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

 

 

 

 

 

 

TABLE OF CONTENTS

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

 

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PART I

 

Item 1. Description of Business.

Introduction

Introduction to Salon City

Salon City Inc., headquartered in Los Angeles, California, publishes Salon Citymagazine, 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 in Nevadaon January 4, 2005.  Salon City, Inc. (“we,”“us,”"Salon City" 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 publication Salon City Starmagazine, which was redesigned in 2007 and became Salon 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 revenues recorded for the year ended December 31, 200were $4,. We recorded revenues of $404,681for the yearended December 31, 2006. Thisrepresents an 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 200. We had a net (loss)of $(810,027)for the year ended December 31, 200. 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 the yearended December 3, 200. The net (loss) in this period was due primarily to operational expenses, which were $2,660,344for the year ended December 3, 200.

How Salon CityStarted

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 in Las Vegas).

We license the Salon Cityregistered 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 these names at prevailing market rates.

In 2001, we began publishing Salon 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 partners will be recruited and selected to be exclusively licensed to represent Salon City in their markets. Outside of any relationship with Salon City, 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 the Salon City brand to professional beautymakers.

 

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By building our name among consumers, including professional 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 distributors to 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 planned Salon City products 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 distribute Salon Citymagazine to thousands of bookstores and newsstands in America and Canada. And on February 15, 2007 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.

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, Salon City. 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 foreign U.S.military bases; however, they were unable to acquire a company for international distribution so 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 “Salon City”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 for Salon 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 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 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.

Existing Salon CityMedia Products

Publishing

Salon City Magazine (redesigned in 2007 and currently in its first year rollout stage)

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 and the 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, 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 of Salon City’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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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 intend to 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. Beautymaker features 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 of up 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 aim is 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, name yet to be finalized.

Salon City Network Affiliates (Professional Beauty Distributors)

We plan to establish a network of independent distributors across North Americaand internationally under the Salon City Network banner. Distributors will be selected and licensed to represent Salon Cityin an agreed to region. In exchange for a licensing fee they will pay to Salon 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. Salon Cityhas long-standing relationships with salons and distributors in 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 and Salon City Expos

We currently produce Press Events around the United States. We have produced our SunFun Conference and other programs in the past in places such as Los Angeles, New York, Miami, and Las 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 the Salon Citybrand seen and experienced through these events, with initial emphasis being focused on domestic markets such as Los 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 for fall2009 in Hollywood. 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 through Salon City's media outlets.  This is a paid for service and in the past has contributed to Salon City'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 our Salon Citymedia 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 with Salon City's audience, media and promotional concepts, such as clothing, accessories, merchandising items and consumable goods that promote the Salon Citybrand. We envision a partnership whereby we will also feature our manufacturing partner’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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Salon CitySociety

We are contemplating the 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 benefits such as special invitations, product and service discounts and additional media products.  We envision generating revenue through membership fees and the groups' purchasing of Salon City products, 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 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 SalonCity’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 a