid in capital under generally accepted accounting
      principles.During the period ending
      December 31, 2007 the amount of $9,000 was credited to the balance due to the
      officer and majority shareholder.




24
 Table
          of Contents




SALON
      CITY, INC.


NOTES
      TO AUDITED FINANCIAL
      STATEMENTS


Forthe
      Year Ended December 31, 2007 and
      2006




NOTE
      10 –
LONG-TERM BANK LOANS PAYABLE





Notes
      payable at December 31,
      2007consist of the
      following:





Note
      payable to an unrelated bank
      bearing 14.75% interest,


secured
      by a personal guarantee from the
      Company’s officer


and
      majority shareholder. No monthly
      payments of


principal
      required, only monthly
      interest payments, and


maturity
      date of September 14,
      2011.                                                                                                    
$23,833





Demand
      line of credit payable to an
      unrelated bank bearing


interest
      of the Wall Street Journal rate
      plus 2.00%, unsecured.


No
      monthly payments of principal
      required, only monthly


interest
      payments, and no maturity
      date.                                                                                               
$75,000





Note
      payable to an unrelated bank
      bearing 14.75% interest,


secured
      by computer
      equipment.  Monthly payments of $166.


Maturity
      date of December,
      2011                                                                                                        
$6,869




Principal
      maturities of
      notespayable as of December
      31, 2007for the next five
      years and thereafter is as follows:





2008                                                      
      $     76,992


2009                                                      
      $       1,992


2010                                                      
      $       1,992


2011                                                      
      $24,726


2012                                                      
      $  -0-





Total                                                      
      $105,702





NOTE
      11-TRADE
      ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS





Trade
      accounts receivable are recorded
      at the invoiced amount and do not bear interest. The allowance for doubtful
      accounts is the Company’s best estimate of the amount of probable credit losses
      in the Company’s existing accounts receivable; however, changes in circumstances
      relating to accounts receivable may result in a requirement for additional
      allowances in the future. The Company determines the allowance based on
      historical write-off experience, current market trends and, for larger accounts,
      the ability to pay outstanding balances. The Company continually reviews its
      allowance for doubtful accounts. Past due balances over 90 days and other higher
      risk amounts are reviewed individually for collectibility. In addition, the
      Company maintains a general reserve for all invoices by applying a percentage
      based on the age category. Account balances are charged against the allowance
      after all collection efforts have been exhausted and the potential for recovery
      is considered remote.





Changes
      in the allowance for doubtful
      accounts are as follows:





2007
            
            
            2006Beginning
                balance
            
            
            35,292
            
            
            $
            -0-Provision
                for doubtful
                accounts
            
            
            41,414
            
            
            
            35,292Write-offs
            
            
            (35,292
            )
            
            
            -0-Ending
                balance
            
            $
            41,414
            
            
            $
            35,292




25
 Table
          of Contents




Item 8.
      Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure.




None.




Item 8A.
      Controls and Procedures.





We
      maintain disclosure controls and procedures designed to ensure that information
      required to be disclosed in reports filed under the Securities Exchange Act
      of
      1934 (“Exchange Act”) is recorded, processed, summarized and reported within the
      specified time periods. Our Chief Executive Officer and its Chief Financial
      Officer (collectively, the “Certifying Officers”) are responsible for
      maintaining our disclosure controls and procedures. The controls and procedures
      established by us are designed to provide reasonable assurance that information
      required to be disclosed by the issuer in the reports that it files or submits
      under the Exchange Act is recorded, processed, summarized and reported within
      the time periods specified in the Commission’s rules and forms.




As
      of the
      end of the period covered by this report, the Certifying Officers evaluated
      the
      effectiveness of our disclosure controls and procedures. Based on the
      evaluation, the Certifying Officers concluded that our disclosure controls
      and
      procedures were effective to provide reasonable assurance that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Exchange Act is recorded, processed, summarized and reported, within the time
      periods specified in the applicable rules and forms, and that it is accumulated
      and communicated to our management, including the Certifying Officers, as
      appropriate to allow timely decisions regarding required
      disclosure.




The
      Certifying Officers have also concluded, based on their evaluation of our
      controls and procedures that as of December 31, 2007, our internal controls
      over
      financial reporting are effective and provide a reasonable assurance of
      achieving their objective.


The
      Certifying Officers have also concluded that there was no change in our internal
      controls over financial reporting identified in connection with the evaluation
      that occurred during our fourth fiscal quarter that has materially affected,
      or
      is reasonably likely to materially affect, our internal control over financial
      reporting.




PART
      III




Item 9.
      Directors, Executive Officers, Promoters and
      Control Persons; Compliance with Section 16(a) of the Exchange
      Act.




DIRECTORS
      AND EXECUTIVE OFFICERS





Our
      Bylaws provide that we must have at least one director. Each director will
      serve
      until our next annual shareholder meeting, to be held sixty days after the
      close
      of the fiscal year, or until a successor is elected who accepts the position.
      Directors are elected for one-year terms. Our officers may be elected by our
      Board of Directors at any regular or special meeting of the Board of
      Directors.





Vacancies
      may be filled by a majority vote of the remaining directors then in office.
      Our
      directors and executive officers are as follows:




Name
            Age
            PositionSteven
                Casciola
            59
            President
                and DirectorAnnie
                Casciola
            56
            Secretary
                and Director





Steven
      Casciola,59—President
      and Chairman of the
      Board





Mr.
      Casciola has been in theprofessional beauty industry
      for over
      twenty five years. He was college trained in electrical engineering and business
      atArizonaStateUniversity(1966-1969).
      In 1973, in partnership
      with a hairdresser they opened twoSeattlesalons
      in the University District
      and Pike Street Market, and a show
      and educational company called Fashion Media. When the partnership dissolved
      in
      1977, he continued to own and run Fashion Media until 1981, when he accepted
      a
      position in Los Angeles with Vidal Sassoon Inc. as Director
      of Sales of the Don Sullivan
      Division and as a Consultant to Vidal Sassoon Schools Division from
      1981-1982.





After
      Vidal Sassoon was sold, Mr.
      Casciola continued to build his career in the beauty management business and
      accepted corporate positions asCreative Services Director
      for Image
      Laboratories from 1983-1986; Director of Sales and Marketing for Forsite
      Products, Inc. (exclusive distributor of Paul Mitchell in LA County) from
      1988-1989; Director of Marketing and Sales (SoCal Distribution) for
      Lanza
      Laboratories, Inc. in 1990; National
      Sales Director for Alexia Alexander, Inc. from 1991-1994; Vice President of
      Sales and Marketing for Ed Wyse Beauty Supply, Inc. from 1994-1995; and Vice
      President of Marketing, Sales & Education for Mont Source, Inc.from 1995-1996.




In
      1982 Mr. Casciola created SC
      Communications as his consulting firm, and through this company has performed
      media, marketing, and sales consultingforbeauty
      industry clients.  Then
      in 1995, he went full time with SC Communications to begin the operations which
      have
      culminated in Salon City, Inc. today.





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 Table
          of Contents




Annie
      Casciola, 56—Vice
      President, Secretary and
      Director





Mrs.
      Casciola, wife of Steven Casciola,
      has been in the professional beauty industry over twenty five years. She was
      trained as a hairstylist at
      the Vidal Sassoon inLondonin
      or about 1980. She was Vidal
      Sassoon’s
      first woman barber for men inNew York City,
      at the Vidal Sassoon barber shop onFifth Avenuein
      Bonwit Teller, once one ofNew York’s
      most upscale department
      stores,
      in or about 1981, and worked as a
      professional stylist on the west coast. She currently representsSalonCityas
      its founder and key spokesperson,
      traveling to shows, teaching and networking with media and industry leaders
      from
      around the world. She isalso
      involved in day to day functions asSalon City’s
      Vice President and oversees education,
      customer service and events.





Our
      bylaws provide for indemnification
      of each person (including the heirs, executors, administrators, or estate of
      such person) whois or was
      director and officer of the corporation to the fullest extent permitted or
      authorized by current or future legislation or judicial or administrative
      decision against all fines, liabilities, costs and expenses, including
      attorneys’fees,
      arisingout
      of his or her status as a director,
      officer, agent, employee or representative. Nevada Revised Statute 78.7502
      allows indemnification so long as the officers and directors acted in good
      faith.  The foregoing right of indemnification shall not be
      exclusive
      of other rights to which those
      seeking an indemnification may be entitled.  The corporation may
      maintain insurance, at its expense, to protect itself and all officers and
      directors against fines, liabilities, costs, and expenses, whether or not the
      corporation
      would have the legal power to
      indemnify them directly against such liability.  Such indemnification
      has the effect of reducing the liability of officers and
      directors.





Insofar
      asindemnificationfor
      liabilities arising under the
      Securities Act of1933 may
      be permitted to directors, officers or persons controlling an issuer pursuant
      to
      the foregoing provisions, the opinion of the Commission is that suchindemnificationis
      against public policy as expressed in
      the Securities Act of 1933 and is therefore unenforceable.





Other
      than these persons mentioned
      above, we have no significant employees.





Promoters
      and Control
      Persons




Steven
      and Annie Casciola may be
      considered control persons of us within the meaning of the rules promulgated
      under the Securities Act of
      1933, as amended, by virtue of his and her share ownership, his and her ability
      to influence our activities, and his and her positions as our President and
      Vice
      President.





Family
      Relationships.


None.





Legal
      Proceedings.





No
      officer, director, or persons nominated for such positions and no promoter
      or
      significant employee of ours has been involved in legal proceedings that would
      be material to an evaluation of our management.





Audit
      Committee





We
      do not
      have a separately designated standing audit committee. Pursuant to Section
      3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit
      committee for the purpose of overseeing the accounting and financial reporting
      processes, and audits of our financial statements. The Commission recently
      adopted new regulations relating to audit committee composition and functions,
      including disclosure requirements relating to the presence of an "audit
      committee financial expert" serving on its audit committee. In connection with
      these new requirements, our Board of Directors examined the Commission's
      definition of "audit committee financial expert" and concluded that we do not
      currently have a person that qualifies as such an expert. We have had minimal
      operations for the past two (2) years. Presently, there are only four (4)
      directors serving on our Board, and we are not in a position at this time to
      attract, retain and compensate additional directors in order to acquire a
      director who qualifies as an "audit committee financial expert", but we intend
      to retain an additional director who will qualify as such an expert, as soon
      as
      reasonably practicable. While neither of our current directors meets the
      qualifications of an "audit committee financial expert", each of our directors,
      by virtue of his past employment experience, has considerable knowledge of
      financial statements, finance, and accounting, and has significant employment
      experience involving financial oversight responsibilities. Accordingly, we
      believe that its current directors capably fulfill the duties and
      responsibilities of an audit committee in the absence of such an
      expert.




Code
      of
      Ethics





We
      have
      adopted a code of ethic (the "Code of Ethics") that applies to our principal
      chief executive officer, principal financial officer, principal accounting
      officer or controller, or persons performing similar functions A draft of the
      Code of Ethics is in Exhibit 14.1 hereto. The Code of Ethics is being designed
      with the intent to deter wrongdoing, and to promote the following:






            Honest
                and ethical conduct, including the ethical handling of actual or
                apparent
                conflicts of interest between personal and professional
                relationships



            Full,
                fair, accurate, timely and understandable disclosure in reports and
                documents that a small business issuer files with, or submits to,
                the
                Commission and in other public communications made by the small business
                issuer



            Compliance
                with applicable governmental laws, rules and
                regulations



            The
                prompt internal reporting of violations of the code to an appropriate
                person or persons identified in the
                code



            Accountability
                for adherence to the code




Section
      16(a) Beneficial Ownership Reporting Compliance




Under
      Section 16(a) of the Exchange Act, all executive officers, directors, and each
      person who is the beneficial owner of more than 10% of the common stock of
      a
      company that files reports pursuant to Section 12 of the Exchange Act, are
      required to report the ownership of such common stock, options, and stock
      appreciation rights (other than certain cash-only rights) and any changes in
      that ownership with the Commission. Specific due dates for these reports have
      been established, and we are required to report, in this Form 10-KSB, any
      failure to comply therewith. We believe that all of these filing requirements
      were satisfied by our executive officers, directors and by the beneficial owners
      of more than 10% of our common stock. In making this statement, hawse have
      relied solely on copies of any reporting forms received by it, and upon any
      written representations received from reporting persons that no Form 5 (Annual
      Statement of Changes in Beneficial Ownership) was required to be filed under
      applicable rules of the Commission.




27
 Table
          of Contents




Item 10.
      Executive Compensation




No
      compensation in excess of $100,000 was awarded to, earned by, or paid to any
      executive officer of Salon City, Inc. during the years 2007, 2006, and 2005.
      The
      following table and the accompanying notes provide summary information for
      each
      of the last three fiscal years concerning cash and non-cash compensation paid
      or
      accrued by Steven Casciola, our President and Director, and Annie Casciola,
      our
      Secretary and Director.




SUMMARY
      COMPENSATION TABLE





Name
              and
              Principal
              Position
            Year
            Salary
              ($)
            Bonus
              ($)
            Stock
              Awards
              ($)
            Option
              Awards
              ($)
            Non-
              Equity
              Incentive
              Plan
              Compen-
              sation
              ($)
            Nonquali-
              fied
              Deferred
              Compensa-
              tion
              Earnings
              ($)
            All
              Other
              Compensa-
              tion
              ($)
            Total
              ($)Steven
                Casciola
              President
                and Director
            2007
              2006
              2005
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -Annie
                Casciola
              Secretary
                and Director
            2007
              2006
              2005
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -






Item 11.
      Security Ownership of Certain Beneficial Owners
      and Management





The
      following tables set forth the ownership, as of March 13, 2008, of our common
      stock (a) by each person known by us to be the beneficial owner of more than
      5%
      of our outstanding common stock, and (b) by each of our directors, by all
      executive officers and our directors as a group. To the best of our knowledge,
      all persons named have sole voting and investment power with respect to such
      shares, except as otherwise noted.





Security
      Ownership of Certain Beneficial Owners (1)(2)





Name
                and Address of Beneficial Owner
            Amount
                and Nature of Ownership
            Percentage
                of ClassSteven
                Casciola
              President
                and Director
              909
                N. Palm Ave., Suite 311, N. Hollywood, CA. 90069
            416,500,000
              Direct
            42.21%Annie
                Casciola
              Secretary
                and Director
              909
                N. Palm Ave., Suite 311, N. Hollywood, CA. 90069
            391,567,122
              Direct
            39.68%





Security
      Ownership of Directors and Officers (1)(2)





Name
                and Address of Beneficial Owner
            Amount
                and Nature of Ownership
            Percentage
                of ClassSteven
                Casciola
              President
                and Director
              909
                N. Palm Ave., Suite 311, N. Hollywood, CA. 90069
            461,500,000
              Direct
            42.21%Duane
                Bennett
              Secretary
                and Director
              909
                N. Palm Ave., Suite 311, N. Hollywood, CA. 90069
            391,567,122
              Direct
            39.68%All
                directors and officers as a group
            808,067,122
            81.89%Total
                Outstanding
            986,783,258
            100.00%





Notes
      to
      the table:





(1)
            Pursuant
                to Rule 13-d-3 under the Securities Exchange Act of 1934, as amended,
                beneficial ownership of a security consists of sole or shared voting
                power
                (including the power to vote or direct the voting) and/or sole or
                shared
                investment power (including the power to dispose or direct the
                disposition) with respect to a security whether through a contract,
                arrangement, understanding, relationship or otherwise. Unless otherwise
                indicated, each person indicated above has sole power to vote, or
                dispose
                or direct the disposition of all shares beneficially
                owned.





(2)
            This
                table is based upon information obtained from our stock records.
                We
                believe that each shareholder named in the above table has sole or
                shared
                voting and investment power with respect to the shares indicated
                as
                beneficially owned.




Changes
      in Control.





There
      are
      currently no arrangements, which would result in a change in our
      control.





28
 Table
          of Contents




Item 12.
      Certain Relationships and Related Transactions





Other
      than as disclosed below, none of our present directors,
      officers or principal shareholders, nor any family member of the foregoing,
      nor,
      to the best of our information and belief, any of our former directors, senior
      officers or principal shareholders, nor any family member of such former
      directors, officers or principal shareholders, has or had any material interest,
      direct or indirect, in any transaction, or in any proposed transaction which
      has
      materially affected or will materially affect us.





During
      the year ended December 31, 2006,
      our officers and majority shareholders borrowed monies from us
      totaling $243,128. We opted
      to accept repayment in the form of shares of our common stock, which were
      retired back into our treasury. In December 2006, we accepted 12,156,400 shares
      of our common stock as full repayment of the entire amount borrowed. These
      shares
      were received by us on June 28,
      2007.





During
      the year ended December 31, 2007,ourofficers
      and majority shareholders borrowed
      monies. The advances are payable
      on demand. As
      of December 31, 2007, the balance due was $234,903.




Item
      13. Exhibits and Reports on Form 8-K





(a)
            Financial
                Statements





1.
      The
      following financial statements of Salon City, Inc are included in Part II,
      Item
      7:





Report
      of
      Independent Registered Public Accounting
      Firm........................    14


Balance
      Sheet-December 31, 2007...................................................15-16


Statements
      of Operations - for the years ended


December
      31, 2007 and 2006........................................................  17-18


Statements
      of Cash Flows - for the years ended


December
      31, 2007 and 2006..........................................................19-20


Statements
      of Stockholders’ Equity - for the years ended


December
      31, 2007 and
      2006.......................................................        21


Notes
      to
      Financial Statements.........................................................22-28




2.
      Exhibits




14.1.             
      Code of Ethics


31.1.             
      Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive
      Officer


31.2.             
      Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial  Officer (see
      Exhibit 31.1)


32.1.              Section
      1350 Certifications of Chief Executive Officer


32.2.             
      Section 1350 Certifications of Chief Financial Officer (see Exhibit
      32.1)





(b)
            Reports
                on Form 8-K




None.




29
 Table
          of Contents




Item 14.
      Principal Accountant Fees and Services





Fees
      Billed For Audit and Non-Audit Services





The
      following table represents the aggregate fees billed for professional audit
      services rendered to the independent auditor, Lake & Associates, CPA’s, LLC
      ("Lake") for our audit of the annual financial statements for the years ended
      December 31, 2007 and 2006. Audit fees and other fees of auditors are listed
      as
      follows:





Year
                Ended December
                31
            
            2007
            
            
            
            2006Lake
            
            
            
            LakeAudit
                Fees (1)
            
            $
            23,375
            
            
            (2)
            
            $
            15,000
            
            
            (2)Audit-Related
                Fees (3)
            
            
            --
            
            
            
            
            
            --Tax
                Fees (4)
            
            
            --
            
            
            
            
            
            --All
                Other Fees (5)
            
            
            --
            
            
            
            
            
            --Total
                Accounting Fees and Services
            
            $
            23,375
            
            
            
            
            $
            15,000




(1)
            Audit
                Fees. These are
                fees for professional services for the audit of our annual financial
                statements, and for the review of the financial statements included
                in our
                filings on Forms 10-QSB, and for services that are normally provided
                in
                connection with statutory and regulatory filings or
                engagements.


(2)
            The
                amounts shown for Lake relate to services in connection with consents
                and
                assistance with and review of documents filed with the Securities
                and
                Exchange Commission.


(3)
            Audit-Related
                Fees.
                These are fees for the assurance and related services reasonably
                related
                to the performance of the audit or the review of our financial
                statements.


(4)
            Tax
                Fees. These are
                fees for professional services with respect to tax compliance, tax
                advice,
                and tax planning.


(5)
            All
                Other Fees. These
                are fees for permissible work that does not fall within any of the
                other
                fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
                Fees.





Pre-Approval
      Policy For Audit and Non-Audit Services





We
      do not
      have a standing audit committee, and the full Board performs all functions
      of an
      audit committee, including the pre-approval of all audit and non-audit services
      before we engage an accountant. All of the services rendered by Lake &
Associates, CPA’s, LLC were pre-approved by our Board of Directors.





We
      are
      presently working with its legal counsel to establish formal pre-approval
      policies and procedures for future engagements of our accountants. The new
      policies and procedures will be detailed as to the particular service, will
      require that the Board or an audit committee thereof be informed of each
      service, and will prohibit the delegation of pre-approval responsibilities
      to
      management. It is currently anticipated that our new policy will provide (i)
      for
      an annual pre-approval, by the Board or audit committee, of all audit,
      audit-related and non-audit services proposed to be rendered by the independent
      auditor for the fiscal year, as specifically described in the auditor's
      engagement letter, and (ii) that additional engagements of the auditor, which
      were not approved in the annual pre-approval process, and engagements that
      are
      anticipated to exceed previously approved thresholds, will be presented on
      a
      case-by-case basis, by the President or Controller, for pre-approval by the
      Board or audit committee, before management engages the auditors for any such
      purposes. The new policy and procedures may authorize the Board or audit
      committee to delegate, to one or more of its members, the authority to
      pre-approve certain permitted services, provided that the estimated
      fee for any such service does not exceed a specified dollar amount (to be
      determined). All pre-approvals shall be contingent on a finding, by the Board,
      audit committee, or delegate, as the case may be, that the provision of the
      proposed services is compatible with the maintenance of the auditor's
      independence in the conduct of its auditing functions. In no event shall any
      non-audit related service be approved that would result in the independent
      auditor no longer being considered independent under the applicable rules and
      regulations of the Securities and Exchange Commission.





(a)
      On
      December 31, 2007, our Chief Executive Officer and Chief Financial Officer
      made
      an evaluation of our disclosure controls and procedures. In our opinion, the
      disclosure controls and procedures are adequate because the systems of controls
      and procedures are designed to assure, among other items, that 1) recorded
      transactions are valid; 2) valid transactions are recorded; and 3) transactions
      are recorded in the proper period in a timely manner to produce financial
      statements which present fairly the financial condition, results of operations
      and cash flows for the respective periods being presented. Moreover, the
      evaluation did not reveal any significant deficiencies or material weaknesses
      in
      our disclosure controls and procedures.





(b)
      There
      have been no significant changes in our internal controls or in other factors
      that could significantly affect these controls since the last
      evaluation.




30





SIGNATURES




In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the registrant has caused this report to be signed on its behalf by the
      undersigned majority of the Board of Directors, thereunto duly
      authorized.




SALON
                CITY, INC.Date:
                March 13, 2008
            
            /s/
                Steven CasciolaSteven
                CasciolaPresident,
                CEO, CFO, Principal Accounting Officer
              and
                Director