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                       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, 2001

                                       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 0-26395

                             SALON MEDIA GROUP, INC.
                             -----------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                                       94-3228750
            --------                                       ----------
(STATE OR OTHER JURISDICTION OF                          (IRS EMPLOYER
 INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NUMBER)

                          22 FOURTH STREET, 16TH FLOOR
                             SAN FRANCISCO, CA 94103
                             -----------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                ----------------

                                 (415) 645-9200
              (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 November 8, 2001 was 14,155,276 shares.
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<PAGE>

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FORM 10-Q
SALON MEDIA GROUP, INC.
INDEX
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                                                                           PAGE
PART I      FINANCIAL INFORMATION                                         NUMBER


ITEM 1:     Condensed Consolidated Financial Statements

            Condensed Consolidated Balance Sheets as of
              September 30, 2001 (unaudited) and March 31, 2001.............  3

            Condensed Consolidated Statements of Operations
              for the three and six months ended
              September 30, 2001 and 2000 (unaudited) ......................  4

            Condensed Consolidated Statements of Cash Flows
              for the six months ended September 30, 2001 and
              2000 (unaudited) .............................................  5

            Notes to Condensed Consolidated Financial
              Statements (unaudited)........................................  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...... 28

PART II     OTHER INFORMATION

ITEM 1:     Legal Proceedings............................................... 28

ITEM 2.     Changes in Securities and Use of Proceeds....................... 28

ITEM 3.     Defaults upon Senior Securities................................. 29

ITEM 4.     Submission of Matters to a Vote of Security Holders............. 29

ITEM 5.     Other Information............................................... 29

ITEM 6:     Exhibits and Reports on Form 8-K................................ 29

            Signatures...................................................... 29

                                       2
<PAGE>

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PART I:  FINANCIAL INFORMATION
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                             SALON MEDIA GROUP, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                                     SEPTEMBER 30,   MARCH 31,
                                                         2001          2001
                                                      (UNAUDITED)
                                                      ----------    ----------
ASSETS
    Current assets:
        Cash and cash equivalents                     $    2,920    $    3,047
        Accounts receivable, net                             268           474
        Prepaid expenses and other current assets            238           201
                                                      ----------    ----------
         Total current assets                              3,426         3,722
    Property and equipment, net                            1,660         2,731
    Other assets                                             889         1,375
    Intangible assets, net                                 1,161         1,395
                                                      ----------    ----------
         Total assets                                 $    7,136    $    9,223
                                                      ==========    ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
        Accounts payable and accrued liabilities      $    2,226    $    2,720
        Deferred revenue                                     476           223
                                                      ----------    ----------
         Total current liabilities                         2,702         2,943
    Long-term liabilities                                    225           478
                                                      ----------    ----------
        Total liabilities                                  2,927         3,421
                                                      ----------    ----------
Redeemable convertible preferred stock                     3,241             -
                                                      ----------    ----------
Stockholder' equity:
    Common stock, $0.001 par value, 50,000,000 shares
      authorized, 14,155,276 and 14,139,626 shares
      issued and outstanding at September 30, 2001
      and March 31, 2001                                      14            14
    Additional paid-in-capital                            81,633        78,404
    Advertising receivable from stockholder               (6,671)       (7,075)
    Unearned compensation                                   (139)         (231)
    Accumulated deficit                                  (73,869)      (65,310)
                                                      ----------    ----------
        Total stockholders' equity                           968         5,802
                                                      ----------    ----------
         Total liabilities and stockholders' equity   $    7,136    $    9,223
                                                      ==========    ==========

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

                                       3
<PAGE>

                             SALON MEDIA GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)
<TABLE><CAPTION>
                                                         THREE MONTHS ENDED           SIX MONTHS ENDED
                                                            SEPTEMBER 30,               SEPTEMBER 30,
                                                      ------------------------    ------------------------
                                                         2001          2000          2001          2000
                                                      ----------    ----------    ----------    ----------
<S>                                                   <C>           <C>           <C>           <C>
Net revenues                                          $      567    $    2,197    $    1,540    $    3,956
                                                      ----------    ----------    ----------    ----------
Operating expenses:
    Production and content                                 1,264         2,449         2,791         5,158
    Sales and marketing                                      721         1,714         1,521         4,154
    Research and development                                 158           442           376           830
    General and administrative                               720           925         1,184         1,551
    Amortization of intangibles                              121           356           234           679
    Write-down of long-lived assets                            -             -           782             -
                                                      ----------    ----------    ----------    ----------
         Total operating expenses                          2,984         5,886         6,888        12,372
                                                      ----------    ----------    ----------    ----------

Loss from operations                                      (2,417)       (3,689)       (5,348)       (8,416)
Other income (expense), net                                   (1)          185            10           392
                                                      ----------    ----------    ----------    ----------
        Net loss                                          (2,418)       (3,504)       (5,338)       (8,024)


Preferred deemed dividend                                 (3,189)            -        (3,189)            -
Cumulative cash dividend on preferred stock                  (32)            -           (32)            -
                                                      ----------    ----------    ----------    ----------
Net loss attributable to common stockholders          $   (5,639)   $   (3,504)   $   (8,559)   $   (8,024)
                                                      ==========    ==========    ==========    ==========

Basic and diluted net loss per share attributable
        to common stockholders                        $    (0.42)   $    (0.27)   $    (0.63)   $    (0.63)

Weighted average shares used in computing
        basic and diluted net loss per share
        attributable to common stockholders               13,585        13,012        13,510        12,834
</TABLE>

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

                                       4
<PAGE>

                             SALON MEDIA GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (IN THOUSANDS, UNAUDITED)
<TABLE><CAPTION>
                                                                                       SIX MONTHS ENDED
                                                                                        SEPTEMBER 30,
                                                                                  ------------------------
                                                                                     2001          2000
                                                                                  ----------    ----------
<S>                                                                              <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                       $   (5,338)   $   (8,024)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Loss on disposal of assets                                                          22             -
      Write-down of long-lived assets                                                    782             -
      Stock-based compensation and warrant amortization                                   93           124
      Depreciation and amortization                                                      615         1,100
      Allowance for doubtful accounts                                                    284           117
      Amortization of advertising receivable from stockholder                            404           405
      Changes in assets and liabilities:
         Accounts receivable                                                             158           705
         Prepaid expenses, other current assets and other assets                          17          (342)
         Accounts payable and accrued liabilities                                       (553)       (1,413)
         Deferred revenue                                                                253           (64)
                                                                                  ----------    ----------
             Net cash used in operating activities                                    (3,263)       (7,392)
                                                                                  ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                                     (6)         (744)
   Acquisitions, net of liabilities assumed                                                -          (400)
                                                                                  ----------    ----------
             Net cash used in investing activities                                        (6)       (1,144)
                                                                                  ----------    ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of preferred stock, net                                      3,207             -
   Proceeds from exercise of stock options                                                 7            73
   Principal payments under capital leases                                               (72)          (68)
   Repayment of short-term borrowings                                                      -           (60)
                                                                                  ----------    ----------

             Net cash provided by (used in) financing activities                       3,142           (55)
                                                                                  ----------    ----------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                               (127)       (8,591)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                       3,047        17,982
                                                                                  ----------    ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        $    2,920    $    9,391
                                                                                  ==========    ==========

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Unearned compensation in connection with cancellation of stock options                (41)       (1,210)
   Issuance of stock and warrants in connection with acquisition                         108         1,469
   Issuance of warrants in connection with agreements                                      -            47
   Issuance of warrants in connection with preferred stock financing                     898             -
   Value assigned to reciprocal advertising agreements                                     -            63
   Property and equipment purchased under capital lease                                    -            90
</TABLE>
         The accompanying notes are an integral part of these condensed
                        consolidated financial statements

                                       5
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. THE COMPANY

           Salon Media Group, Inc. (Salon) is an Internet media company that
produces a network of ten subject-specific websites, of which one is an audio
streaming website, hosts two online subscription communities, and features Salon
Premium, a paid subscription service. Salon was originally incorporated in July
1995 in the State of California and reincorporated in Delaware in June 1999.
Salon operates in one business segment.

2. BASIS OF PRESENTATION

           The interim condensed consolidated financial statements are unaudited
and 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 consolidated
financial position, consolidated results of operations and consolidated cash
flows for the periods presented. The condensed consolidated balance sheet data
as of March 31, 2001 is derived from and should be read in conjunction with the
audited financial statements, which are included in Salon's annual Report on
Form 10-K, as amended, filed with the Securities and Exchange Commission. Within
the rules of the Securities and Exchange Commission, these financial statements
do not include all disclosures required by generally accepted accounting
principles. The results for the three and six months ended September 30, 2001
are not necessarily indicative of the expected results for any other interim
period or the fiscal year ending March 31, 2002.

           These condensed consolidated financial statements contemplate the
realization of assets and the satisfaction of liabilities in the normal course
of business. Salon has incurred losses and negative cash flow from operations
since inception and has an accumulated deficit at September 30, 2001 of $73,869.
These factors raise substantial doubt about Salon's ability to continue as a
going concern.

           Salon plans on reducing expenses to match anticipated revenues to
reach cash-flow breakeven during the fiscal year ending March 31, 2002. However,
until cash-flow breakeven is reached, Salon will continue to use its current
cash on hand generated from the net proceeds from the issuance of preferred
stock during the quarter ended September 30, 2001. If Salon is unable to
generate sufficient cash flows from operations or should management determine it
to be prudent, Salon may seek additional sources of capital. There can be no
assurance that Salon will be able to obtain such financing, if necessary, on
terms which are favorable or at all.

           In the event that Salon is unable to increase revenues or financing
is unavailable, management is developing alternative plans that will entail a
further reduction of expenses to levels that could be financed by revenues
generated. There can be no assurance that a further cost cutting exercise will
be successful in completely eliminating the difference between expenditures and
revenues or that such actions would not have a harmful effect on Salon's
business and results of operations. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

                                       6
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

3. SALON PREMIUM

           In April 2001, Salon launched Salon Premium, a paid subscription
service. Salon Premium offers readers who pay either $30 for a one year
subscription or $50 for a two year subscription, access to exclusive new
content; the option to view Salon content without advertising banners and
pop-ups; access to select unabridged content that is currently offered for free
(abridged versions will continue to be available free for non-subscribers) and
the ability to easily download content in text format, a convenience that will
enable readers to view additional Salon articles when not connected to the
Internet. Revenue is recognized ratably over the period that services are
provided.

4. CONCENTRATIONS

           No customer accounted for more than 10% of total revenue for the
three months ended September 30, 2001 and one customer, who acquired Salon's
website publishing software, accounted for 11% of total revenues for the six
months ended September 30, 2001. One customer accounted for 11% of total revenue
for the three months ended September 30, 2000 and no customer accounted for more
than 10% of total revenue for the six months ended September 30, 2000. Salon did
not record any barter revenues for the three or six month periods ended
September 30, 2001 and recorded $18 of barter revenue or 1% of total revenues
for the three months September 30, 2000 and $63 of barter revenue or 2% of total
revenue for the six months ended September 30, 2000. Five customers accounted
for 17%, 15%, 14%, 10% and 10% of the total accounts receivable balance at
September 30, 2001, respectively, and no customer accounted for more than 10% of
the total accounts receivable balance at September 30, 2000.

5. SOFTWARE DEVELOPMENT COSTS

           During the fiscal year ended March 31, 2001 Salon capitalized $674 of
expenditures incurred to enhance Salon's proprietary software as Salon
contemplated marketing the software. Salon has discontinued all development and
dedicated internal marketing efforts to focus efforts on its core content,
production and maintenance. Accordingly, Salon determined that this asset was
impaired and recorded an impairment charge of $674 in the six month period ended
September 30, 2001.

6. PREFERRED STOCK

           On August 9, 2001 and September 13, 2001, Salon issued approximately
812 shares of Series A Redeemable Convertible Preferred Stock (Preferred Stock)
at $4,000 per share and issued warrants to purchase approximately 6,496,000
shares of common stock for $0.2875 per share, for net proceeds of approximately
$3,207. The holders of the Preferred Stock are entitled to the following rights
and preferences: cumulative and accrued dividends of 8.0% annually; in the event
of a liquidation, they will receive prior and in preference to distributions
made to holders of common stock, an amount equal to $8,000 per share of Series A
Convertible Preferred Stock, and then participate with the holders of common
stock up to an aggregate return of $12,000 per share of Preferred Stock; certain
voting rights and terminable redemption rights. The Preferred Stock will become
convertible into approximately 12,992,000 shares of common stock subject to
stockholders' approval. On October 24, 2001 Salon's stockholders' approved the
conversion of the Preferred Stock to common stock, with such vote causing
removal of the redemption rights of the Preferred Stock.

                                       7
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

           The difference between the offering price of the Preferred Stock and
the fair value of the common stock into which the Preferred Stock is convertible
on the dates of the transactions, resulted in a beneficial conversion feature in
the amount of $2,257. The allocation of proceeds between Preferred Stock and
warrants and the immediate redemption feature of the Preferred Stock resulted in
an immediate accretion of the Preferred Stock in the amount of $932. The
aggregate value of the beneficial conversion feature and immediate accretion, of
$3,189, is reflected as a preferred dividend in the consolidated statements of
operations. In addition, a $32 cash dividend was accrued for the Preferred Stock
holders as of September 30, 2001. Such cash dividend was not paid as of that
date.


7. NET LOSS PER SHARE

           Basic loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted loss per share is
computed using the weighted average number of common and common stock
equivalents outstanding during the period.

           Diluted net loss per share attributable to common stockholders for
the three months and six months ended September 30, 2001 and 2000 does not
include the effect of common stock equivalent shares, comprised of stock
options, convertible preferred shares, and common stock warrants of 24,243,388
and 4,765,665 respectively, as the effect of their inclusion is anti-dilutive
during each period.


8. RECENT ACCOUNTING PRONOUNCEMENTS

           In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives
and Hedging Activities" (SFAS No. 133). SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities,
SFAS No. 133, requires that all derivative instruments be recognized at fair
value as either assets or liabilities in the statement of financial position.
The accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
a part of a hedging relationship and further, on the type of hedging
relationship. Salon adopted SFAS No. 133, as amended, effective April 1, 2001
with no impact on its consolidated financial statements. To date, Salon has not
engaged in derivative or hedging activities.

           In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" (SFAS No.141). This standard
eliminates the pooling-of-interests method of accounting for business
combinations, except for qualifying business combinations that were initiated
prior to July 1, 2001, and applies to all business combinations accounted for
under the purchase method that are completed after June 30, 2001. The
implementation of SFAS No.141 is not expected to have a significant impact on
Salon's financial condition or results of operations.

           In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). This
standard eliminates the amortization of goodwill, and requires goodwill to be
reviewed at least annually for impairment, the useful lives of previously

                                       8
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

recognized intangible assets to be reassessed and the remaining amortization
periods to be adjusted accordingly. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The implementation of this standard is not
expected to have a significant impact on Salon's financial condition or results
of operations.

           In October 2001, the FASB issued Statement of Accounting Standards
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
No. 144). SFAS No. 144 supersedes "Accounting for the Impairment of Long- Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No.121), however it
retains the fundamental provisions of SFAS No. 121 for (1) the recognition and
measurement of the impairment of long-lived assets to be held and used and (2)
the measurement of long-lived assets to be disposed of by sale. SFAS No. 144
develops a single accounting model for long-lived assets to be disposed of by
sale, whether previously held and used or newly acquired assets and consequently
amends Accounting Principles Board Opinion No. 30, "Reporting Results of
Operations -Reporting the Effects of Disposal of a Division of a Business" ("APB
No. 30"). Additionally, SFAS No. 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from the
ongoing operations of the entity in a disposal transaction. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years. Salon is currently assessing the impact of
its adoption on its financial statements.















                                       9
<PAGE>

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

           This section and other parts of this Form 10-Q contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that involve risks and uncertainties, including, but not
limited to, statements regarding our strategy, plans, objectives, expectations,
intentions, financial performance, cash-flow breakeven timing, financing,
economic conditions, on-line advertising, market performance, subscription
service plans, and revenue sources. Although Salon believes its plans,
intentions and expectations reflected in such forward-looking statements are
reasonable, they can give no assurance that such plans, intentions or
expectations will be achieved. Our actual results may differ significantly from
those anticipated or implied in these forward-looking statements as a result of
the factors set forth above and in Salon's public filings. Salon assumes no
obligation to update any forward-looking statements as circumstances change.

           Salon's actual results may differ significantly from those
anticipated or implied in these forward-looking statements as a result of the
factors set forth below and in "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and "Factors That May Affect Our
Future Results and Market Price of Stock." In this report, the words
"anticipates," "believes," "expects," "estimates," "intends," "future," and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.

OVERVIEW

           Salon is an Internet media company that produces a network of ten
subject-specific websites, of which one is an audio streaming website, and hosts
two online subscription communities, Table Talk and The Well, and features Salon
Premium, a paid subscription service. Prior to July 2001, Table Talk was offered
as a free online community forum. Salon believes that its network of websites
combines the thoughtfulness of print, the timeliness of television and the
interactivity of talk radio.

           The main entry and navigation point to Salon's ten websites is
Salon's home page at www.salon.com. The websites provide news, features,
interviews and regular columnists on specific topics, from politics and arts and
entertainment to parenting and health, while Salon's online communities allow
users to interact and discuss Salon content and other topics via electronic
messaging. Salon's users can access Table Talk or The Well through www.salon.com
or through Salon's ten content websites. Salon offers two websites, News and
Politics, in which substantially all content is only offered to Salon Premium
subscribers except in abridged form.

           Salon believes that its original, award-winning content allows 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 websites and online communities a valuable
media property for advertisers and retailers who are allocating marketing
resources to target consumers online.

                                       10
<PAGE>

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2001
COMPARED TO THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2000

NET REVENUES:

           Net revenues decreased 74% to $0.6 million for the three months ended
September 30, 2001 from $2.2 million for the three months ended September 30,
2000 and decreased 61% to $1.5 million for the six months ended September 30,
2001 from $4.0 million for the six months ended September 30, 2000. Advertising
revenues declined to $0.3 million for the three months ended September 30, 2001
from $1.9 million the prior year while subscription revenue increased from $0.2
million to $0.3 million in the same period. Advertising revenues declined to
$0.8 million for the six months ended September 30, 2001 from $3.5 million the
prior year, with subscription income of $0.4 million for both periods. In
addition, Salon recognized $0.2 million of website management software sales
during the six months ended September 30, 2001 and no comparable amounts last
year. Salon cannot predict when or if it may generate additional software sales.
The decrease in advertising revenue was attributable to an overall contraction
in the United States economy, e-commerce or Internet businesses reducing
advertising without compensating increases from more established advertisers,
most advertisers choosing to place advertisements in the largest media portal
sites, and advertisers' concern with Salon's financial viability. Issues
regarding Salon's financial viability diminished upon the issuance of Series A
Redeemable Convertible Preferred stock.

           In April 2001, Salon began Salon Premium, a paid subscription
service. Salon Premium offers readers who pay either $30 for a one year
subscription or $50 for a two year subscription, access to exclusive new
content; the option to view Salon content without advertising banners and
pop-ups; access to select unabridged content that is currently offered for free
(abridged versions will continue to be available free for non-subscribers) and
the ability to easily download content in text format, a convenience that
enables readers to view additional Salon articles when not connected to the
Internet. In October 2001, Salon began featuring its unabridged stories found in
its News and Politics websites exclusively to Salon Premium members. Salon
Premium revenue is recognized ratably over the period that services are
provided. Salon recognized $0.1 million of Salon Premium revenue for the three
months ended September 30, 2001 and $0.2 million of revenue for the six months
ended September 30, 2001. As of September 30, 2001, Salon has over 15,000 paid
subscribers and has deferred $0.4 million of revenue over the subscription
period. Salon estimates that it may generate in its first year of operation
annual revenue of $0.9 to $1.8 million from Salon Premium.

           There was no barter revenue recognized for either the three months or
six months ended September 30, 2001 and barter was not a significant source of
revenue for the comparable periods last year.

PRODUCTION AND CONTENT:

           Production and content expenses during the three months ended
September 30, 2001 were $1.3 million versus $2.5 million for the three months
ended September 30, 2000, a decline of $1.2 million or 48%. The decrease in
production, content and product costs for the three months ended September 30,
2001 versus September 30, 2000, is primarily attributable to a $0.7 million
decrease in salaries and benefits from staff reductions between periods, the
benefit of a 15% salary reduction this year and $0.3 from reduced purchases of
freelance articles.

           Production and content expenses during the six months ended September
30, 2001 were $2.8 million versus $5.2 million for the six months ended
September 30, 2000, a decline of $2.4 million or 46%. The decrease between years
is primarily due to an elimination of approximately thirty positions

                                       11
<PAGE>

from September 30, 2000 to September 30, 2001 and the effect of a 15% salary
reduction this year, which combined to reduce expenses by $1.4 million. Reduced
purchases of freelance articles yielded additional savings of $0.6 million.

SALES AND MARKETING:

           Sales and marketing expenses during the three months ended September
30, 2001 were $0.7 million versus $1.7 million for the three months ended
September 30, 2000, a decline of $1.0 million or 58%. The decrease in sales and
marketing is primarily attributable to staff reductions between periods and the
effect of a 15% salary reduction this year, which combined to reduce expenses by
$0.7 million, and to a lesser extent, a decline in travel resulted in $0.1
million in additional savings.

           Sales and marketing expenses during the six months ended September
30, 2001 were $1.5 million versus $4.1 million for the six months ended
September 30, 2000, a decline of $2.6 million or 63%. The decrease in sales and
marketing expenses is primarily attributable to an elimination of approximately
twenty-four positions from September 30, 2000 to September 30, 2001 and the
effect of a 15% salary reduction this year, which combined reduced expenses by
$1.4 million. A curtailment of advertising and marketing expenditures resulted
in saving an additional $0.5 million and curtailed travel reduced expenses an
additional $0.2 million.

           Included in sales and marketing expenses are non-cash advertising
expenses related to an investment in Salon by Rainbow Media Holdings, Inc. in
the form of an advertising credit valued at $8.1 million which is being
amortized over a ten year period. Amortized amounts were $0.2 million for both
the three months ended September 30, 2001 and 2000 and $0.4 million for both the
six months ended September 30, 2001 and 2000.

RESEARCH AND DEVELOPMENT:

           Research and development expenses during the three months ended
September 30, 2001 were $0.2 million versus $0.4 million for the three months
ended September 30, 2000, a decline of $0.2 million. The $0.2 million decrease
is primarily attributable to staff reductions between periods and the effect of
a 15% salary reduction this year.

           Research and development expenses during the six months ended
September 30, 2001 were $0.4 million versus $0.8 million for the six months
ended September 30, 2000, a decline of $0.4 million. Of the $0.4 million
decrease, $0.2 million is attributable to an elimination of approximately
fourteen positions from September 30, 2000 to September 30, 2001 and the effect
of a 15% salary reduction this year and $0.2 million is due to a general
contraction in spending.

GENERAL AND ADMINISTRATIVE:

           General and administrative expenses during the three months ended
September 30, 2001 were $0.7 million versus $0.9 million for the three months
ended September 30, 2000, a decline of $0.2 million or 22%. The decrease is
primarily attributable to staff reductions between periods and the effect of a
15% salary reduction this year, a decline in general corporate expenses,
partially offset by an increase in bad debt expense due to the write-off of a
$0.2 million long-term note receivable.

           General and administrative expenses during the six months ended
September 30, 2001 were $1.2 million versus $1.6 million for the six months
ended September 30, 2000, a decline of $0.4 million or 24%. The decrease is
primarily attributable to an elimination of approximately five positions from
September 30, 2000 to September 30, 2001 and the effect of a 15% salary
reduction this year, a decline in

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<PAGE>

general corporate expenses, partially offset by an increase in bad debt expense
due to the write-off of a $0.2 million long-term note receivable.

AMORTIZATION OF INTANGIBLES:

           Amortization of intangible expenses during the three months ended
September 30, 2001 was $0.1 million versus $0.3 million for the three months
ended September 30, 2000, a decline of $0.2 million or 66%. During the fiscal
year ended March 31, 2001 goodwill resulting from the acquisition of The Well
and MP3Lit.com was written-off as impaired. The resulting reduction in this
class of asset as a component of intangible assets is attributable for the $0.2
million decline in amortization expense between periods.

           Amortization of intangible expenses during the six months ended
September 30, 2001 was $0.2 million versus $0.7 million for the six months ended
September 30, 2000, a decline of $0.5 million or 66%. During the fiscal year
ended March 31, 2001 goodwill resulting from the acquisition of The Well and
MP3Lit.com was written-off as impaired. The resulting reduction in this class of
asset as a component of intangible assets is attributable for the $0.5 million
decline in amortization expense between periods.

WRITE-DOWN OF LONG-LIVED ASSETS:

           During the fiscal year ended March 31, 2001 Salon capitalized $0.7
million of expenditures to enhance Salon's proprietary software as Salon
contemplated marketing the software. During the quarter ended June 30, 2001
Salon discontinued all development and dedicated internal marketing efforts to
focus efforts on its core content, production and maintenance. Accordingly,
Salon determined that this asset was impaired and recorded an impairment charge
of $0.7 million during the six month period ended September 30, 2001.

           In May 2000, Salon acquired MP3Lit.com in a transaction that included
contingently issueable common stock. As a consequence, Salon issued 317,000
shares of common stock valued at $0.1 million in May 2001 resulting in
additional purchase consideration classified as goodwill. As determined during
the fiscal year ended March 31, 2001, all the goodwill associated with the
acquisition was impaired, and as a result the additional goodwill resulting from
this additional stock award was written off during the six month period ended
September 30, 2001. Additional contingent shares of 412,100 and 158,500 are to
be issued in May 2002 and May 2003, respectively. Salon cannot predict at this
time the financial impact of issuing these additional contingent shares.

OTHER INCOME (EXPENSE), NET:

           Other income (expense), net decreased to zero in both the three and
six month periods ended September 30, 2001 from $0.2 million for the three
months ended September 30, 2000 and $0.4 million for the six months ended
September 30, 2000. The decrease in other income (expense), net is primarily
attributable to a decrease in cash between periods, as Salon has been utilizing
its cash to fund operations.

PREFERRED DEEMED DIVIDEND:

           The preferred deemed dividend of $3.2 million for the three months
ended September 30, 2001 represents a one-time non-cash charge resulting from
the difference between the offering price of Salon's Series A redeemable
convertible preferred stock sold in August and September 2001 and the fair value
of Salon's common stock into which the preferred stock is convertible on the
dates of the transactions, as

                                       13
<PAGE>

well as the effect of an immediate redemption right of the preferred stock
issued, after allocating the proceeds between preferred stock and warrants.

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS:

           As a result of the above factors, Salon recorded a net loss
attributable to common stockholders of $5.6 million, or $0.42 per share for the
three months ended September 30, 2001 compared to a net loss of $3.5 million, or
$0.27 per share for the three months ended September 30, 2000. In addition,
Salon recorded a net loss attributable to common stockholders of $8.6 million,
or $0.63 per share for the six months ended September 30, 2001 compared to a net
loss of $8.0 million, or $0.63 per share for the six months ended September 30,
2000.

LIQUIDITY AND CAPITAL RESOURCES:

           As of September 30, 2001 Salon had approximately $2.9 million in
cash, obtained through Salon's Series A Redeemable Convertible Preferred Stock
issued in August and September 2001. Salon also has $0.8 million of restricted
cash held primarily as deposits for various lease arrangements.

           Net cash used in operations was $3.3 million for the six months ended
September 30, 2001, compared to $7.4 million for the six months ended September
30, 2000. The principal use of cash during the six months ended September 30,
2001 was to fund the $5.3 million net loss for the period and a decrease in
liabilities, offset mostly by non-cash charges of $2.2 million. The principal
use of cash during the six months ended September 30, 2000 was to fund the $8.0
million net loss for the period and a decrease in liabilities, offset mostly by
non-cash charges of $1.7 million.

           Net cash used in investing activities totaled zero for the six months
ended September 30, 2001, compared to $1.1 million for the six months ended
September 30, 2000. Salon does not expect any significant capital expenditures
during the current fiscal year. During the six months ended September 30, 2000,
net cash used for investing activities consisted of $0.4 million for an
acquisition and $0.7 million for the purchase of property and equipment.

           Net cash from financing activities provided $3.1 million for the six
months ended September 30, 2001 from the issuance of Series A Convertible
Preferred stock with net proceeds of approximately $3.2 million, offset by $0.1
million from nominal payments for debt related obligations. This compares to an
outflow of $0.1 million for the six months ended September 30, 2000 primarily
for nominal payments of debt related obligations.

           As of September 30, 2001 Salon's available cash resources was
sufficient to meet working capital needs for approximately five to six months.
Salon has eliminated various positions, not filled positions opened by
attrition, implemented a wage reduction of 15% effective April 1, 2001 and has
cut discretionary spending to minimal amounts, but due to a weak U.S. economy in
general, and a weak advertising market in particular, it is unable to predict
when it will reach cash-flow break even.

           Salon may continue to raise additional funds, for which additional
Series A Preferred Stock may be issued, to fund its operations. If Salon raises
additional funds by selling equity securities, or securities which convert into
equity securities, the percentage ownership of Salon's stockholders will be
reduced and its stockholders will most likely experience additional dilution.
Given Salon's recent low stock price, any dilution will likely be very
substantial for existing shareholders. 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, if at all, Salon's ability to
continue operations, react to competitive pressures, or take

                                       14
<PAGE>

advantage of unanticipated opportunities will be more limited than if additional
capital was available. Liquidity continues to be a constraint on business
operations.

RECENT ACCOUNTING PRONOUNCEMENTS

           In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives
and Hedging Activities" (SFAS No. 133). SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities,
SFAS No. 133, requires that all derivative instruments be recognized at fair
value as either assets or liabilities in the statement of financial position.
The accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
a part of a hedging relationship and further, on the type of hedging
relationship. Salon adopted SFAS No. 133, as amended, effective April 1, 2001
with no impact on its consolidated financial statements. To date, Salon has not
engaged in derivative or hedging activities.

           In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" (SFAS No.141). This standard
eliminates the pooling-of-interests method of accounting for business
combinations, except for qualifying business combinations that were initiated
prior to July 1, 2001, and applies to all business combinations accounted for
under the purchase method that are completed after June 30, 2001. The
implementation of SFAS No.141 is not expected to have a significant impact on
Salon's financial condition or results of operations.

           In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). This
standard eliminates the amortization of goodwill, and requires goodwill to be
reviewed at least annually for impairment, the useful lives of previously
recognized intangible assets to be reassessed and the remaining amortization
periods to be adjusted accordingly. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The implementation of this standard is not
expected to have a significant impact on Salon's financial condition or results
of operations.

           In October 2001, the FASB issued Statement of Accounting Standards
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
No. 144). SFAS No. 144 supersedes "Accounting for the Impairment of Long- Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No.121), however it
retains the fundamental provisions of SFAS No. 121 for (1) the recognition and
measurement of the impairment of long-lived assets to be held and used and (2)
the measurement of long-lived assets to be disposed of by sale. SFAS No. 144
develops a single accounting model for long-lived assets to be disposed of by
sale, whether previously held and used or newly acquired assets and consequently
amends Accounting Principles Board Opinion No. 30, "Reporting Results of
Operations -Reporting the Effects of Disposal of a Division of a Business" ("APB
No. 30"). Additionally, SFAS No. 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from the
ongoing operations of the entity in a disposal transaction. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years. Salon is currently assessing the impact of
its adoption on its financial statements.

                                       15
<PAGE>

RISK FACTORS

FACTORS THAT MAY AFFECT OUR FUTURE RESULTS AND MARKET PRICE OF STOCK:

WE LACK SIGNIFICANT REVENUES, AND HAVE A HISTORY OF LOSSES

           Salon has not achieved profitability and expects to incur operating
losses in the near future. If and when Salon does 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, financial results will most likely
be severely harmed and the ability of Salon to continue its operations will be
seriously jeopardized.

ADDITIONAL FINANCING MAY BE REQUIRED AND NOT BE AVAILABLE

           During August and September, 2001 Salon raised approximately $3.2
million in a private placement of Series A Redeemable Convertible Preferred
stock. Even though Salon has eliminated various positions, not filled positions
opened by attrition, implemented a wage reduction of 15% effective April 1, 2001
and has cut discretionary spending to minimum amounts, due to a weak U.S.
economy in general, and a weak advertising market in particular, it is unable to
predict when it will reach cash-flow break even. Salon may therefore need to
raise additional funds in the future, possibly within five to six months. If
Salon raises additional funds by selling equity securities, or securities which
convert into equity securities, the percentage ownership of Salon's stockholders
will be reduced and its stockholders will most likely experience additional
dilution. Given Salon's recent low stock price, any dilution will likely be very
substantial for existing shareholders. 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, if at all, Salon's ability to
continue operations, react to competitive pressures, or take advantage of
unanticipated opportunities will be substantially limited. In addition, Salon's
business could be significantly adversely affected. In the event that Salon is
unable to increase revenue levels or financing is unavailable, management will
have to reduce its workforce, reduce discretionary costs, and reduce the size of
its website and corresponding website offerings to match revenue levels.

OUR STOCK LISTING HAS CHANGED AND MAY CHANGE AGAIN

           On August 29, 2001, Salon received a determination letter from NASDAQ
stating that our common stock would be listed on a conditional basis on the
NASDAQ SmallCap Market due to our inability to meet continuing listing
requirement for the NASDAQ National Market. NASDAQ's listing panel set out
certain requirements to retain the NASDAQ SmallCap listing and to date Salon has
secured either a temporary waiver or, in the case of the $1.00 bid price
requirement, NASDAQ has acted to suspend this listing requirement for companies
until January 1, 2002.

           If the market price for our common stock remains below $1.00 per
share, our common stock may be deemed to be penny stock. If our common stock
were considered penny stock, it would be subject to rules that impose additional
sales practices on broker-dealers who sell our securities. For example, broker
dealers must make a special suitability determination for the purchaser, receive
the purchaser's written consent to the transaction prior to sale, and make
special disclosures regarding sales commissions, current stock price quotations,
recent price information and information on the limited market in penny stock.
Because of these additional obligations, some brokers may not effect
transactions in penny stocks, which could adversely affect the liquidity of our
common stock.

           If our stock is delisted from NASDAQ SmallCap Market, it will likely
be traded on the over-the-counter bulletin board (OTCBB). If our stock is traded
on the OTCBB, its value may be negatively

                                      16
<PAGE>

impacted because stocks, which trade over-the-counter, tend to be less liquid
and trade with larger variations between the bid and ask price.

OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY REGARDLESS OF OUR ACTUAL OPERATING
PERFORMANCE

           Salon's common stock is listed for trading on the NASDAQ SmallCap
Market. The trading price of Salon's common stock may be highly volatile.
Salon's stock price may be subject to wide fluctuations in response to a variety
of factors, including:

    o      the presence of a bid price under $1.00;

    o      actual or anticipated variations in quarterly operating results and
           announcements of technological innovations;

    o      new products or services offered by Salon or its competitors;

    o      changes in financial estimates by securities analysts;

    o      conditions or trends in the Internet services industry and the online
           content segment in particular;

    o      Salon's announcement of significant acquisitions, strategic
           partnerships, joint ventures or capital commitments;

    o      additions or departures of key personnel;

    o      sales of common stock; and

    o      other events that may be beyond Salon's control.

           In addition, the NASDAQ SmallCap Market has recently experienced
extreme price and volume fluctuations. These broad market and industry factors
may materially adversely affect the market price of Salon's common stock,
regardless of Salon's actual operating performance. In the past, following
periods of volatility in the market price of an individual company's securities,
securities class action litigation often has been instituted against that
company. This type of litigation, if instituted, could result in substantial
costs and a diversion of management's attention and resources.

REVENUE GENERATED FROM SUBSCRIBERS TO SALON PREMIUM MAY NOT BE SUFFICIENT TO
OFFSET POTENTIAL LOWER ADVERTISING REVENUE DUE TO A DECREASE IN AVAILABLE
IMPRESSIONS TO ADVERTISERS

           With a recent decrease in advertising revenue, Salon has begun to
depend more on cash generated from Salon Premium, a paid subscription service
implemented in April 2001. Salon estimates that as of October 2001 approximately
twenty-five to thirty percent of its content is available to Salon Premium
subscribers only. The implementation of Salon Premium may therefore adversely
restrict and reduce the number of impressions available to sell to advertisers.
Salon is unable to predict what effect, if any, recent content restrictions and
reduction in sellable impressions will have on our ability to sell space to
advertisers.

                                       17
<PAGE>

WE HAVE AN ACTIVE SUBSCRIPTION PROGRAM BUT THE REVENUE RESULTS ARE NOT CERTAIN

           Salon has had a subscription business since it acquired The Well, an
online forum, in March 1999. The Well has now been in operation for over ten
years. In July 2001, Salon's previously free Table Talk online forum, which it
developed internally, was transitioned to a subscription service. In April 2001,
Salon launched Salon Premium, which provides Salon readers with certain benefits
in exchange for a subscription for a year or more. In October 2001, Salon
continued its efforts to expand its subscriber base, in part, by making
unabridged News and Politics stories only available to Salon Premium members.
Salon Premium members for the most part however, choose to view Salon's content
without any advertisements. While traditional media properties commonly operate
with advertising within subscriber-purchased pages, Salon has not implemented
this model. Dividing some of our Websites between abridged content accompanied
by advertising and unabridged content accompanied by subscription revenue may
not achieve acceptable circulation or revenue goals.

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:

    o      our ability to attract and retain advertisers, sponsors, subscribers
           and electronic commerce sponsors;

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

    o      the introduction of new Websites, services or products by us or by
           our competitors;

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

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

    o      the economic and business cycle and the recovery speed;

    o      the level of Internet usage;

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

    o      technical difficulties or system downtime affecting the Internet
           generally or the operation of our Websites;

    o      the impact of national economic and diplomatic concerns on the
           advertising and news business; and,

    o      the amount and timing of operating costs.

           In order to attract and maintain our user base, we may incur
expenditures on sales and marketing, content development, technology and
infrastructure. These types of 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 be unable to reduce spending in that
quarter. As a result, any shortfall in revenues would likely harm our quarterly
operating results.

                                       18
<PAGE>

           Due to the factors noted above and the other risks discussed in this
section, one 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 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 ADVERTISING SALES FOR MUCH OF OUR REVENUES, AND OUR INABILITY TO
INCREASE ADVERTISING REVENUES WILL HARM OUR BUSINESS

           Revenues depend substantially on sales of advertising. In order to
increase revenues, Salon needs to attract additional significant advertisers on
an ongoing basis. We may not be able to attract or retain a sufficient number of
advertisers in the future, and if we cannot, our business would likely be
severely harmed. If we do not sell a sufficient number of advertisements or do
not engage a sufficient number of advertisers during a particular period, our
business could be severely harmed.

           Increasing our advertising revenues depends upon many factors,
including whether we will be able to:

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

    o      increase our user base;

    o      increase the amount of revenues we receive per advertisement;

    o      have a sufficient number of impressions available to advertisers;

    o      increase awareness of the Salon brand;

    o      successfully sell new ad units and formats;

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

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

    o      retain sales personnel; and

    o      convince advertisers that Salon will continue as a going concern.

THE LENGTH OF OUR SALES CYCLES IS UNCERTAIN AND VARIABLE AND MAY LEAD TO
SHORTFALLS IN REVENUES AND FLUCTUATIONS IN OUR OPERATING RESULTS

           Our dependence on advertising subjects us to the risk of revenue
shortfalls because the sales cycles for advertising vary significantly, and
during these cycles we may expend substantial funds and management resources
while not obtaining advertising 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 customer and the signing of an
advertising order may range from as little as one week to up to nine months.
Sales of advertising are subject to factors over which we have little or no
control, including:

    o      advertisers' budgets;

                                       19
<PAGE>


    o      internal acceptance reviews by advertisers and their agencies;

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

WE MUST DETERMINE WHETHER TO ESTABLISH OR MAINTAIN DISTRIBUTION RELATIONSHIPS TO
ATTRACT MORE USERS TO OUR NETWORK

           In past periods we have depended on distribution relationships with
high-traffic Websites to increase our user base. There has been intense
competition for relationships with these sites, and we may not be able to, or
want to, enter into such relationships on favorable terms or at all. Even if we
enter into distribution relationships with these Websites, their sites may not
attract significant numbers of users, and our Websites 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, and our
revenues and operating results will be severely harmed. The content and services
we provide on our Websites may not appeal to a sufficient number of Internet
users to generate advertising revenues. Our ability to develop compelling
content depends on several factors, including:

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

    o      the quality of our editorial staff;

    o      the technical expertise of our production staff; and

    o      working capital constraints of Salon.

           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 Websites. Internet users
can freely navigate and instantly switch among a large number of Websites, many
of which offer content and services that compete with Salon. In addition, many
Websites offer very specific, highly targeted content that could have greater
appeal than our network to particular subsets of our target user base.

THE CONTROVERSIAL CONTENT OF OUR WEBSITES MAY LIMIT OUR REVENUES

           Many of our Websites contain, and will continue to contain, content
that is politically and culturally controversial. As a result of this content,
current and potential advertisers and Salon Premium subscribers may refuse to do
business with us. Our outspoken stance on political issues 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 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

                                       20
<PAGE>

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 change in the focus of our operations creates a risk
of diluting our brand, confusing consumers and decreasing the value of our user
base to advertisers. If we are unable to maintain or increase 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 key editorial and design
personnel. In addition, because our users must perceive the content of our
Websites 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 founder and Editor-in-Chief.

           Our future success depends to a significant extent on the continued
services of key personnel, particularly, David Talbot, Salon's Editor-in-Chief
and Michael O'Donnell, Chief Executive Officer. We currently have no employment
agreement with Mr. Talbot and we do not maintain "key person" life insurance for
any of our personnel. The loss of the services of Mr. Talbot, Mr. O'Donnell, or
other key employees would likely have a significantly adverse effect on our
business.

           Due to recurring operating losses, our current financial position and
potential NASDAQ delisting, we may experience difficulty in hiring and retaining
highly skilled employees with appropriate qualifications. 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.

           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 Websites
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.

                                       21
<PAGE>

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 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 Websites may not operate properly which
could harm our business. Additionally, software product design, development and
enhancement involve creativity, expense and the use of new development tools and
learning processes. Delays in software development processes are common, as are
project failures, and either factor 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 that may impact our business
adversely.

WE RELY ON THIRD PARTIES FOR SEVERAL CRITICAL FUNCTIONS RELATING TO DELIVERY OF
ADVERTISING AND OUR WEBSITE 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, 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 use third-party software to manage and measure the delivery of
advertising on our network of Websites. This type of software may fail to
perform as expected. If this software malfunctions or does not deliver the
correct advertisements to our network, our advertising revenues could be
reduced, and our business could be harmed.

           We use third-party software to measure traffic on our network of
Websites. This type of software does not always perform as expected. 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.

           For certain clients, we use third-party services to deliver
advertising features and/or measure advertising delivery. This type of service
is outside our direct control, and if the service arrangement under performs,
our advertising delivery may perform below expectations and our advertising
revenues could be adversely affected.

ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING IS EVOLVING AND, TO THE
EXTENT IT DOES NOT 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 does not continue to 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

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<PAGE>

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. Within the industry, our advertising audience may be
low and inhibit our ability to sell advertising.

           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. 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.

ADVERTISING PRODUCT OFFERINGS CONTINUE TO CHANGE AND THIS CREATES ADDITIONAL
EFFORT AND UNCERTAINTY ABOUT THIS REVENUE STREAM

           Advertisers continue to be attracted by new products, promotional
vehicles and offerings delivered via the Internet. This interest in new products
requires that the company identify advertiser interests, develop and launch new
advertising products or formats, create appropriate pricing schedules, train the
sales force in the use and sale of new products, manage the obsolescence of
earlier products, and restructure the Salon.com site to effectively deliver,
track and report new products. New product design, development and launch
involves creativity, expense, technology modifications and learning processes.
While the company has integrated this activity into its existing operations, the
rate of change could create an environment where the company is unable to
effectively develop, deliver or track the delivery of products acceptable to the
market.

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 that we accurately measure the
demographics of our user base and the delivery of advertisements on our
Websites. We depend on third parties to provide certain of these measurement
services. If they were 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 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 this may harm our business. A number of

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<PAGE>

factors may inhibit the growth of Internet usage, including the following. If
these or any other factors cause use of the Internet to slow or decline, our
results of operations could be harmed.

    o      inadequate network infrastructure;

    o      security concerns;

    o      charging for content;

    o      inconsistent quality of service; and

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

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. The number of Websites competing for the attention and spending of
users and advertisers may continue to increase with the most trafficked Websites
receiving a disproportionate share of advertising dollars. Salon is not one of
the most trafficked Websites, or even one of the top Ten Websites.

           Increased competition could result in advertising 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.

WE MAY BE HELD LIABLE FOR CONTENT ON OUR WEBSITES

           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 Websites. These types of
claims have been brought, sometimes successfully, against online services,
Websites 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.

WE MAY BE LIABLE FOR OUR LINKS TO THIRD-PARTY WEBSITES

           We could be exposed to liability with respect to the selection of
third-party Websites that may be accessible through Salon.com. These claims
might include, among others, that by linking to Websites operated by third
parties, we may be liable for copyright or trademark infringement or other
unauthorized actions by these third-party Websites. Other claims may be based on
errors or false or misleading information provided on linked sites, including
information deemed to constitute professional advice such as legal, medical,
financial or investment advice. Other claims may be based on our links to
sexually explicit Websites and our provision of sexually explicit advertisements
when this content is displayed. Our business could be seriously harmed due to
the cost of investigating and defending these claims; even

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<PAGE>

to the extent these claims do not result in liability. Implementing measures to
reduce our exposure to this liability may require us to spend substantial
resources and limit the attractiveness of our service to users.

CONCERNS ABOUT TRANSACTIONAL SECURITY MAY HINDER ANY ELECTRONIC COMMERCE
PROGRAMS 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
Websites.

           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.

OUR EFFORTS TO ENGAGE IN ELECTRONIC COMMERCE MAY EXPOSE US TO PRODUCT LIABILITY
CLAIMS

           We have and may continue to foster relationships with manufacturers
or other companies to offer certain products or services to users through our
network of Websites. 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 Websites are located at Verio Inc. facilities in San
Francisco, California. Fire, floods, earthquakes, power loss, telecommunications
failures, break-ins, supplier failure to meet commitments, 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 Websites and could cause advertisers to
terminate any agreements with us. In addition, we could lose advertising
revenues during these interruptions and user satisfaction could be negatively
impacted if the service is slow or unavailable. 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 Websites must accommodate a high volume of traffic and deliver
frequently updated information. It is possible that we will experience 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 Website operators for access to our Websites. Many of these
providers and operators have experienced significant outages in the past, and
could experience outages, delays and other

                                       25
<PAGE>

difficulties due to system failures unrelated to our systems. Any of these
system failures could harm our business.

HACKERS MAY ATTEMPT TO PENETRATE OUR SECURITY SYSTEM; ONLINE SECURITY BREACHES
COULD HARM OUR BUSINESS

           Consumer and supplier confidence in our Websites depends on
maintaining relevant security features. Security breaches also could damage our
reputation and expose us to a risk of loss or litigation. Experienced
programmers or "hackers" have successfully penetrated sectors of our systems and
we expect that these attempts will continue to occur from time to time. Because
a hacker who is able to penetrate our network security could misappropriate
proprietary information or cause interruptions in our products and services, we
may have to expend significant capital and resources to protect against or to
alleviate problems caused by these hackers. Additionally, we may not have a
timely remedy against a hacker who is able to penetrate our network security.
Such security breaches could materially adversely affect our company. In
addition, the transmission of computer viruses resulting from hackers or
otherwise could expose us to significant liability. Our insurance policies may
not be adequate to reimburse us for losses caused by security breaches. We also
face risks associated with security breaches affecting third parties with whom
we have relationships.

GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES OF THE INTERNET MAY RESTRICT
OUR BUSINESS OR RAISE ITS COSTS

           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 content,
copyrights, distribution, antitrust matters, 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. Moreover, it may take years to determine the extent to which existing
laws relating to issues such as property ownership, obscenity, libel and
personal privacy are applicable to the Internet or the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business.

PRIVACY CONCERNS COULD IMPAIR OUR BUSINESS

           We have a policy against using personally identifiable information
obtained from users of our site and services without the user's permission. In
the past, the Federal Trade Commission has investigated companies that have used
personally identifiable information without permission or in violation of a
stated privacy policy. If we use this information without permission or in
violation of our policy, we may face potential liability for invasion of privacy
for compiling and providing information to our corporate customers and
electronic commerce merchants. In addition, legislative or regulatory
requirements may heighten these concerns if businesses must notify Internet
users that the data may be used by marketing entities to direct product
promotion and advertising to the user. Other countries and political entities,
such as the European Union, have adopted such legislation or regulatory
requirements. The United States may adopt similar legislation or regulatory
requirements. If consumer privacy concerns are not adequately addressed, our
business, financial condition and results of operations could be materially
harmed.

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<PAGE>

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 Websites or individuals who sign up for Salon
Premium. 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 or to tax revenue
generated from Salon Premium, our financial results could be harmed.

PROVISIONS IN DELAWARE LAW AND OUR CHARTER, STOCK OPTION AGREEMENTS AND OFFER
LETTERS TO EXECUTIVE OFFICERS MAY PREVENT OR DELAY A CHANGE OF CONTROL

           We are subject to the Delaware anti-takeover laws regulating
corporate takeovers. These anti-takeover laws prevent Delaware corporations from
engaging in a merger or sale of more than 10% of its assets with any
stockholder, including all affiliates and associates of the stockholder, who
owns 15% or more of the corporation's outstanding voting stock, for three years
following the date that the stockholder acquired 15% or more of the
corporation's assets unless:

    o      the board of directors approved the transaction where the stockholder
           acquired 15% or more of the corporation's assets;

    o      after the transaction where the stockholder acquired 15% or more of
           the corporation's assets, the stockholder owned at least 85% of the
           corporation's outstanding voting stock, excluding shares owned by
           directors, officers and employee stock plans in which employee
           participants do not have the right to determine confidentially
           whether shares held under the plan will be tendered in a tender or
           exchange offer; or

    o      on or after this date, the merger or sale is approved by the board of
           directors and the holders of at least two-thirds of the outstanding
           voting stock that is not owned by the stockholder.

           A Delaware corporation may opt out of the Delaware anti-takeover laws
if its certificate of incorporation or bylaws so provide. We have not opted out
of the provisions of the anti-takeover laws. As such, these laws could prohibit
or delay mergers or other takeover or change of control of Salon and may
discourage attempts by other companies to acquire us.

           Our certificate of incorporation and bylaws include a number of
provisions that may deter or impede hostile takeovers or changes of control or
management. These provisions include:

    o      our board is classified into three classes of directors as nearly
           equal in size as possible with staggered three year-terms; and

    o      special meetings of the stockholders may be called only by the
           Chairman of the Board, the Chief Executive Officer or the board.

These provisions may have the effect of delaying or preventing a change of
control.

           Our certificate of incorporation and bylaws provide that we will
indemnify officers and directors against losses that they may incur in
investigations and legal proceedings resulting from their services to

                                       27
<PAGE>

us, which may include services in connection with takeover defense measures.
These provisions may have the effect of preventing changes in our management.

           In addition, offer letters with executive officers provide for the
payment of severance and acceleration of options upon the termination of these
executive officers following a change of control of Salon. These provisions in
offer letters could have the effect of discouraging potential takeover attempts.

--------------------------------------------------------------------------------
PART I:  FINANCIAL INFORMATION
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------------------

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

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

ITEM 1. LEGAL PROCEEDINGS.

           Salon has been named as a defendant in Superior Court of California,
County of Santa Clara case number CV801807 dated September 28, 2001 by Pentech
Financial Services, Inc. alleging breach of contract for failure to pay monthly
lease payments and seeking damages of $412,348.75 plus interest and attorney
fees. This matter is at an early stage and Salon's position is currently being
evaluated. Salon believes it has meritorious defenses and plans to vigorously
defend itself in this matter, and while the results of such claim cannot be
predicted with certainty, Salon believes that the resolution of this matter will
not have a material adverse effect on its consolidated financial position,
consolidated statements of operations or consolidated cash flows.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

           On August 9, 2001 and September 13, 2001, Salon issued for cash
approximately 812 shares of Series A Redeemable Convertible Preferred Stock
(Preferred Stock) at $4,000 per share and issued warrants to purchase
approximately 6,496,000 shares of common stock for $0.2875 per share, for net
proceeds of approximately $3.2 million. The proceeds from the issuance of
preferred stock is to be used for working capital and other general corporate
purposes. A total of fifteen investors, comprised of venture capital firms and
individual investors, acquired the stock. The Preferred Stock and warrants were
issued pursuant to Regulation D promulgated under the Securities Act of 1933 as
amended.

           The holders of the Preferred Stock are entitled to the following
rights and preferences: cumulative and accrued dividends of 8.0% annually; in
the event of a liquidation, they will receive prior and in preference to
distributions made to holders of common stock, an amount equal to $8,000 per
share of Series A Convertible Preferred Stock, and then participate with the
holders of common stock up to an aggregate return of $12,000 per share of
Preferred Stock; certain voting rights and terminable redemption rights. The
Preferred Stock will become convertible into approximately 12,992,000 shares of
common stock subject to stockholders' approval. On October 24, 2001 Salon's
stockholders' approved the conversion of the Preferred Stock to common stock.

                                       28
<PAGE>

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.

           None

(B)      REPORTS ON FORM 8-K.

           On August 20, 2001, Salon filed a Current Report on Form 8-K
announcing the completion of the first closing of a Series A Redeemable
Convertible Preferred Stock private placement pursuant to which it raised
approximately $2.5 million from financial and strategic investors.

           On August 31, 2001, Salon filed a Current Report on Form 8-K setting
forth in Item 7 a press release dated August 31, 2001 announcing the transfer of
Salon's stock to The NASDAQ SmallCap Market from The NASDAQ National Market
effective with the open of business on August 31, 2001.

           On September 25, 2001, Salon filed a Current Report on Form 8-K
announcing the completion of the second closing of a Series A Redeemable
Convertible Preferred Stock private placement pursuant to which it raised
approximately $750,000 from financial and strategic investors.


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 MEDIA GROUP, INC.


Dated:  11/13/01       /s/ Michael O'Donnell
                       ------------------------------------------
                       Michael O'Donnell, Chief Executive Officer
                       and President


Dated:  11/13/01       /s/ Robert O'Callahan
                       ------------------------------------------
                       Robert O'Callahan, Chief Financial Officer


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