<PAGE>

================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549
                               ----------------

                                   FORM 10-Q

    [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934

               For the quarterly period ended September 30, 1999
                                      or

    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934

                       For the transition period from to

                        Commission file number 0-27886

                                   SALON.COM
            (Exact name of Registrant as specified in its charter)

     Delaware                                                  94-3228750
(State or other jurisdiction of                               (IRS Employer
incorporation or organization)                            Identification Number)

                         706 Mission Street, 2nd Floor
                            San Francisco, CA 94103
                   (Address of principal executive offices)
                               ----------------

                                (415) 882-8720
             (Registrant's telephone number, including area code)
                               ----------------

          Securities registered pursuant to Section 12(b) of the Act:
                                     None
                               ----------------

          Securities registered pursuant to Section 12(g) of the Act:
                        Common Stock, $0.001 Par Value
                               (Title of Class)
                               ----------------

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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 [ ]

The number of outstanding shares of the Registrant's Common Stock, par value
$0.001 per share, on September 30, 1999 was 11,364,674 shares.
================================================================================
<PAGE>

--------------------------------------------------------------------------------
FORM 10-Q
SALON.COM
INDEX
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                Page
PART I      FINANCIAL INFORMATION                                                                              Number
<S>                                                                                                            <C>
ITEM 1:     Financial Statements

            Consolidated Balance Sheets as of  September 30, 1999 (unaudited) and

               March 31, 1999................................................................................    3

            Consolidated Statements of Operations for the three months and six months

             ended September 30, 1999 and 1998 (unaudited)...................................................    4

            Consolidated Statements of Cash Flows for the six months ended

               September 30, 1999 and 1998 (unaudited).......................................................    5

            Notes to Consolidated Financial Statements.......................................................    6

ITEM 2:     Management's Discussion and Analysis of Financial Condition and Results of Operations............   10

ITEM 3:     Quantitative and Qualitative Disclosures About Market Risk.......................................   26

PART II     OTHER INFORMATION

ITEM 1:     Legal Proceedings................................................................................   26

ITEM 2.     Changes in Securities and Use of Proceeds........................................................   26

ITEM 3.     Defaults upon Senior Securities..................................................................   26

ITEM 4.     Submission of Matters to a Vote of Security Holders..............................................   26

ITEM 5.     Other Information................................................................................   27

ITEM 6:     Exhibits and Reports on Form 8-K.................................................................   27

            Signature........................................................................................   27

            Exhibits.........................................................................................   28
</TABLE>

                                       2
<PAGE>

--------------------------------------------------------------------------------
PART I:  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
                                   SALON.COM
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                            March 31,       September,
                                                                                              1999             1999
Assets                                                                                                      (unaudited)
<S>                                                                                       <C>               <C>
Current assets:
  Cash and cash equivalents                                                               $   754,000       $ 20,210,000
  Short term investments                                                                            -         10,255,000
  Accounts receivable, net                                                                    497,000            719,000
  Inventories                                                                                  26,000             17,000
  Prepaid expenses and other current assets                                                   578,000            660,000
                                                                                          -----------       ------------
      Total current assets                                                                  1,855,000         31,861,000

Property and equipment, net                                                                   707,000            769,000
Other assets                                                                                  136,000            231,000
Intangible assets, net                                                                      5,110,000          4,600,000
                                                                                          -----------       ------------
      Total assets                                                                        $ 7,808,000       $ 37,461,000
                                                                                          -----------       ------------

Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable                                                                        $ 1,036,000       $  1,570,000
  Accrued liabilities                                                                         439,000          2,097,000
  Deferred revenue                                                                            541,000            154,000
  Bank borrowings                                                                             364,000            122,000
                                                                                          -----------       ------------
      Total current liabilities                                                             2,380,000          3,943,000

Bank borrowings, net of current portion                                                        75,000                  -
                                                                                          -----------       ------------
      Total liabilities                                                                     2,455,000          3,943,000
                                                                                          -----------       ------------

Stockholders' Equity:
  Convertible preferred stock, no par value;
    8,108,750 and 5,000,000 shares authorized at March 31, 1999 and September
    30, 1999, respectively; 4,815,345 and 0 shares
    were issued and outstanding at March 31, 1999 and September 30, 1999,
    respectively;                                                                          15,789,000                  -
  Common stock, $0.001 par value;
  12,500,000 and 50,000,000 shares authorized at March 31, 1999 and September
  30, 1999, respectively; 447,496 and 11,364,674 shares were issued and
   outstanding at March 31, 1999 and September 30, 1999, respectively.                          1,000             11,000
  Additional paid-in capital                                                                3,147,000         70,122,000
  Unearned compensation                                                                      (834,000)        (3,088,000)
  Accumulated deficit                                                                     (12,750,000)       (33,527,000)
                                                                                          -----------       ------------
      Total stockholders' equity                                                            5,353,000         33,518,000
                                                                                          -----------       ------------
       Total liabilities and stockholders' equity                                         $ 7,808,000       $ 37,461,000
                                                                                          -----------       ------------
</TABLE>
       The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       3
<PAGE>

                                   SALON.COM
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                       ($ in 000, except per share data)

<TABLE>
<CAPTION>
                                                                        Three Months                   Six Months
                                                                            Ended                         Ended
                                                                        September 30,                 September 30,
                                                                     --------------------          --------------------
                                                                                                       (unaudited)
                                                                        1998        1999             1998         1999
                                                                     -------      -------          -------     --------
<S>                                                                  <C>          <C>              <C>         <C>
Revenue                                                                 $619       $1,378           $1,028       $2,383
Operating expenses:

     Production, content, and product                                    965        2,118            1,809        4,220
     Sales and marketing                                                 797        2,637            1,487        4,467
     Research and development                                             94          304              175          534
     General and administrative                                          118          551              213        1,127
     Amortization                                                          -          256                -          511
     Stock-based compensation                                            135          602              276        1,233
                                                                     -------      -------          -------     --------
       Total operating expenses                                        2,109        6,468            3,960       12,092
Loss from operations                                                  (1,490)      (5,090)          (2,932)      (9,709)
Other income                                                               5          393               23          447
                                                                     -------      -------          -------     --------
       Net loss                                                       (1,485)      (4,697)          (2,909)      (9,262)
Preferred Dividend                                                       213            -              213       11,515
                                                                     -------      -------          -------     --------
Net loss attributable to common stockholders                         ($1,698)     ($4,697)         ($3,122)    ($20,777)
                                                                     -------      -------          -------     --------
Basic and diluted net loss per share attributable to                  ($4.37)       ($.41)          ($8.12)      ($3.16)
  common stockholders
Weighted average shares used in computing basic                          389       11,319              385        6,575
  and diluted net loss per share attributable to common
  stockholders
Pro forma net loss per share, basic and diluted (see note 3)           ($.35)       ($.34)           ($.68)       ($.75)

Note:
Net loss attributable to common stockholders                         ($1,698)     ($4,697)         ($3,122)    ($20,777)
Less: Amortization of intangible assets                                    -          256                -          511
      Stock-based compensation                                           135          602              276        1,233
      Preferred deemed dividend                                          213            -              213       11,515
                                                                     -------      -------          -------     --------
Pro forma net loss attributable to common stockholders               ($1,350)     ($3,839)         ($2,633)     ($7,518)

Shares used in computing pro forma net loss, basic and                 3,908       11,319            3,869       10,034
  diluted
Pro forma net loss per share, basic and diluted                        ($.35)       ($.34)           ($.68)       ($.75)
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       4
<PAGE>

                                   SALON.COM
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        Six Months Ended Sept. 30,
                                                                                          1998               1999
                                                                                                (unaudited)
<S>                                                                                    <C>               <C>
Cash flows from operating activities:
Net loss                                                                               $ (2,909,000)     $  (9,262,000)
Adjustments to reconcile net loss
  to net cash used in operating activities:
     Stock-based compensation                                                               276,000          1,233,000
     Depreciation and amortization                                                          103,000            607,000
     Amortization of discount on bank borrowings                                              8,000             13,000
     Changes in operating assets and liabilities:
       Accounts receivable                                                                 (233,000)          (222,000)
       Inventories                                                                          (29,000)             8,000
       Prepaid expenses and other assets                                                     22,000             67,000
       Accounts payable                                                                     269,000            534,000
       Accrued liabilities                                                                  110,000          1,658,000
       Deferred revenue                                                                     151,000           (387,000)
                                                                                       ------------      -------------
           Net cash used in operating activities                                         (2,232,000)        (5,751,000)
                                                                                       ------------      -------------
Cash flows from investing activities:
Purchase of property and equipment                                                         (273,000)          (158,000)
Net purchase of investments                                                                       -        (10,255,000)
                                                                                       ------------      -------------
           Net cash used in investing activities                                           (273,000)       (10,413,000)
                                                                                       ------------      -------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock and common stock warrants, net                  2,685,000         10,936,000
Proceeds from issuance of common stock, net                                                       -         24,929,000
Proceeds from exercise of options                                                             3,000             86,000
Proceeds from bank debt                                                                     458,000                  -
Repayments of bank borrowings                                                               (46,000)          (331,000)
                                                                                       ------------      -------------
           Net cash provided by financing activities                                      3,100,000         35,620,000
                                                                                       ------------      -------------

Net increase in cash and cash equivalents                                                   595,000         19,456,000

Cash and cash equivalents - beginning of period                                           1,926,000            754,000
                                                                                       ------------      -------------

Cash and cash equivalents - end of period                                              $  2,521,000      $  20,210,000
                                                                                       ------------      -------------
Non-cash investing and financing transactions:
 Unearned compensation in connection with the issuance
   of stock options                                                                    $    627,000      $   3,487,000
                                                                                       ------------      -------------
 Issuance of warrants in connection with bank borrowings                               $     36,000      $           -
                                                                                       ------------      -------------
 Issuance of warrants in connection with agreements                                    $    217,000      $     244,000
                                                                                       ------------      -------------
 Conversion of preferred stock to common stock                                         $          -      $  25,301,000
                                                                                       ------------      -------------
 Preferred deemed dividend                                                             $    213,000      $  11,515,000
                                                                                       ------------      -------------
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       5
<PAGE>

                                   SALON.COM
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   The Company

     Salon.com is an Internet media company that produces a network of ten
subject-specific, demographically targeted Web sites and a variety of online
communities designed to attract Internet advertisers and electronic commerce
partners. Salon was originally incorporated in July 1995 in the State of
California and reincorporated in Delaware in June 1999.

2.   Basis of Presentation

     The accompanying consolidated financial statements as of September 30, 1999
and for the three months and six months ended September 30, 1998 and 1999 are
unaudited. The unaudited interim consolidated financial statements have been
prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly Salon's financial position,
results of operations and cash flows as of and for the six months ended
September 30, 1998 and 1999. These consolidated financial statements and notes
thereto are unaudited and should be read in conjunction with Salon's audited
financial statements included in Salon's Form S-1 registration statement, as
amended, filed with the Securities and Exchange Commission. The balance sheet as
of March 31, 1999 was derived from audited financial statements, but does not
include all required disclosures required by generally accepted accounting
principles. The results for the three months and six months ended September 30,
1999 are not necessarily indicative of the expected results for any other
interim period or the year ending March 31, 2000. Certain prior period balances
have been reclassified to conform to the current period presentation.

3.   Summary of Significant Accounting Policies

     Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivatives and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In July
1999, the FASB issued SFAS No. 137, "Accounting for Derviative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133."
SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. Salon will adopt SFAS No. 133 during its year
ending March 31, 2002. To date, Salon has not engaged in derivative or hedging
activities. Salon is unable to predict the impact of adopting SFAS No. 133 if it
were to engage in derivative and hedging activities in the future.

     Net loss per share

     In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). SFAS No. 128 replaced primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Basic earnings per share is computed using the weighted-
average number of common shares outstanding during the period. Diluted earnings

                                      6.
<PAGE>

                                   SALON.COM
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

per share is computed using the weighted-average number of common and common
stock equivalents outstanding during the period. The calculation of diluted net
loss per share excludes potential shares of common stock as their effect will be
anti-dilutive.

     Pro forma net loss per share has been computed as described above except
that it assumes the conversion of preferred stock outstanding into common stock
during the relevant period. It also eliminates non-cash charges for amortization
of intangible assets, stock-based compensation, and the preferred deemed
dividend from the net loss.


<TABLE>
<CAPTION>
                                                   ($ in 000's, except per share data)

                                                                   Three months ended                  Six months ended
                                                                      September 30                       September 30
                                                                   1998          1999                  1998        1999
                                                              ---------------------------------------------------------------
<S>                                                               <C>             <C>                  <C>         <C>
Net loss attributable to common stockholders                      $  (1,698)      $ (4,697)            $  (3,122)  $ (20,777)
Less:  Amortization of intangible assets                                  -            256                     -         511
       Stock based compensation                                         135            602                   276       1,233
       Preferred deemed dividends                                       213              -                   213      11,515

Adjusted net loss attributable to common stockholders                (1,350)        (3,839)               (2,633)     (7,518)
Shares used in computing net loss attributable to common
stockholders, basic and diluted                                         389         11,319                   385       6,575
Adjustment to reflect the assumed conversion of
preferred stock                                                       3,519              -                 3,484       3,459

Shares used in computing pro forma net loss, basic                    3,908         11,319                 3,869      10,034
and diluted

Pro forma net loss per share, basic and diluted                   $   (0.35)      $  (0.34)            $   (0.68)  $   (0.75)
</TABLE>

     Investments

     Investments consist of high quality debt securities with original maturity
dates greater than ninety days. In accordance with SFAS No. 115, "Accounting for
Certain investments in Debt and Equity Securities," Salon's investments are
classified as available-for-sale and, at the balance sheet date, are reported at
fair value, with the unrealized gains and losses, net of related taxes, reported
as a component of other comprehensive income (loss). Unrealized gains and losses
were immaterial as of September 30, 1999. The cost of these investments at
September 30, 1999 was $10,255,000.

     Inventories
     Inventories consist solely of finished goods.

                                      7.
<PAGE>

                                   SALON.COM
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Concentrations

          No customer accounted for over 10% of revenues for the three months
ended September 30, 1999. For the three months ended September 30, 1998, one
customer accounted for 39% of total revenues. No customer accounted for over 10%
of net revenues for the six months ended September 30, 1999 and one customer
accounted for 37% of net revenues for the six months ended September 30, 1998.

          Included in sponsorship and advertising revenues are barter
transactions that accounted for $363,000 or approximately 26% of total revenues
and $92,000 or 15% of total revenues for the three months ended September 30,
1999 and 1998, respectively; and $478,000 or 20% and $183,000 or 18% of total
revenues for the six months ended September 30, 1999, and 1998, respectively.

4.   Stockholders' Equity

          On April 8, 1999, Salon's Articles of Incorporation were amended to
(i) increase the amount of authorized shares of preferred stock to 8,108,750 and
common stock to 12,500,000, (ii) increase the number shares of preferred stock
designated as Series C to 4,500,000, (iii) effect a 1.35567 for 1 stock split of
each then outstanding share of Series C preferred stock and (iv) modify the
rights, preferences, privileges and restrictions granted to or imposed on the
Series A, Series B and Series C preferred stock.

In conjunction with the increase in Series C, an aggregate of 4,500,000 shares
of Salon's common stock were reserved for issuance upon conversion of the Series
C preferred stock.

          On April 14, 1999, Salon completed an additional offering of Series C
preferred stock. Pursuant to this offering, a total of 2,967,782 additional
shares of Series C preferred stock were sold at a price of $3.88 per share, for
total net proceeds of approximately $10.9 million. The difference between the
offering price and the deemed fair value of the common stock on the date of the
transaction resulted in a beneficial conversion feature in the amount of
$11,515,000. The beneficial conversion feature has been reflected as a preferred
dividend in the statement of operations. In connection with investment broker
services provided during this offering Salon issued warrants to entities
affiliated with Daiwa Securities America, Inc. to purchase an aggregate of
148,389 shares of Series C preferred stock at an exercise price of $3.88 per
share. Upon completion of the Salon's IPO, the warrants converted into the right
to purchase an equivalent number of shares of Salon's common stock at the same
exercise price. The warrants may be exercised at any time within five years
after issuance. Salon valued the warrants using the Black-Scholes option pricing
model, applying an expected life of 5 years, a weighted average risk-free rate
of 5.14%, an expected dividend yield of zero percent, a volatility of 107% and a
deemed fair value of common stock of $10.80. The fair market value of the
warrants of $1.4 million has been netted against the proceeds from the
offerings.

          In April 1999, Salon reincorporated in Delaware, changing its name to
Salon.com, and effected a one for two split of its common and preferred stock.
In connection with the reincorporation, Salon authorized (i) an increase in the
amount of authorized shares of common stock to 50,000,000 and (ii) 5,000,000
shares of a new class of preferred stock. All share data and stock option plan
information has been restated to reflect the stock splits and the
reincorporation.

                                      8.
<PAGE>

                                   SALON.COM
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     On April 14, 1999, in connection with marketing consulting services to be
provided to Salon, a warrant was issued to ACT III Communications to purchase
25,773 shares of Series C preferred stock at an exercise price of $3.88 per
share. Upon completion of the Salon's IPO, the warrant converted into the right
to purchase an equivalent number of shares of Salon's common stock at the same
exercise price. The warrant may be exercised at any time within five years after
issuance. Salon valued the warrant using the Black-Scholes option pricing model,
applying an expected life of 5 years, a weighted average risk-free rate of
5.14%, an expected dividend yield of zero percent, a volatility of 107% and a
deemed fair value of common stock of $10.80. The fair market value of the
warrant of $244,000 was recorded in other assets, and is being amortized over
the term of the agreement.

     Stockholders' equity activity for the six months ended September 30, 1999
was as follows:

<TABLE>
<CAPTION>
                                                                           Additional
                                            Preferred         Common       Paid-In          Unearned          Accumulated
                                            Stock             Stock        Capital          Compensation      Deficit
                                           -------------------------------------------------------------------------------
<S>                                        <C>                <C>          <C>              <C>               <C>
Balance - March 31,1999                    15,789,658           448         3,146,811           (833,799)     (12,750,412)

Issuance of Series C
     preferred stock and
     warrant, net                           9,511,179             -         1,424,492                  -                -

Unearned compensation                               -             -         3,487,847         (3,487,847)               -

Exercise of stock options for cash                  -           636            85,384                  -                -

Issuance of common stock for cash                   -             -           997,400                  -                -

Issuance of preferred  stock warrants               -             -           243,979                  -                -

Initial public offering                             -         2,500        23,928,471                  -                -

Conversion of preferred stock to
common                                    (25,300,837)        7,781        25,293,054                  -                -

Amortization of unearned compensation               -             -                 -          1,233,000                -

Net loss                                            -             -                 -                  -       (9,261,451)

Preferred deemed dividend                           -             -        11,515,000                  -      (11,515,000)


Balance - September 30,1999                         -        11,365        70,122,438         (3,088,646)     (33,526,863)
</TABLE>

                                      9.
<PAGE>

                                   SALON.COM
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       If the stock-based compensation for the three and six months ended
September 30, 1998 and 1999 had been allocated across the relevant functional
expense categories within operating expenses, it would be allocated as follows:

<TABLE>
<CAPTION>
                                              Three months ended            Six months ended
                                                 September 30                 September 30
                                                  1998         1999            1998          1999
                                              ------------------------------------------------------
<S>                                           <C>          <C>              <C>          <C>
Production, content and product               $    60,000  $   222,000      $  123,000   $   454,000
Sales and marketing                                59,000      174,000         121,000       356,000
Research and development                           12,000       28,000          24,000        59,000

General and administrative                          4,000      178,000           8,000       364,000
                                              ------------------------------------------------------

                                              $   135,000  $   602,000      $  276,000   $ 1,233,000
                                              ------------------------------------------------------
</TABLE>

5.   Subsequent Events

       On September 23,1999, Salon amended its security and loan agreement with
Imperial Bank dated April 13, 1998. The amendment was an additional revolving
loan for a maximum amount of $2,000,000. The agreement is collateralized by the
assets of Salon and contains certain financial covenants. As of September 30,
1999, there was no outstanding balance under the security and loan agreement.

--------------------------------------------------------------------------------
PART I:  FINANCIAL INFORMATION
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
--------------------------------------------------------------------------------

       Salon has included in this filing certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
concerning Salon's business, operations and financial condition. The words or
phrases "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions are generally intended to identify forward-
looking statements. Such forward-looking statements are subject to various known
and unknown risks and uncertainties and Salon cautions you that any forward-
looking information provided by or on behalf of Salon is not a guarantee of
future performance. Actual results could differ materially from those
anticipated in such forward-looking statements due to a number of factors, some
of which are beyond Salon's control, including but not limited to Salon's
limited operating history, anticipated losses, the unpredictability of its
future revenues, competition, risks associated with system development and
operation risks, management of potential growth, and risks of new business
areas, business combinations, and strategic alliances. All forward-looking
statements are based on information available to the company on the date hereof
and the company assumes no obligation to update such statements.

Overview

       Salon.com is a leading Internet media company that produces a network of
ten subject-specific, demographically-targeted Web sites and a variety of online
communities. Salon believes that its network of Web sites combines the
thoughtfulness of print, the timeliness of television and the interactivity of
talk radio. Salon's ten content sites provide news, features, interviews and
regular columnists on specific topics, from arts and entertainment to parenting
and health. The main entry and navigation point to Salon's various content sites
is Salon's home page at www.salon.com.
                        -------------

                                      10.
<PAGE>

      Our network of subject-specific Web sites includes:

                       . Salon News                        . Salon Books
                       . Salon Technology                  . Salon Media
                       . Salon Arts & Entertainment        . Salon Travel
                       . Salon Mothers Who Think           . Salon People
                       . Salon Health & Body               . Salon Comics

      Salon's online communities allow users to interact and discuss Salon
content and other topics via electronic messaging. Salon's online communities
include Table Talk, a free interactive forum, and The Well, a paid subscription
community. Because of Salon's reputation for community building, Salon also has
agreed with third parties to host communities within its network. Salon's users
can access Table Talk or The Well through www.salon.com or through Salon's ten
content Web sites.

      Salon believes that its original, award-winning content and highly
regarded interactive communities allow Salon to attract and retain users who are
younger, more affluent, better educated and more likely to make online purchases
than typical Internet users. Salon believes its user profile makes its network
of Web sites and online communities a valuable media property for advertisers
and retailers who are increasingly allocating marketing resources to target
consumers online.

      In September 1999, approximately 1.9 million unique users visited Salon's
network of Web sites, compared to approximately 1.3 million unique users in June
1999 and approximately 1.0 million unique users in September 1998. Salon
generated approximately 59 million page views for the three months ended
September 30, 1999, compared to approximately 47 million page views for the
three months ended June 30, 1999 and approximately 35 million page views for the
three months ended September 30, 1998. Salon generated 260,000,000 ad
impressions for the three months ended September 30, 1999 compared to
159,000,000 for the three months ended June 30, 1999 and 35,000,000 for the
three months ended September 30, 1998.

      Salon has entered into a number of distribution agreements to generate
traffic and to promote the Salon brand name. Many of these agreements are
"content-for-carriage," in which Salon provides its proprietary content to a
distribution partner and receives prominent placement of its logo and content on
the distribution partner's site, as well as links back to Salon's network.

      Salon has entered into distribution and content relationships with many of
the major portal and content aggregation sites on the Web, including:

       . America Online            .  TheStreet.com           . EchoStar
       . AltaVista                 .  CNN.com                 . PointCast
       . Lycos                     .  @Home                   . WebTV
       . Go.com                    .  C/Net                   . Snap!
       . Netscape                  .  Rocket eBook            . Reuters


      Salon has derived a significant amount of its revenues to date from
Internet advertising, advertising sponsorships and e-commerce sponsorships.
Advertising and sponsorship revenue represented 89.0% of net revenues for the
three months ended September 30, 1999.

      Internet advertising revenues are derived generally from short term
advertising contracts in which Salon typically guarantees a minimum number of
impressions to be delivered to users over a specified period of time for a fixed
fee. Advertising revenues are recognized ratably over the period in which the
advertising is displayed. If the percentage of time elapsed exceeds the
percentage of guaranteed impressions delivered, revenue is recognized at the
lower percentage.

      Advertising sponsorship revenues are derived generally from contracts
ranging from six to thirty-six months in which Salon commits to provide sponsors
with enhanced promotional opportunities beyond traditional banner advertising.
Sponsorship agreements typically include the delivery of impressions, exclusive
relationships, and design and development of customized co-branded pages
designed to achieve broad marketing objectives including brand awareness and
product

                                      11.
<PAGE>

introduction. Salon also offers exclusive category opportunities to sponsors,
such as Lexus' sponsorship of Salon's Brilliant Careers editorial series.

      Salon's advertising rates vary depending primarily on the particular
content site on which advertisements are placed, the total number of impressions
purchased and the length of the advertiser's commitment. Advertising revenue is
recognized in the period in which the advertisement is displayed, provided that
no significant obligations remain and collection of the resulting receivable is
probable. Revenues related to upfront fees in connection with advertising
sponsorships and electronic commerce sponsorships are recognized ratably over
the sponsorship term. Electronic commerce sponsorships may provide that Salon
receive commissions from electronic commerce transactions. These commissions are
recognized by Salon upon notification from the sponsor. The notification from
advertisers and distribution partners is generally received quarterly. Under
some of Salon's distribution agreements, Salon is entitled to receive a portion
of the advertising revenue generated on co-branded pages. These advertising
revenues are recognized upon notification from the distribution partner.

      Salon's strategy for capturing electronic commerce advertising revenues is
to enter into sponsorships with premium online retailers. Sponsorship fees are
paid to Salon by a particular retailer for a measure of exclusivity in the
retailer's industry segment. Salon's e-commerce sponsors include:

       . Barnesandnoble.com
       . DrKoop.com
       . 911 Gifts

      Sponsorship and advertising revenues also include barter revenues, which
are the exchange of advertising space on Salon's Web sites for reciprocal
advertising space on other Web sites. Revenues from these barter transactions
are recorded as advertising revenues at the estimated fair value of the
advertisements received or delivered, whichever is more reliably measurable, and
are recognized when the advertisements are run on Salon's Web sites. Barter
expenses are recorded in sales and marketing in the consolidated statements of
operations when Salon's advertisements are run on Salon's Web sites.

      E-commerce revenues are derived principally from sales through Salon's own
online store, Salon Shopping. Salon Shopping offers a range of upscale Salon-
branded and third party products, as well as goods offered by Salon's retailing
partners. Salon recognizes revenue on items from Salon Shopping when the goods
are shipped.

      Salon obtains content licensing revenue by syndicating and licensing its
content to media companies worldwide for publication on Web sites, and in
newspapers and magazines. In addition to revenues, syndication and licensing
provide Salon with valuable exposure for the Salon brand and additional traffic
to Salon's network. These arrangements also require prominent placement of
Salon's logo and primary Internet address in reproductions of its content.
Revenues related to the syndication and licensing of Salon content to other
media outlets are recognized on notification that the content has been
published.

      Salon derives revenue from two paid subscription services: The Well and
Salon Members. The Well, a paid subscription online community, was acquired by
Salon in March 1999. Salon Members is an annual membership program designed to
provide specific products and services to Salon's user base. Subscription
revenues are recognized ratably over the period that services are to be
provided.

Results of Operations

Net Revenues

      Net revenues increased 123% to $1.4 million for the three months ended
September 30, 1999 from $619,000 for the three months ended September 30, 1998
and 132% to $2.4 million for the six months ended September 30, 1999 from $1.0
million for the six months ended September 30, 1998. The increase in revenues
was primarily due to Salon's ability to generate significantly higher
sponsorship and advertising revenues and development of its subscription
strategy through the acquisition of The Well and launch of Salon Members. The
net increase in Internet advertising, advertising sponsorship and e-commerce
sponsorship revenues was primarily due to an increase in the number of
impressions sold and an increase in the

                                      12.
<PAGE>

number of sponsors advertising on Salon's Web sites. Sponsorship and advertising
revenues accounted for approximately 89% and 98% of net revenues for the three
months ended September 30, 1999 and 1998, respectively, and 85% and 98% of net
revenues for the six months ended September 30, 1999 and 1998, respectively.

      No customer accounted for over 10% of revenues for the three months ended
September 30, 1999. For the three months ended September 30, 1998, one customer
accounted for 39%. No customer accounted for over 10% of net revenues for the
six months ending September 30,1999 and one customer accounted for 37% of net
revenues for the six months ending September 30,1998.

      Included in sponsorship and advertising revenues are barter transactions
that accounted for $363,000 or approximately 26% of revenues and $92,000 or 15%
of revenues for the three months ended September 30, 1999 and 1998,
respectively. Barter transactions accounted for $478,000 or 20% of revenues and
$183,000 or 18% of revenues for the six months ended September 30, 1999 and
1998, respectively.

Operating Expenses

Production, Content and Product

      Production, content and product expenses consist primarily of payroll and
related expenses for Salon's editorial, artistic, production and The Well staff,
payments to freelance writers and artists, and telecommunications and computer
related expenses for the support and delivery of Salon's Web sites and online
communities. Also included in production, content and product expenses are costs
associated with electronic commerce transactions, including the costs of product
inventory and distribution. Production, content and product expenses were
approximately $2.1 million, or 154% of net revenues, and $965,000 or 156% of net
revenues for the three months ended September 30, 1999 and 1998, respectively,
and $4.2 million or 177% of net revenues and $1.9 million or 176% of net
revenues for the six months ended September 30, 1999 and 1998, respectively. The
increase in production, content and product expenses is primarily attributable
to increased costs relating to growth in Salon's editorial, art, and production
staff, costs associated with Salon's new online community The Well, and payments
to freelance writers and artists.

Sales and Marketing

      Sales and marketing expenses consist of payroll and related expenses,
including commissions, travel expenses and other costs associated with Salon's
advertising and sponsorship sales force, as well as advertising, promotional and
distribution costs. Sales and marketing expenses were $2.6 million, or 191% of
revenues and $797,000, or 129% of revenues for the three months ended September
30, 1999 and 1998, respectively; and $4.5 million or 187% of revenues and $1.5
million or 145% of revenues for the six months ended September 30, 1999 and
1998, respectively. The increase in sales and marketing expenses was primarily
attributable to Salon's advertising campaign in print and on the radio and
television, as well as the hiring of additional sales personnel. Included in
sales and marketing expenses are barter expenses, which accounted for $397,000
and $92,000 for the three months ended September 30, 1999 and 1998,
respectively; and $512,000 and $183,000 for the six months ended September 1999
and 1998, respectively.

Research and Development

      Research and development expenses consist of costs associated with the
development and maintenance of technology, including Salon's publishing platform
software and archival database, as well as in technical support staff for
Salon's Web sites and online communities. Research and development expenses
increased 223% to $304,000 in the three months ended September 30, 1999 from
$94,000 in the three months ended September 30, 1998. Research and develoment
expenses as a percentage of revenue, increased to 22% for the three months ended
September 30,1999 from 15% for the same period in 1998, and 22% for the six
months ended September 30, 1999 from 17% in the same period in 1998. Research
and development expenses also increased 204% to $534,000 from $176,000 for the
six months ended September 30, 1999 compared to the same period a year ago. The
increase in research and development expenses is primarily attributable to

                                      13.
<PAGE>

salary and payroll related expenses for the technical support of Salon's new
websites, online communities, and increased staff, as well as the maintenance
and development of new technology, including the design and development of a new
publishing platform and advertising delivery system.

General and Administrative

       General and administrative expenses consist primarily of salaries,
payroll taxes and benefits and related costs for general corporate functions
including executive management, finance, and legal and other professional fees.
General and administrative expenses were $552,000 or 40% of total revenues, and
$118,000 or 19% of total revenues for the three months ended September 30, 1999
and 1998, respectively; and $1.1 million or 47% and $213,000 or 21% of total
revenues for the six months ended September 30, 1999 and 1998, respectively. The
increase in general and administrative expenses is primarily attributable to
salary and related expenses for additional personnel hired to support the growth
of Salon's business and activities as a public company and higher professional
fees. General and administrative expenses increased as a percentage of total
revenues as a result of the increased growth of general and administrative
expenses in relation to revenue growth.

Amortization of Intangibles

       Amortization of intangibles consists of the costs associated with the
amortization of the intangibles and goodwill associated with the acquisition of
The Well. The acquisition of The Well is being accounted for using the purchase
method of accounting and is being amortized on a straight-line basis over 60
months. Amortization expenses were $256,000 or 19% of revenue, for the three
months ended September 30, 1999 and $511,000 or 21% of net revenue for the six
months ended September 30, 1999. There was no amortization expense in 1998.

Stock-based Compensation

       Stock-based compensation consists of expenses associated with the
issuance of stock options and warrants. Stock-based compensation charges were
$602,000 or 44% of net revenue for the three months ended September 30, 1999,
compared to $135,000 or 22% of revenue for the three months ended September 30,
1998. Stock based compensation charges were $1.2 million or 52% of net revenue
and $276,000 or 27% of net revenue for the six months ended September 30, 1999
and 1998, respectively. The increase in stock based compensation expenses is
primarily attributable to an increased number of employee options to new and
existing employees.

Other Income, Net

       Other income consists primarily of interest earned on Salon's cash, cash
equivalents and short term investments, offset by interest expense on
borrowings. Other income increased to $393,000 in the three months ended
September 30, 1999 from $5,000 for the three months ended September 30, 1998 and
increased to $448,000 in the six months ended September 30, 1999 from $23,000
for the six months ended September 30,1998. The increase in other income is
primarily attributable to an increase in the amount of interest earned by Salon
due to an increase in Salon's cash balance as a result of its financing
activities including Salon's initial public offering and Series C Financing
activities during the quarter ended June 30, 1999 and the sale of additional
stock in July 1999.

Preferred Deemed Dividend

       The preferred deemed dividend of $11.5 million for the three months ended
June 30, 1999 is the difference between the offering price of Salon's Series C
preferred stock sold in April 1999, and the deemed fair value of Salon's common
stock on the date of the transaction. This is a one-time non cash expense that
was incurred in the prior quarter. There is no preferred dividend expense for
the three months ended September 30, 1999.

Net Loss

       Salon recorded a pro forma net loss of $3.8 million, or $.34 per share,
for the three months ended September 30, 1999, compared to a pro forma net loss
of $1.3 million, or $.35 per share, for the three months ended September 30,
1998.

                                      14.
<PAGE>

For the six months ended September 30, 1999 and 1998, Salon recorded a pro forma
net loss of $7.5 million or $.75 per share and $2.6 million or $.68 per share,
respectively. Salon recorded a net loss of $4.7 million, or $.41 per share, for
the three months ended September 30, 1999 compared to a net loss of $1.7 or
$4.37 per share for three months ended September 30, 1998. Salon recorded a net
loss of $20.8 million for the six months ended September 30, 1998, or $3.16 per
share compared to a net loss of $3.1 million or $8.12 per share for the same
period in 1998.

Liquidity and Capital Resources

      Since its inception, Salon has primarily financed its operations through
the private placement of its convertible preferred stock and its initial public
offering of common stock. As of September 30, 1999, Salon had approximately
$30.5 million in cash and cash equivalents and short term investments, of which
$24.0 million was obtained through Salon's initial public offering in June 1999
and $1.0 million for the sale of the additional stock in July 1999.

      Net cash used for operations was $5.8 million for the six months ended
September 30, 1999, compared to $2.2 million for the six months ended September
30, 1998. The principal use of cash from operations was the net loss generated
from operations.

      Net cash used for investing activities totaled $10.4 million for the six
months ended September 30, 1999, compared to $273,000 for the six months ended
September 30, 1998. Net cash used for investing activities in each of these
respective periods consisted primarily of purchases of short-term investments
and purchases of certain equipment, including computer equipment.

      Net cash provided by financing activities increased to $35.6 million for
the six months ended September 30, 1999 from net cash used in financing
activities of $3.1 million for the six months ended September 30, 1998. The
increase was primarily due to the receipt of $24.0 million of net proceeds from
Salon's initial public offering in June 1999, and $10.9 million of net proceeds
from the private placement of preferred stock in April 1999 and $1.0 million for
the sale of additional stock in July 1999.

      Salon's capital requirements depend on numerous factors, including the
success of Salon's strategies for generating revenues and the amount of
resources it devotes to investments in its network, sales, marketing and brand
promotion. Salon's expenditures have substantially increased since inception as
its operations and staff have grown and Salon anticipates that its expenditures
will continue to increase substantially for the foreseeable future. In addition,
Salon will continue to evaluate possible investments in businesses, products and
technologies complementary to its existing business.

      Salon currently anticipates that its available cash resources will be
sufficient to meet its anticipated needs for working capital and capital
expenditures for at least the next 12 months. Salon may need to raise additional
funds, however, in order to fund more rapid expansion, to develop new or enhance
existing services, to respond to competitive pressures or to acquire
complementary businesses, products or technologies. If Salon raises additional
funds by selling equity securities, the percentage ownership of Salon's
stockholders will be reduced and its stockholders may experience additional
dilution. Salon cannot be sure that additional financing will be available on
terms favorable to Salon, or at all. If adequate funds are not available on
acceptable terms, Salon's ability to fund expansion, react to competitive
pressures, or take advantage of unanticipated opportunities would be
substantially limited. If this occurred, Salon's business would be significantly
harmed.

Year 2000 Compliance

      Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies and governmental agencies may need
to be upgraded to comply with these year 2000 requirements or risk system
failure or miscalculations that could cause disruptions of normal business
activities.

                                      15.
<PAGE>

      State of Readiness

      Salon has made a preliminary assessment of the year 2000 readiness of its
operating financial and administrative systems, including the hardware and
software that support Salon's systems. Salon's assessment plan consists of:

      . quality assurance testing of its internally developed proprietary
        software;

      . contacting third-party vendors and licensors of material hardware,
        software and services that are both directly and indirectly related to
        the delivery of Salon's services to its users;

      . contacting vendors of third-party systems;

      . assessing repair or replacement requirements;

      . implementing repair or replacement; and

      . creating contingency plans in the event of year 2000 failures.

      Salon's year 2000 task force is currently conducting an inventory of and
developing testing procedures for all software and other systems that it
believes might be affected by year 2000 issues. Since third parties developed
and currently support many of the systems that Salon uses, a significant part of
this effort will be to ensure that these third-party systems are year 2000
ready. Salon plans to confirm this compliance through a combination of the
representation by these third parties of their products' year 2000 readiness, as
well as specific testing of these systems. Salon plans to complete this process
prior to the end November 1999. Until such testing is completed and such vendors
and providers are contacted, Salon will not be able to completely evaluate
whether its systems will need to be revised or replaced.

      Costs

      To date, Salon has spent an immaterial amount on year 2000 readiness
issues, but expects to incur an additional $200,000 to $300,000 in the future in
connection with identifying, evaluating and addressing year 2000 readiness
issues. Most of Salon's expenses have related to, and are expected to continue
to relate to, the operating costs associated with time spent by employees and
consultants in the evaluation process and year 2000 readiness matters generally.
Such expenses, if higher than anticipated, could harm Salon's business.

      Risks

      Salon is not currently aware of any year 2000 readiness problems relating
to its internally-developed proprietary systems that would harm Salon's
business. Salon may discover year 2000 readiness problems in these systems that
will require substantial revision. In addition, third-party software, hardware
or services incorporated into Salon's material systems may need to be revised or
replaced, all of which could be time-consuming and expensive. The failure of
Salon to fix or replace its internally developed proprietary software or third-
party software, hardware or services on a timely basis could result in lost
revenues, increased operating costs, the loss of users, advertisers or sponsors
and other business interruptions, any of which could have harm Salon's business.
Moreover, the failure to adequately address year 2000 readiness issues in its
internally developed proprietary software could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.

      Salon is heavily dependent on a significant number of third-party vendors
to provide both network services and equipment. A significant year 2000-related
disruption of the services or equipment that third-party vendors provide to
Salon could cause Salon's users, advertisers or sponsors to consider seeking
alternate content providers or cause an unmanageable burden on its technical
support, which in turn could harm Salon's business.

      In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside of Salon's control
may not be year 2000 ready. The failure by such entities to be year 2000 ready
could result in a systemic failure beyond the control of Salon, such as a
prolonged Internet, telecommunications or electrical failure, which could also
prevent Salon from delivering its services to its customers, decrease the use of
the Internet or prevent users from accessing its Web sites which could have a
material adverse effect on Salon's business.

                                      16.
<PAGE>

      Contingency Plan

      As discussed above, Salon is engaged in an ongoing year 2000 assessment
and has not yet developed any contingency plans. The results of Salon's year
2000 simulation testing and the responses received from third-party vendors and
service providers will be taken into account in determining the nature and
extent of any contingency plans Salon adopts.

Risk Factors That May Affect Our Results of Operations and Financial Condition

Because we have a limited operating history, it is difficult to evaluate our
business and prospects

      We originally incorporated in July 1995 and launched our initial Web sites
in November 1995. Because we have a limited operating history, you must consider
the risks and difficulties frequently encountered by early-stage companies like
us in new and rapidly evolving markets, including the market for advertising and
commerce on the Internet. Any future growth and success in our business will
depend substantially upon our ability to attract a larger number of users to our
Web sites and online communities, to increase advertising and sponsorship sales
based on that audience and to meet the challenges described in the risk factors
set forth below.

We lack significant revenues, we have a history of losses and we anticipate
continued losses

      We have not achieved profitability and expect to incur operating losses
for the foreseeable future. We incurred net losses attributable to common
stockholders of $20.8 million in the six months ended September 30, 1999 and
$6.2 million in the fiscal year ended March 31, 1999. As of September 30, 1999,
our accumulated deficit was $33.5 million. We expect these operating losses to
continue for at least the foreseeable future. We will need to generate
significant revenues to achieve and maintain profitability, and we may not be
able to do so. Even if we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis in the future.
If our revenues grow more slowly than we anticipate or if our operating expenses
exceed our expectations, our financial results would be severely harmed.

Our quarterly operating results are volatile and may adversely affect our stock
price

Our future revenues and operating results are likely to vary significantly from
quarter to quarter due to a number of factors, many of which are outside our
control, and any of which could severely harm our business. These factors
include:

      . our ability to attract and retain banner advertisers, advertising
        sponsors and electronic commerce sponsors;

      . our ability to attract and retain a large number of users;

      . the introduction of new Web sites, services or products by us or by our
        competitors;

      . the timing and uncertainty of our advertising and sponsorship sales
        cycles;

      . the mix of banner advertisements and sponsorships sold by us or our
        competitors;

      . seasonal declines in advertising sales, which typically occur in the
        first and third calendar quarters;

      . the level of Internet usage;

      . our ability to attract, integrate and retain qualified personnel;

      . our ability to successfully integrate operations and technologies from
        acquisitions or other business combinations;

      . technical difficulties or system downtime affecting the Internet
        generally or the operation of our Web sites; and

      . the amount and timing of operating costs and capital expenditures
        relating to the expansion of our business operations and infrastructure.

      In order to attract and retain a larger user base, we plan to
significantly increase our expenditures on sales and marketing, content
development, technology and infrastructure. Many of these expenditures are
planned or committed in advance and in anticipation of future revenues. If our
revenues in a particular quarter are lower than we anticipate, we may

                                      17.
<PAGE>

be unable to reduce spending in that quarter. As a result, any shortfall in
revenues would likely harm our quarterly operating results.

      Due to the factors noted above and the other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our results of operations may be below the expectations of public
market analysts and investors. If this occurs, the price of our common stock may
decline.

We depend on banner advertising and sponsorship sales for substantially all of
our revenues, and our inability to increase banner advertising and sponsorship
revenues would harm our business

      Our revenues for the foreseeable future will depend substantially on sales
of advertising and sponsorships. In the three months ended September 30, 1999,
advertising and sponsorship sales accounted for 89% of our net revenues, and in
the fiscal year ended March 31, 1999 they accounted for 94% of our net revenues.
In order to increase our revenues, we will need to attract additional
significant banner advertisers, advertising sponsors and electronic commerce
sponsors on an ongoing basis. We may not be able to attract or retain a
sufficient number of banner advertisers or advertising sponsors in the future,
and if we cannot, our business would likely be severely harmed. Increasing our
advertising and sponsorship revenues depends upon many factors, including
whether we will be able to:

      . successfully sell and market our network to advertisers and sponsors;

      . increase our user base;

      . increase the amount of revenues we receive per sponsorship;

      . increase awareness of the Salon brand;

      . target advertisements and electronic commerce opportunities to users
        with appropriate interests;

      . accurately measure the number and demographic characteristics of our
        users; and

      . attract and retain sales personnel.

If we do not sell a sufficient number of advertisements or sponsorships or do
not engage a sufficient number of advertisers or sponsors during a particular
period, our business could be severely harmed.

Our revenues depend on a limited number of advertisers and sponsors who are not
subject to long-term agreements, and the loss of a number of these advertisers
and sponsors could harm our operating results

      Historically, we have relied on a small number of banner advertisers and
advertising sponsors for a significant percentage of our revenues. In the three
months ended September 30, 1999, Barnesandnoble.com accounted for approximately
8% of our revenues. In the fiscal year ended March 31, 1999, Borders accounted
for approximately 13% of our revenues. The loss of any of our significant banner
advertisers or advertising sponsors could harm our business. We anticipate that
our financial results in any given period will continue to significantly depend
on revenues from a small number of banner advertisers and advertising sponsors.
In addition, particularly because few banner advertisers and advertising
sponsors are contractually obligated to purchase any advertising in the future,
we are unable to anticipate our mix of banner advertisers and advertising
sponsors in future fiscal periods.

The length of our sales cycles is uncertain and variable and may lead to
shortfalls in or revenue and fluctuations in our operating results

      Our dependence on banner advertising and sponsorships subjects us to the
risk of revenue shortfalls because the sales cycles for advertising and
sponsorships vary significantly, and during these cycles we may expend
substantial funds and management resources while not obtaining advertising or
sponsorship revenues. If sales are delayed or do not occur, our financial
results for a particular period may be harmed. The time between the date of
initial contact with a potential banner advertiser or sponsor and receipt of a
purchase order from the advertiser may range from as little as one week to up to
nine months. Sales of banner advertising and sponsorships are subject to factors
over which we have little or no control, including:

                                      18.
<PAGE>

      . advertisers' and sponsors' budgets;

      . internal acceptance reviews by advertisers and their agencies;

      . the timing of completion of advertisements and sponsorships; and

      . the possibility of cancellation or delay of projects by advertisers or
        sponsors.

We must increase our user base to attract advertisers and sponsors and to
generate additional revenue

      Increasing the size of our user base is critical to selling advertising
and sponsorships and to increasing our revenues. If we cannot increase the size
of our user base we may not be able to generate additional revenues, which could
leave us unable to maintain or grow our business. To increase our user base, we
must:

      . expand our content and communities;

      . expand our network of distribution partners;

      . grow Salon brand recognition through advertising and syndication;

      . enhance our technology to improve the functionality of our network of
        Web sites; and

      . offer attractive electronic commerce opportunities to electronic
        commerce sponsors and users.

      If we do not achieve these objectives to increase our user base, our
business could be severely harmed. Additionally, a significant element of our
business strategy is to build loyal online communities because we believe
communities help retain actively engaged users. However, the concept of
developing these communities on the Web is unproven, and if it is not
successful, then it may be more difficult to increase the size of our user base.

We must establish and maintain distribution relationships to attract more users
to our network

      We depend on establishing and maintaining distribution relationships with
high-traffic Web sites to increase our user base. There is intense competition
for relationships with these sites, and we may not be able to enter into such
relationships on favorable terms or at all. Even if we enter into distribution
relationships with these Web sites, their sites may not attract significant
numbers of users, and our Web sites may not attract additional users from these
relationships. Moreover, we have paid and may in the future pay significant fees
to establish these relationships.

We must continually develop compelling content to attract Internet users

      Our success depends upon our ability to attract and retain a large number
of users by delivering original and compelling Internet content and services. If
we are unable to develop content and services that allow us to attract, retain
and expand a loyal user base possessing high-value demographic characteristics,
we will be unable to generate advertising revenues or enter into sponsorships,
and our revenues and operating results will be severely harmed. The content and
services we provide on our Web sites may not appeal to a sufficient number of
Internet users to generate banner advertising revenues or attract sponsorships.
Our ability to develop compelling content depends on several factors, including:

      . the quality and number of writers and artists who create content for
        Salon;

      . the quality of our editorial staff; and

      . the technical expertise of our production staff.

      Consumer tastes and preferences change rapidly and we may not be able to
anticipate, monitor, and successfully respond to these changes to attract and
retain a sufficient number of users for our network of Web sites. Internet users
can freely navigate and instantly switch among a large number of Web sites, many
of which offer content and services that compete with Salon. In addition, many
Web sites offer very specific, highly targeted content that could have greater
appeal than our network to particular subsets of our target user base.

                                      19.
<PAGE>

The new design of our network of Web sites may not appeal to users which could
result in reduced traffic on our network

      In April 1999 we made significant changes to the design of our network of
Web sites. If the new design of our network does not appeal to our existing
users or new users, the amount of traffic on our network could be reduced, which
would make it more difficult for us to enter into agreements with banner
advertisers, advertising sponsors and electronic commerce sponsors, because
these agreements are based on the quantity and quality of users that visit our
network. A loss of advertisers or sponsors could harm our business.

The controversial content of our Web sites may limit our revenues from banner
advertising, advertising sponsorships or electronic commerce sponsorships

      Many of our Web sites contain, and will continue to contain, content that
is politically and culturally controversial. As a result of this content,
current and potential advertisers and sponsors may refuse to do business with
us. Our outspoken stance on political issues, including the investigation and
impeachment of President Clinton, as well as much of our other published
content, has and may continue to result in negative reactions from some users,
commentators and other media outlets.

Our promotion of the Salon brand must be successful in order to attract and
retain users as well as advertisers, sponsors and strategic partners

      The success of the Salon brand depends largely on our ability to provide
high quality content and services. If Internet users do not perceive our
existing content and services to be of high quality, or if we introduce new
content and services or enter into new business ventures that are not favorably
perceived by users, we may not be successful in promoting and maintaining our
brand. Any expansion of the focus of our operations creates a risk of diluting
our brand, confusing consumers and decreasing the value of our user base to
advertisers. In order to attract and retain users, and to promote the Salon
brand, we may need to increase our budgets for content and services or otherwise
substantially increase our financial commitment to establishing and maintaining
loyalty for the Salon brand name. If we are unable to establish the Salon brand
or are forced to substantially increase our expenditures to promote the Salon
brand, our business could be severely harmed.

We need to hire, integrate and/or retain qualified personnel because these
individuals are important to our growth

      Our success significantly depends on the continued services of our key
editorial and design personnel. In addition, because the content of our Web
sites must be perceived by our users as having been created by credible and
notable sources, our success also depends on the name recognition and reputation
of our editorial staff, in particular David Talbot, Salon's editor-in-chief. The
loss of these individuals or other key editorial or design personnel would
likely harm our business.

      We expect that we will need to hire additional personnel in all areas in
1999. Competition for personnel in the Internet industry is intense. We may be
unable to retain our current key employees or attract, integrate or retain other
qualified employees in the future. If we do not succeed in attracting new
personnel or integrating, retaining and motivating our current personnel, our
business could be harmed.

We may expend significant resources to protect our intellectual property rights
or to defend claims of infringement by third parties, and if we are not
successful we may lose rights to use significant material or be required to pay
significant fees

      Our success and ability to compete are significantly dependent on our
proprietary content. We rely exclusively on copyright law to protect our
content. While we actively take steps to protect our proprietary rights, these
steps may not be adequate to prevent the infringement or misappropriation of our
content. Infringement or misappropriation of our content or intellectual
property could severely harm our business. We also license content from various
freelance providers and other third-party content providers. While we attempt to
insure that this content may be freely licensed to us, other parties may assert
claims of infringement against us relating to this content.

                                      20.
<PAGE>

      We may need to obtain licenses from others to refine, develop, market and
deliver new services. We may not be able to obtain any such licenses on
commercially reasonable terms or at all or rights granted pursuant to any
licenses may not be valid and enforceable.

      In April 1999 we acquired the Internet address www.salon.com. Because
www.salon.com is the address of the main home page to our network of Web sites
and incorporates our company name, it is a vital part of our intellectual
property assets. We do not have a registered trademark on the address, and
therefore it may be difficult for us to prevent a third party from infringing
our intellectual property rights in the address. If we fail to adequately
protect our rights in the address, or if a third party infringes our rights in
the address or otherwise dilutes the value of www.salon.com, our business could
be harmed.

Our technology development efforts may not be successful in improving the
functionality of our network which could result in reduced traffic on our
network

      We have recently developed a proprietary online publishing system. If this
system does not work as intended, or if we are unable to continue to develop
this system to keep up with the rapid evolution of technology for content
delivery on the Internet, our network of Web sites may not operate properly
which could harm our business. Additionally, software product development
schedules are difficult to predict because they involve creativity and the use
of new development tools and learning processes. Delays in our software
development process could harm our business. Moreover, complex software products
like our online publishing system frequently contain undetected errors or
shortcomings, and may fail to perform or scale as expected. Although we have
tested and will continue to test our publishing system, errors or deficiencies
may be found in the system.

We rely on third parties for several critical functions relating to delivery of
advertising and our Web site performance, and the failure of these third parties
to supply these services in an efficient manner could limit our growth and
impair our business

      We rely on a number of third party suppliers for various services,
including Web hosting, banner advertising delivery software, Internet traffic
measurement software and electronic commerce fulfillment services. While we
believe that we could obtain these services from other qualified suppliers on
similar terms and conditions, a disruption in the supply of these services by
our current suppliers could severely harm our business.

      We have recently begun to use new third-party software to manage the
delivery of banner advertising on our network of Web sites. If this software
malfunctions or does not deliver the correct banner advertisements to our
network, our advertising revenues could be reduced, and our business could be
harmed.

      We have also recently begun to use new third-party software to measure
traffic on our network of Web sites. If this software malfunctions or does not
accurately measure our user traffic, we may not be able to justify our
advertising rates, and our advertising revenues could be reduced.

Growth in our operations is placing a strain on our resources, and failure to
manage growth effectively could harm our business

      We have experienced and are currently experiencing a period of significant
growth. In the year ended September 30, 1999 the number of employees we have
increased 216%. In the three months ended September 30, 1999 our total revenues
increased approximately 123% and our net expenses increased approximately 207%
compared to the three months ended September 30, 1998. If we cannot manage our
growth effectively, we may not be able to coordinate the activities of our
technical, accounting, finance, marketing, sales and production staffs, and our
business could be harmed. We intend to add new subject-specific Web sites to our
network, hire additional staff in all departments, expand existing offices and
open new offices. As part of this growth, we will have to implement new
operational procedures and controls to train and manage our employees and to
expand and coordinate the operations of our various departments. If we acquire
new businesses, we will also need to integrate new operations, technologies and
personnel. If we cannot manage the growth of our network of Web sites, staff,
offices and business generally our business could be harmed.

                                      21.
<PAGE>

We may not be able to successfully integrate our acquisitions, and any failure
to integrate could diminish the value of an acquired business or cause
disruptions in our ongoing operations

     Acquisitions and business combinations entail numerous operational
risks, including:

     .    difficulty in the assimilation of acquired operations, technologies or
          products;

     .    diversion of management's attention from other business operations;

     .    risks of entering markets in which we have limited or no experience;
          and

     .    potential loss of key employees of acquired businesses.

     We acquired The Well LLC, an online community provider, in March 1999. We
may not be able to successfully integrate The Well LLC or any businesses,
products, technologies or personnel that we might acquire in the future, and if
we cannot, our business could be harmed.

We will need more working capital to expand our network and achieve our business
objectives, and securing financing may be difficult because of the condition of
our business or the uncertain nature of the financial markets

     We believe that our current cash resources, combined with the net proceeds
from this offering, will meet our anticipated working capital and capital
expenditure requirements for at least the XX months following the date of this
prospectus. We may need to raise additional capital to do the following:

     .    expand our network of Web sites and interactive communities;

     .    increase our electronic commerce opportunities;

     .    aggressively promote awareness of the Salon brand;

     .    make payments under distribution relationships;

     .    respond to competitive pressures; or

     .    acquire complementary businesses or technologies.

     If we raise additional capital by issuing equity or convertible debt
securities, the percentage ownership of our then-current stockholders will be
reduced, and such securities may have rights, preferences or privileges senior
to those of our current stockholders. Additionally, we may not be able to obtain
additional financing on favorable terms, or at all. If adequate capital is not
available on acceptable terms, our ability to expand, take advantage of
unanticipated opportunities, develop or enhance services or otherwise respond to
competitive pressures would be significantly limited. This limitation could harm
our business.

Acceptance and effectiveness of Internet advertising and electronic commerce is
unproven and, to the extent it does not continue to grow, our market may not
develop adequately and our business could be harmed

     Our success is highly dependent on an increase in the use of the Internet
for advertising and electronic commerce. If the markets for Internet advertising
or electronic commerce do not develop, our business may be severely harmed.

     Currently, demand and market acceptance for Internet advertising is
uncertain and may not increase as necessary for our business to grow or succeed.
Many advertisers have little or no experience using the Internet for advertising
purposes. The adoption of Internet advertising, particularly by companies that
have historically relied on traditional media, requires the acceptance of a new
way of conducting business, exchanging information and advertising products and
services. Potential advertisers may believe Internet advertising to be
undesirable or less effective for promoting their products and services relative
to traditional advertising media. If the Internet advertising market fails to
develop or develops more slowly than we expect, our business could be harmed.

         Different pricing models are used to sell Internet advertising. It is
difficult to predict which pricing models, if any, will emerge as the industry
standard. This uncertainty makes it difficult to project our future advertising
rates and revenues.

                                      22.
<PAGE>

Any failure to adapt to pricing models that develop or respond to competitive
pressures could reduce our advertising revenues. Moreover, "filter" software
programs that limit or prevent advertising from being delivered to an Internet
user's computer are commonly available. Widespread use of this software could
adversely affect the commercial viability of Internet advertising and our
business.

     Many retailers have little or no experience using the Internet for
electronic commerce. The adoption of electronic commerce, particularly by
companies that have historically relied on traditional channels to sell their
products and services, requires the acceptance of a new way of conducting
business, exchanging information and completing commercial transactions.
Potential electronic commerce partners may believe electronic commerce to be
undesirable or less effective for selling their products and services relative
to traditional channels. If the electronic commerce market fails to develop or
develops more slowly than we expect, our business could be harmed.

Tracking and measurement standards for advertising may not evolve to the extent
necessary to support Internet advertising, thereby creating uncertainty about
the viability of our business model

     There are currently no standards for the measurement of the effectiveness
of advertising on the Internet, and the industry may need to develop standard
measurements in order to sustain advertising volume or attract new advertisers.
Standardized measurements may not develop and if they do not, our business could
be harmed. In addition, currently available software programs that track
Internet usage and other tracking methodologies are rapidly evolving. The
development of such software or other methodologies may not keep pace with our
information needs, particularly to support our internal business requirements
and those of our advertisers and sponsors. The absence or insufficiency of this
information could limit our ability to attract and retain advertisers and
sponsors.

     It is important to our advertisers and sponsors that we accurately measure
the demographics of our user base and the delivery of advertisements on our Web
sites. We depend on third parties to provide certain of these measurement
services. If they are unable to provide these services in the future, we would
need to perform them ourselves or obtain them from another provider, if
available. This could cause us to incur additional costs or cause interruptions
in our business while we are replacing these services. Companies may choose to
not advertise on Salon or may pay less for advertising or sponsorships if they
do not perceive our measurements or measurements made by third parties to be
reliable.

If use of the Internet does not grow, our business could be harmed

     Our success is highly dependent upon continued growth in the use of the
Internet generally and in particular as a medium for content, advertising and
electronic commerce. If Internet usage does not grow, we may not be able to
increase revenues from advertising and sponsorships and this may harm our
business. Internet use by consumers is in an early stage of development, and
market acceptance of the Internet as a medium for content, advertising and
electronic commerce is highly uncertain. A number of factors may inhibit the
growth of Internet usage, including:

     .    inadequate network infrastructure;

     .    security concerns;

     .    inconsistent quality of service; and

     .    limited availability of cost-effective, high-speed access.

If these or any other factors cause use of the Internet to slow or decline, our
results of operations could be harmed.

Increasing competition among Internet content providers could reduce our
advertising sales or market share, thereby harming our business

     The market for Internet content is relatively new, rapidly changing and
intensely competitive. We expect competition for Internet content to continue to
increase and if we cannot compete effectively our business could be harmed.
Additionally, we expect the number of Web sites competing for the attention and
spending of users, advertisers and sponsors to continue to increase, because
there are so few barriers to entry on the Internet.

                                      23.
<PAGE>

     Increased competition could result in advertising or sponsorship price
reductions, reduced margins or loss of market share, any of which could harm our
business. Competition is likely to increase significantly as new companies enter
the market and current competitors expand their services. Many of our present
and potential competitors are likely to enjoy substantial competitive advantages
over us. If we do not compete effectively or if we experience any pricing
pressures, reduced margins or loss of market share resulting from increased
competition, our business could be harmed.

If the Internet infrastructure continues to be unreliable, access to our network
may be impaired and our business may be harmed

     Our success depends in part on the development and maintenance of the
Internet infrastructure. If this infrastructure fails to develop or be
adequately maintained, our business would be harmed because users may not be
able to access our network of Web sites. Among other things, development and
maintenance of a reliable infrastructure will require a reliable network
backbone with the necessary speed, data capacity, security and timely
development of complementary products for providing reliable Internet access and
services.

     The Internet has experienced, and is expected to continue to experience,
significant growth in number of users and amount of traffic. If the Internet
continues to experience increased numbers of users, frequency of use or
increased bandwidth requirements, the Internet infrastructure may not be able to
support these increased demands or perform reliably. The Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and could face additional outages and delays in
the future. These outages and delays could reduce the level of Internet usage
and traffic on our network of Web sites. In addition, the Internet could lose
its viability due to delays in the development or adoption of new standards and
protocols to handle increased levels of activity. If the Internet infrastructure
is not adequately developed or maintained, use of our network of Web sites may
be reduced.

     Even if the Internet infrastructure is adequately developed and maintained,
we may incur substantial expenditures in order to adapt our services and
products to changing Internet technologies. Such additional expenses could
severely harm our financial results.

We may be held liable for content on our Web sites

     As a publisher and distributor of content over the Internet, including
user-generated content on our online communities, we face potential liability
for defamation, negligence, copyright, patent or trademark infringement and
other claims based on the nature and content of the material that is published
or distributed on our network of Web sites. These types of claims have been
brought, sometimes successfully, against online services, Web sites and print
publications in the past. Although we carry general liability insurance, our
insurance may not be adequate to indemnify us for all liability that may be
imposed. Any liability that is not covered by our insurance or is in excess of
our insurance coverage could severely harm our financial condition and business.

Concerns about transactional security may hinder our electronic commerce
strategy by subjecting us to liability or by discouraging commercial
transactions over the internet

     A significant barrier to electronic commerce is the secure transmission of
confidential information over public networks. Any breach in our security could
expose us to a risk of loss or litigation and possible liability. We rely on
encryption and authentication technology licensed from third parties to provide
secure transmission of confidential information. As a result of advances in
computer capabilities, new discoveries in the field of cryptography or other
developments, a compromise or breach of the algorithms we use to protect
customer transaction data may occur. A compromise of our security could severely
harm our business. A party who is able to circumvent our security measures could
misappropriate proprietary information, including customer credit card
information, or cause interruptions in the operation of our network of Web
sites.

     We may be required to expend significant capital and other resources to
protect against the threat of security breaches or to alleviate problems caused
by these breaches. However, protection may not be available at a reasonable
price or at all. Concerns over the security of electronic commerce and the
privacy of users may also inhibit the growth of the Internet as a means of
conducting commercial transactions.

                                      24.
<PAGE>

Our efforts to engage in electronic commerce may expose us to product
liability claims

     We have and continue to foster relationships with manufacturers or other
companies to offer certain products to users through our network of Web sites.
We have very limited experience in the sale of products online and the
development of relationships with manufacturers or suppliers of these products.
Users who purchase products may sue us if any of the products sold on our
network are defective, fail to perform properly or injure the user. Liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. As a result, any such claims, whether or not
successful, could severely harm our business.

Our systems may fail due to natural disasters, telecommunications failures and
other events, any of which would limit user traffic

     Substantially all of our communications hardware and computer hardware
operations for our Web sites are located at Frontier GlobalCenter's facilities
in Sunnyvale, California. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems and cause interruptions in our services. Computer viruses, electronic
break-ins or other similar disruptive problems could cause users to stop
visiting our network of Web sites and could cause advertisers and sponsors to
terminate any agreements with us. If any of these circumstances occurred, our
business could be harmed. Our insurance policies may not adequately compensate
us for any losses that may occur due to any failures of or interruptions in our
systems. We do not presently have a formal disaster recovery plan.

     Our Web sites must accommodate a high volume of traffic and deliver
frequently updated information. In the past year, our Web sites have experienced
slower response times or decreased traffic on approximately four different
occasions due to a variety of reasons including hardware and software failures
and intermittent Internet traffic routing problems beyond our control. For
example, in March 1999, users were unable to access Table Talk for approximately
two weeks as we upgraded our technology to compensate for unexpected growth in
user activity. It is possible that we will experience similar systems failures
in the future and that such failures could harm our business. In addition, our
users depend on Internet service providers, online service providers and other
Web site operators for access to our Web sites. Many of these providers and
operators have experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems. Any of these system failures could harm our business.

Governmental regulation of the Internet may restrict our business

     There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Laws and regulations may be adopted
in the future, however, that address issues including user privacy, pricing, and
the characteristics and quality of products and services. An increase in
regulation or the application of existing laws to the Internet could
significantly increase our costs of operations and harm our business. For
example, the Communications Decency Act of 1996 sought to prohibit the
transmission of certain types of information and content over the Web.
Additionally, several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on these companies. Imposition of access fees could increase
the cost of transmitting data over the Internet.

Possible state sales and other taxes could adversely affect our results of
operations

     We generally do not collect sales or other taxes in respect of goods sold
to users on our network of Web sites. However, one or more states may seek to
impose sales tax collection obligations on out-of-state companies, including
Salon, which engage in or facilitate electronic commerce. A number of proposals
have been made at the state and local level that would impose additional taxes
on the sale of goods and services through the Internet. Such proposals, if
adopted, could substantially impair the growth of electronic commerce and could
reduce our ability to derive revenue from electronic commerce. Moreover, if any
state or foreign country were to successfully assert that we should collect
sales or other taxes on the exchange of merchandise on our network, our
financial results could be harmed.

If we, or third parties on which we rely, fail to achieve year 2000 compliance,
our business could be impaired

     We may discover year 2000 readiness problems in our internally developed
systems that will require substantial revision. In addition, third-party
software, hardware or services incorporated into our systems may need to be
revised or

                                      25.
<PAGE>

replaced, all of which could be time-consuming and expensive. If we cannot fix
or replace our internally developed proprietary software or third-party
software, hardware or services before January 1, 2000 our operating costs could
be increased and we could experience business interruptions which could harm our
business. Additionally, if we cannot adequately address year 2000 readiness
issues in our internally developed proprietary software, we could be subject to
claims of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time consuming to defend.

     In addition, the software and systems of governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control may not be year 2000 ready. If these entities are not
year 2000 ready, a systemic failure beyond our control could result, including a
prolonged Internet, telecommunications or general electrical failure. This type
of failure would make it difficult or impossible to use the Internet or access
our network of Web sites and would prevent us from publishing our content. If a
prolonged failure of this type occurred, our business would be severely harmed.
If our advertisers and sponsors are not year 2000 ready, they may defer or
cancel advertising scheduled to appear on our network of Web sites, which could
harm our financial results.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company places its
investments with high credit issuers in short-term securities with maturities of
three to twenty four months. The average maturity of the portfolio will not
exceed twelve months. The portfolio includes only marketable securities with
active secondary or resale markets to ensure portfolio liquidity. The Company
has no investments denominated in foreign country currencies and therefore is
not subject to foreign exchange risk.

                                      26.
<PAGE>

     PART II: OTHER INFORMATION
--------------------------------------------------------------------------------

Item 1. Legal Proceedings.

None at this time.

Item 2. Changes in Securities and Use of Proceeds.

     The effective date of Salon's first registration statement, filed on Form
S-1 under the Securities Act of 1933 (File No. 333-68749) relating to Salon's
initial public offering of its common stock, was June 21, 1999. A total of
2,500,000 shares of Salon's common stock were sold to an underwriting syndicate.
The managing underwriters were W.R. Hambrecht & Co. and Daiwa Securities
America, Inc. The offering commenced and completed on June 22, 1999, at an
initial public offering price of $10.50 per share. The initial public offering
resulted in gross proceeds of $26.3 million, $1.3 million of which was applied
to the underwriting discount and approximately $1.0 million of which was applied
to related expenses. As a result, net proceeds of the offering to Salon were
approximately $24.0 million. On July 26, 1999, Salon issued an additional
100,000 shares of common stock at a price of $9.975 per share for total proceeds
of $997,500. The shares were issued upon exercise of a 30-day option granted to
Salon's underwriters to cover over-allotments. Net proceeds of Salon's initial
public offering were used to promote Salon's brand, expand Salon's sales and
marketing, for working capital or invested in short-term, interest-bearing,
investment-grade securities. None of the net proceeds of the offering were paid
by Salon, directly or indirectly, to any director, officer or general partner of
Salon or any of their associates, or to any persons owning ten percent or more
of any class of Salon's equity securities, or any affiliates of Salon.

Item 3. Default upon Senior Securities.

Not Applicable

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

     Not applicable

Item 5.  Other Information.

     Not applicable.

Item 6.  Exhibits and Reports on Form 8-K.

     (a) Exhibits
         --------

        10.0 Imperial bank restated loan agreement

        27.1  Financial Data Schedule

     (b) Reports on Form 8-k. No reports on form 8-K were filed during the
         quarter ended September 30, 1999.


                                      27.
<PAGE>

Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed of its behalf by the
undersigned thereunto duly authorized.

               SALON.COM

               (Registrant)

     Dated:      By: /s/  Michael O'Donnell
               --------------------------------
               Michael O'Donnell, Chief Executive Officer

     Dated:      By:  /s/ Todd Hagen
               --------------------------------
               Todd Hagen, Chief Financial Officer

                                      28.
<PAGE>

                                 EXHIBIT INDEX

Exhibits
--------

  10.0  Imperial bank restated loan agreement

  27.1  Financial Data Schedule

                                      29.