U.S.
Securities and Exchange Commission


Washington,
D.C. 20549









FORM
10-Q







[X]
            Quarterly
      Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934
      for the Quarterly Period Ended June 30,
2008





[
       ]
            Transition
      Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934
      for the Transition Period from _______ to
  _______





Commission
File Number: 000-52749







SALON
CITY, INC.


(Exact name of small business issuer as
specified in its charter)







NEVADA
            20-2107795(State
      or other jurisdiction of
            (IRS
      Employer Identification No.)incorporation
      or organization)




909
North Palm Avenue


Suite
311


West
Hollywood, California 90069


(Address
of principal executive offices)





310-358-9017


(Issuer's
telephone number)










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.


Yes
      [x]
            
            
            No
      [ ]




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated
      filer
             ̈Non-accelerated
      filer
             ̈(Do not check if a smaller
      reporting company)Accelerated
      filer
             ̈Smaller reporting
      company
            þ





Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the exchange act). Yes [ ] No [X]





Number of
shares of common stock outstanding as of August 15,
2008: 993,716,592


Number of
shares of preferred stock outstanding as of August 15, 2008: -0-







1
 Table
of Contents


CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
  The discussion contained in this 10-Q
under the Securities Exchange Act of 1934, as amended, 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 discussions under "Notes to
Financial Statements" and "Management's Discussion and Analysis or Plan of
Operation" as well as those discussed elsewhere in this Form 10-Q. 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-Q 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.
  2
  TABLE OF
      CONTENTSPART
      I. FINANCIAL INFORMATIONITEM 1.FINANCIAL
      STATEMENTS
              4ITEM 2.MANAGEMENT'S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION
              9ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
      ABOUT MARKET RISK
              11ITEM 4.CONTROLS AND
      PROCEDURES
              11PART
      II. OTHER INFORMATIONITEM 1.LEGAL
      PROCEEDINGS
              12ITEM 1A. RISK FACTORS
              12ITEM 2.UNREGISTERED SALES OF EQUITY
      SECURITIESAND USE
      OF PROCEEDS
              12ITEM 3.DEFAULTS UPON SENIOR
      SECURITIES
              12ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF
      SECURITY HOLDERS
              12ITEM 5.OTHER
      INFORMATION
              12ITEM 6.EXHIBITS AND REPORTS ONFORM
      8-K
              12SIGNATURES
              13INDEX TOEXHIBITS
              14
  3
 Table
of Contents
  ITEM 1. FINANCIAL STATEMENTS
  SALON
      CITY, INC.Balance
      SheetAt
      June 30, 2008Unaudited
                
                AuditedJune 30, 2008
                
                December 31, 2007Assets:Current
      assetsCash
                
                
                
                
                
                
                $                             74,038
                
                $                 111,735Accounts
      receivable
                
                
                
                
                119,810
                
                8,549Total
      current assets
                
                
                
                
                
                193,848
                
                120,284Fixed
      assetsEquipment
                
                
                
                
                
                27,631
                
                27,631Accumulated
      depreciation
                
                
                
                
                (25,606)
                
                (18,883)Total
      fixed assets
                
                
                
                
                
                
                2,025
                
                8,748Total
      assets
                
                
                
                
                
                
                
                $                           195,873
                
                $                 129,032Liabilities
      and Stockholders' DeficitCurrent
      liabilitiesAccounts
      payable and accrued expenses
                
                
                $                           496,363
                
                $                 409,931Current
      portion of bank loans payable
                
                
                
                22,312
                
                81,869Related
      party advances
                
                
                
                
                271,759
                
                234,903Total
      current liabilities
                
                
                
                
                
                790,434
                
                726,703Long-term
      bank loans payable
                
                
                
                
                102,068
                
                23,833Total
      liabilities
                
                
                
                
                
                
                892,502
                
                750,536Stockholders'
      DeficitPreferred
      stock, (50,000,000 shares authorized, -0- sharesissued
      or outstanding, par value $ .001 per share)
                
                
                -
                
                -Common
      stock, (2,000,000,000 shares authorized, 993,716,592shares
      issued and outstanding, par value $.001 per share)
                
                993,717
                
                984,083Additional
      paid-in capital
                
                
                
                
                2,251,091
                
                2,231,833Treasury
      stock
                
                
                
                
                
                (230,972)
                
                (230,972)Retained
      deficit
                
                
                
                
                
                (3,710,465)
                
                (3,606,449)Total
      stockholders' deficit
                
                
                
                
                
                (696,629)
                
                (621,505)Total
      liabilities and stockholders' deficit
                
                
                
                
                $                           195,873
                
                $                 129,032The
      accompanying notes are an integral part of these financial
      statements
  4
 Table
of Contents
  SALON
      CITY, INC.Statements
      of OperationsFor
      the Three and six Months Ended June 30, 2008 and 2007Three
      Months
                
                
                Three
      Months
                
                
                Six
      Months
                
                
                Six
      MonthsJune 30, 2008
                
                
                June 30, 2007
                
                
                June 30, 2008
                
                
                June 30, 2007Advertising
      income
                
                $
                29,360
                
                
                $
                121,709
                
                
                $
                113,024
                
                
                $
                228,824Distributors,
      conference and other income
                
                
                65,000
                
                
                
                -
                
                
                
                65,815
                
                
                
                140Total
      revenue
                
                
                94,360
                
                
                
                121,709
                
                
                
                178,839
                
                
                
                228,964Cost
      of goods sold
                
                
                (64,967
                )
                
                
                (196,165
                )
                
                
                (142,610
                )
                
                
                (291,569
                )Gross
      Profit
                
                
                29,393
                
                
                
                (74,456
                )
                
                
                36,229
                
                
                
                (62,605
                )Selling,
      general and administrative expenses
                
                
                63,648
                
                
                
                43,997
                
                
                
                122,998
                
                
                
                142,838Net
      ordinary (loss)
                
                
                (34,255
                )
                
                
                (118,453
                )
                
                
                (86,769
                )
                
                
                (205,443
                )Interest
      expense
                
                
                (7,384
                )
                
                
                (14,594
                )
                
                
                (17,247
                )
                
                
                (21,795
                )Net
      (loss)
                
                $
                (41,639
                )
                
                $
                (133,047
                )
                
                $
                (104,016
                )
                
                $
                (227,238
                )Basic
      income (loss) per share
                
                $
                *
                
                
                $
                *
                
                
                $
                *
                
                
                $
                *Fully
      diluted income (loss) per share
                
                $
                *
                
                
                $
                *
                
                
                $
                *
                
                
                $
                *Weighted
      average shares outstanding
                
                
                991,766,591
                
                
                
                983,845,458
                
                
                
                989,987,452
                
                
                
                977,345,458* =
      less than $.01 per share.The
      accompanying notes are an integral part of these financial
      statements
  5
 Table
of Contents
  SALON
      CITY, INC.Statements
      of Cash FlowsFor
      the Six Months ended June 30, 2008 and 2007Six
      Months
                
                
                Six
      MonthsEnded
                
                
                EndedJune 30, 2008
                
                
                June 30, 2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                
                $
                (104,016
                )
                
                $
                (227,238
                )Adjustments
      to reconcile net (loss) to net cash(used
      in) operating activities:Depreciation
                
                
                6,723
                
                
                
                1,536Par
      value of shares returned to treasury
                
                
                -
                
                
                
                12,156Fair
      value of rent provided by officer
                
                
                -
                
                
                
                4,500Increase
      in allowance for doubtful accounts
                
                
                -
                
                
                
                24,050Recovery
      of prior year allowance for doubtful accounts
                
                
                -
                
                
                
                35,287Common
      stock issued for services rendered
                
                
                28,891
                
                
                
                45,000(Increase)
      decrease in operating assets:Accounts
      receivable
                
                
                (111,261
                )
                
                
                (14,558
                )Increase
      (decrease) in operating liabilities:Deferred
      revenue
                
                
                -
                
                
                
                (52,785
                )Accounts
      payable and accrued expenses
                
                
                86,432
                
                
                
                66,422NET
      CASH (USED IN) OPERATING ACTIVITIES
                
                
                (93,231
                )
                
                
                (105,630
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of equipment
                
                
                -
                
                
                
                (8,883
                )NET
      CASH (USED IN) INVESTING ACTIVITIES
                
                
                -
                
                
                
                (8,883
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from sale of common stock to investors
                
                
                -
                
                
                
                13,000Incurrences
      (repayment of) related pary advances
                
                
                36,856
                
                
                
                43,291Proceeds
      from bank loans
                
                
                18,678
                
                
                
                56,961NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                
                
                55,534
                
                
                
                113,252NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                
                
                (37,697
                )
                
                
                (1,261
                )CASH
      AND CASH EQUIVALENTS:Beginning
      of period
                
                
                111,735
                
                
                
                89,316End
      of period
                
                $
                74,038
                
                
                $
                88,055SUPPLEMENTAL
      CASH FLOW DISCLOSURES AND NON-CASHFINANCING  INFORMATION:Cash
      paid during the quarter for interest
                
                $
                17,247
                
                
                $
                21,795Cash
      paid during the quarter for income taxes
                
                $
                -
                
                
                $
                -The
      accompanying notes are an integral part of these financial
      statements
 6
 Table
of Contents
  NOTES TO CONDENSED
FINANCIAL STATEMENTS
 OF
 SALON
CITY, INC.
 JUNE
30, 2008 (UNAUDITED)
 
 
 NOTE A -
BASIS OF PRESENTATION
 
 The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
 
 In the
opinion of management, the unaudited condensed financial statements contain all
adjustments consisting only of normal recurring accruals considered necessary to
present fairly the Company's financial position at June 30, 2008 and the results
of operations for the period ended June 30, 2008.
 
 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, other current assets, equipment and related depreciation,
accounts payable and accrued expenses and bank loans payable approximated 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.
 
 Earnings (Loss) Per
Share - The Company reports earnings (loss) per share in accordance with
Statement of 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 are based 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 to reduce 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 were no 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 property and 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 undepreciated 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
-
 
 Advertising Revenue - Revenue
from advertising is 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
finished and the customer is billed with accompanied proof of
printing.
 
 Distributor Revenue - Revenue
from distributors for retail sales of publications is recognized at the point it
is earned and measurable based upon completed performance. For revenue from
distributors, performance becomes complete at a subsequent date when the
distributor reports the actual number of publication units sold.
 
 Conference Revenue -
Conference revenue is earned and measurable based upon completed performance,
unless it is for non-refundable deposits related to ticket sales and
sponsorships. 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.
  7
 Table
of Contents
 NOTES TO CONDENSED
FINANCIAL STATEMENTS
 OF
 SALON
CITY, INC.
 JUNE
30, 2008 (UNAUDITED)
  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.
 
 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.
 
 Recent Accounting
Pronouncements - In September, 2006, the FASB issued SFAS No. 157, "Fair
Value Measurements", which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. The adoption of this standard on
January 1, 2008 did not have a material effect on the Company's financial
statements.
 
 In
September, 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans - An Amendment of FASB
Statements No. 87, 88, 106 and 132(R)". SFAS No. 158 requires an employer to (i)
recognize in its statement of financial position an asset for a plan's
overfunded status or a liability for a plan's underfunded status; (ii) measure a
plan's assets and its benefit obligations that determine its funded status as of
the end of the employer's fiscal year (with limited exceptions); and (iii)
recognize changes in the funded status of a defined benefit postretirement plan
in the year in which the changes occur. Those changes will be reported in
comprehensive income. The Company previously adopted in 2006 the requirement to
recognize the funded status of a benefit plan and the disclosure requirements.
The requirement to measure plan assets and benefit obligations to determine the
funded status as of the end of the fiscal year and to recognize changes in the
funded status in the year in which the changes occur is effective for fiscal
years ending after December 15, 2008. The adoption of the measurement date
provisions of this standard is not expected to have a material effect on the
Company's financial statements.
 
 In
February, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". SFAS No. 159 permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company is not electing to measure its
financial assets or liabilities at fair value pursuant to this
statement.
 
 In
December, 2007, the FASB issued No. 141, (revised 2007) "Business Combinations"
("SFAS No. 141R"). SFAS No. 141R replaces SFAS No. 141, which the Company
previously adopted. SFAS No. 141R revises the standards for accounting and
reporting of business combinations. In summary, SFAS No. 141R requires the
acquirer of a business combination to measure, at fair value, the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, with limited exceptions. SFAS No. 141R applies
to all business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The Company does not believe that the adoption of this statement on
January 1, 2009 will have a material effect on the Company's financial
statements.
 
 In
December, 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements", which requires consolidated net income to be
reported at amounts that include the amounts attributable to both the parent and
noncontrolling interest. SFAS No. 160 is effective for fiscal years beginning on
or after December 15, 2008. The adoption of this standard is not expected to
have a material effect on the Company's financial statements.
 
 In March,
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities". SFAS No. 161 changes the reporting requirements for
derivative instruments and hedging activities under SFAS No. 133, "Accounting
for Derivatives and Hedging Activities", by requiring enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments are accounted for under SFAS No. 133 and (c) the effect of
derivative instruments and hedging activities on an entity's financial position,
financial performance and cash flows. SFAS No. 161 is effective for fiscal years
beginning after November 15, 2008. The Company does not believe that the
adoption of this statement will have a material effect on the Company's
financial statements.
  In
May 2008, the FASB released SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that presented
in conformity with generally accepted accounting principles in the United States
of America. SFAS No. 162 will be effective 60 days following the SEC’s approval
of the PCAOB amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The Company
does not believe SFAS 162 will have a significant impact on the Company’s
financial statements.
 NOTE B –
EQUITY
 During
the six months ended June 30, 2008, the Company issued 9,633,334 common shares
to outside consultants for payment of services during this period. The
transactions were valued at the stock prices on the dates of issuances ranging
from $.001 to $.0045 per share. $28,891 was expensed and is included in the
accompanying statements of operations. This amount also reasonably approximates
the fair market value of services received.
 
 NOTE C -
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 $104,016 and $93,231 for the six months ending June 30,
2008, respectively. These factors raise substantial 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.
  8
 Table
of Contents
  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
 As used herein the terms "we", "us",
"our," the “Registrant,” and the "Company" means, Salon City, Inc., a Nevada
corporation.
 
 GENERAL
DESCRIPTION OF BUSINESS
  Introduction
 
 Headquartered
in Los Angeles, California, we publish Salon City magazine, where
Life is Beautiful(SM). It is distributed nationally by Time/Warner Retail, a
Time Warner Company, and internationally by 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 were
incorporated in Nevada on January 4, 2005 and have a fiscal year end of December
31.  We represent 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 publication Salon City Star
magazine.  In March 2007, we 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, Salon
City. Through 2008, the company will still be in the introductory 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 distribute Salon City magazine to
thousands of bookstores and newsstands in America and Canada. We also entered in
to a three year agreement with Kable Distribution Services to distribute Salon City magazine
internationally. The magazine is currently sold in approximately 4800 bookstores
and newsstands throughout 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.
 
 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 City is 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 of mainstream
sophisticated consumers that 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 in Salon 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 THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 
 The following discussion should be read
in conjunction with the financial statements included in this report and is
qualified in its entirety by the foregoing.
  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 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.
 
 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.
 
 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.
 
 Expenditures
for maintenance and repairs are expensed as incurred.
 
 9
 Table
of Contents
  Management
Comments
 
 The
second quarter of 2008, ended June 30, was the first full quarter that Salon
City, Inc. had been trading as an over-the-counter bulletin board company. The
process of moving to the bulletin board has taken nearly 18 months to achieve
and came at some cost. Initially, management felt that we would gain final
approval from both the SEC and FINRA, and commence trading, as early as fall
2007. However, SEC approval did not come until December 2007; approval from
FINRA arrived in late March 2008, following the submission of a required annual
report. (Initial 2007 plans for post-OTCBB status included addressing the proper
capitalization and funding needs of the company so management could expand
roll-out opportunities that came with the introduction of our first consumer
print publication, Salon
City, as well as the launch of new media marketing initiatives that could
influence the growth of the company's revenues.)
 
 In April
2008, management's focus was to reduce and/or eliminate unnecessary expenses
while we began to identify our course of action for expansion. As the financial
records illustrate, we were able to reduce both expenses and costs of goods, and
bring them more in line with current revenues.
 
 In May
2008, management began to assemble a new consulting team that would prepare the
company for fundraising and growth opportunities. Ideally, these opportunities
would attract a much larger sphere of microcap and institutional investors. As
of today, we are actively preparing to take the steps necessary to improve our
capital structure, increase working capital, and support our 2008-2009
projections for expansion and development of our new revenue generating
products.
 
 Also
during Q2 2008, management identified and recruited a new advertising and sales
agency that will represent us in both the consumer and trade advertising
markets. We now anticipate having a signed contract with this independent sales
agency by end of September 2008, in time for the launch of the 2009 media buying
season, which begins in earnest in September 30, 2008. This new sales agency
(not yet officially announced) has agreed in principle with management
to be responsible for generating national sales from trade and consumer
advertising sources, and sponsorship organizations. Management will work closely
with this sales agency to maximize their effectiveness so they can begin
securing contracts and commitments for the remainder of 2008 and for 2009. The
sales agency founders were responsible for ad sales with top consumer
publications, such as Cosmopolitan and In Style magazines—two
fashion books similar to Salon
Citymagazine that are currently booking millions of dollars worth of ad
sales.
 
 After 18
months of work, and as a direct result of a) the financial consulting group
coming on board, b) confirmation of the new ad sales group, and c) new
anticipated sources of funding outside the realm of these two groups, we will be
in our best position yet to increase revenue projections. It is expected that we
will finish out 2008 with marked improvement over Q1 and Q2.
 
 While the
overall economy still remains quite soft, management feels we can present a much
stronger media package in the months ahead. Sponsorship contracts with private
and public companies offer new revenue possibilities beyond the typical beauty
brand advertising markets.
 
 Going
into Q4, management remains focused on reducing expenses while forecasting a
doubling of revenue for 2009. The last four months of behind-the-scenes work is
ready to be unveiled, and will clearly demonstrate the scalable strength and
appeal of the company's business model as well as its ability to adequately
finance growth.
 
 In
summary, management believes that Q1 and Q2 were transitional quarters requiring
difficult but much needed steps for the betterment of the company. Both Q3 and
Q4 will begin showing the real value of having moved to the OTCBB.
 
 Net
Income / Loss
 
 We had a
net (loss) of $(41,639) and $(133,047) for the three months ended June 30, 2008
and 2007, respectively. The net (loss) in these periods was due primarily to
operational expenses, which were $63,648 and $43,997 for the three months ended
June 30, 2008 and 2007, respectively. It is also a function of revenues, cost of
sales and other expenses as described in the upcoming paragraphs
below.
 
 We had a
net (loss) of $(104,016) and $(227,238) for the six months ended June 30, 2008
and 2007, respectively. The net (loss) in these periods was due primarily to
operational expenses, which were $122,998 and $142,838 for the six months ended
June 30, 2008 and 2007, respectively. It is also a function of revenues, cost of
sales and other expenses as described in the upcoming paragraphs
below.
 
 Revenue
 
 We
recorded revenues of $94,360 and $121,709 for the three months ended June 30,
2008 and 2007, respectively. The decrease in revenues was attributable to market
conditions, global volatility and our transitioning from limited trade
advertising revenue to much higher potential consumer advertising revenue. This
influenced the first three months of 2008 results.
 
 We
recorded revenues of $178,839 and $228,964 for the six months ended June 30,
2008 and 2007, respectively. The decrease in revenues was attributable to market
conditions, global volatility and our transitioning from limited trade
advertising revenue to much higher potential consumer advertising revenue. This
influenced the first six months of 2008 results.
 
 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.
 
 Our
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 City magazine, has
generated most of our revenues in 2008, other initiatives, including our new web
shows, online entertainment and publication, will be unfolding later 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 Star magazine was
renamed, redesigned and relaunched on February 27, 2007. Our Hollywood-based
magazine, Salon City,
is now 100% consumer focused. Salon City is currently sold
through thousands of national retailers like Hudson News, Barnes & Noble,
Borders, Target, Kmart, Rite Aid and major grocery and drug chains throughout
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. Salon City features 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
roll-out stages, has an 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. With anticipated funding and
a new national ad sales agency in place, the company aims in 2009 to double
revenues each year for the next five years.
 
 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 of Salon City’s
new award-winning web show, Hollywood CeleBeauty, featuring original
content.
 
 In June
2008, Salon City
magazine began a limited roll-out of its mobile text service, which is in the
early stages of content development and consumer marketing. Salon City plans to
add paid for services, such as browsing for news, text alerts, shopping at
CityShop and entering competitions. The mobile service can give Salon City magazine a
platform for advertisers to find out more about its readers, such as the type of
content and products they are interested in. It is being offered worldwide and
designed to drive consumers to Salon City’s mobile web portal.
 
 We are
continuing to develop the new mobile service, website, web show and Salon City
Network (consisting of Salon City produced video programs that appear as part of
our online entertainment) in 2008 and 2009. All of our mobile and online
initiatives will be self-funded (magazine advertising and sponsorship
revenue).
 
 The
company will continue to invite new sponsors and advertisers to participate in
the branding of their products in exchange for contractual agreements that may
generate revenue.
 
 10
 Table
of Contents
  Cost
of Goods Sold
 
 Cost of
goods sold for the three months ended June 30, 2008 and 2007 were $64,967 and
$196,165. The company realized a significant reduction in cost of goods sold for
the three months ended June 30, 2008 compared to 2007. The reason for the
decrease in cost of goods sold for the three months ended June 30, 2008 is due
to management’s effectiveness at reducing printing and shipping costs and other
general expenses.  As a result, gross profits improved for the three
months ended June 30, 2008 to $29, 393 compared to $(74,456) for the same period
in 2007
 
 Cost of
goods sold for the six months ended June 30, 2008 and 2007 were $142,610 and
$291,569. The company realized a significant reduction in cost of goods sold for
the six months ended June 30, 2008 compared to 2007. The reason for the decrease
in cost of goods sold for the six months ended June 30, 2008 is due to
management’s effectiveness at reducing printing and shipping costs and other
general expenses.  As a result, gross profits improved for the six
months ended June 30, 2008 to $36,229 compared to $(62,605) for the same period
in 2007
 
 Expenses
 
 Operating
expenses for the three months ended June 30, 2008 and 2007 were $63,648 and
$43,997, respectively. Operating expenses for the six months ended June 30, 2008
and 2007 were $122,998 and $142,838, respectively. Professional fees were the
primary reason for the decrease in operating expenses in the six month period
ended June 30, 2008, in that we issued $28,891 worth of our common shares for
services rendered by a consultant during the period as compared to $45,000 worth
of our common shares for services rendered by a consultant during the six months
ended June 30, 2007. The consultant provided 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. We recorded compensation expense of $45,000 according to the
closing stock prices on the dates of issuances. This approximated the fair value
of services received. The 2008 services only had a charge of $28,891 in
comparison as 9,633,334 shares were issued to consultants for services rendered
during the quarter but at much lower quoted stock prices.
 
 Management
took appropriate cost-cutting actions which resulted in the first positive gross
profit margin since launching the new consumer magazine. The company will
continue to work on minimizing cost of goods sold and other expenses to improve
efficiencies and gross profits. The steps taken proved successful and involved
lowered printing, operational costs and marketing costs.  Lowered printing
costs did not interfere with our ability to maintain domestic and
international distribution, and in fact, have helped to increase it newsstand
sales efficiencies by 10% and greater. Our elevation to OTCBB status will
continue to cause a marked increase in professional fees and various expenses
associated with the type of quarterly and annual reporting expected from an
OTCBB company. Management expects certain OTCBB related costs will remain high
in order to maintain its Bulletin Board trading status and as a fully-reporting,
public company. We are planning a series of funding and capitalization steps to
boost revenue, launch new initiatives and reduce costs anticipated with being an
OTCBB reporting public company that is aggressively pursuing growth and
expansion in the coming months.
 
 Liquidity
and Capital Resources
 
 Net cash
flows (used in) operating activities were $(93,321) and $(105,630) for the six
months ended June 30, 2008 and 2007, respectively. This was primarily
attributable to net (losses), which were $(104,016) and $(227,238) for the six
months ended June 30, 2008 and 2007, respectively, offset by the non-cash
charges for common shares issued for services rendered during the six months
ended June 30, 2008 and 2007 in the amounts of $28,891 and $45,000,
respectively, as discussed above.
 
 Net cash
flows used in investing activities for the six months ending June 30, 2008 and
2007 were $-0- and $8,883, respectively. The cash flows used in investing
activities for the six months ended June 30, 2007 was solely used for the
purchase of office related equipment in the amount of $8,833.
 
 Net cash
flows provided by financing activities were $55,534 and $113,252 for the six
months ended June 30, 2008, and 2007, respectively. This was mainly attributable
to $13,000 in proceeds from the sale of common stock in 2007, $36,856 and
$43,291 in receipt of loans from an officer in 2008 and 2007, respectively, and
$18,678 and $56,961 in proceeds from bank loans for the six months ended June
30, 2008 and 2007, respectively.
  Overall,
we have funded all of our cash needs from inception through June 30, 2008 with
proceeds from issuances of common stock and shareholder loans.
  On June
30, 2008, we had cash of $65,899 on hand. We do not 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.
 
 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.
 
 ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 The
information to be reported under this item is not required of smaller reporting
companies.
 
 ITEM
4T. CONTROLS AND PROCEDURES.
  DISCLOSURE CONTROLS AND
      PROCEDURESThe Company’s management,
      including its Principal Executive Officer and Principal Financial Officer,
      has evaluated the design, operation, and effectiveness of the Company’s
      disclosure controls and procedures pursuant to Rule 13a-15 under the
      Securities Exchange Act of 1934 (the “Exchange Act”). There are inherent
      limitations to the effectiveness of any system of disclosure controls and
      procedures, including the possibility of human error and the circumvention
      or overriding of the controls and procedures. Accordingly, even effective
      disclosure controls and procedures can only provide reasonable assurance
      of achieving their control objectives. Based upon the evaluation performed
      by the Company’s management, including its Principal Executive Officer and
      Principal Financial Officer, it was determined that, as of the end of the
      period covered by this quarterly report, the Company’s disclosure controls
      and procedures were effective to provide reasonable assurance that
      information required to be disclosed in the reports filed or submitted
      pursuant to the Exchange Act is recorded, processed, summarized, and
      reported within the time periods specified in the rules and forms of the
      SEC, and that such information is accumulated and communicated to the
      Company’s management, including its Principal Executive Officer and
      Principal Financial Officer, or persons performing similar functions, as
      appropriate to allow timely decisions regarding
  disclosures
  Changes in Internal Control
Over Financial Reporting
 
 The
Company's Principal Executive Officer and Principal Financial Officer have
determined that, during the period covered by this quarterly report, there were
no changes in the Company's internal control over financial reporting that
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting. They have also concluded
that there were no significant changes in the Company’s internal controls after
the date of the evaluation.
 
 11
 Table
of Contents
  PART
II. OTHER INFORMATION
 
 ITEM
1. LEGAL PROCEEDINGS
 
 We are
not aware of any qualifying pending or threatened legal proceedings, in which we
are involved. In addition, we are not aware of any pending or threatened legal
proceedings in which entities affiliated with our officers, directors or
beneficial owners are involved.
  ITEM
1A. RISK FACTORS
  Information
regarding risk factors appears in Part I, “Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” under the
captions “General Description of Business” and “Cautionary Note Regarding
Forward-Looking Statements” contained in this Quarterly Report on Form 10-Q and
in “Item 1A. RISK FACTORS” of our 2007 Annual Report on Form 10-KSB. There
have been no material changes from the risk factors previously disclosed in our
2007 Annual Report on Form 10-KSB.
 
 ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  None.
 
 ITEM
3. DEFAULTS UPON SENIOR SECURITIES
 
 None.
 
 ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None.
 
 ITEM
5. OTHER INFORMATION
 
 None.
 
 ITEM
6. EXHIBITS AND REPORTS ON FORM 8-K
 
 (1)
              Exhibits: Exhibits required to be attached
      by Item 601 of Regulation S-B are listed in the Index to Exhibits
      beginning on page 10 of this Form 10-Q, which is incorporated herein by
      reference.
  Reports on Form 8-K
filed
 
 (1)
              None.
  12
 Table
of Contents
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, there
unto duly authorized.
  SALON
      CITY, INC.Date:
      August 18, 2008
              By:
              /s/
      Steven CasciolaSteven
      Casciola
                President,
      CEO, CFO
  13
  INDEX
TO EXHIBITS
  Exhibit
      No.
              
              Description31.1
              
              Certification of Chief
      Executive Officer/Chief Financial Officer32.1
              
              Statement required by 18 U.S.C. Section 1350, as
      adopted pursuant to section 906 of the Sarbanes-Oxley Act of
      2002.