<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                               _________________

                                    FORM 10-Q

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

                For the quarterly period ended December 31, 2000
                                       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.COM
             (Exact name of Registrant as specified in its charter)

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

                         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 February 9, 2001 was 13,999,614 shares.

================================================================================
<PAGE>

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

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

           Condensed Consolidated Balance Sheets as of December 31, 2000 (unaudited) and
           March 31, 2000...................................................................................    3

           Condensed Consolidated Statements of Operations for the three months and nine months ended
           December 31, 2000 and 1999 (unaudited) ..........................................................    4

           Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2000
           and 1999 (unaudited) ............................................................................    5

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

ITEM 2:    Management's Discussion and Analysis of Financial Condition and Results of Operations............    9

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

PART II    OTHER INFORMATION

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

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

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

ITEM 4.    Submission of Matters to a Vote of Security Holders..............................................   27

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

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

           Signatures.......................................................................................   27
</TABLE>

                                       2
<PAGE>

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

                                   SALON.COM
                     CONDENSED CONSOLIDATED BALANCE SHEETS
         (in thousands, except share and per share amounts, unaudited)


<TABLE>
<CAPTION>
                                                                      December 31,           March 31,
                                                                          2000                 2000
                                                                  ---------------------   ----------------
<S>                                                               <C>                     <C>
Assets
    Current assets:
       Cash and cash equivalents                                  $               5,750   $         17,982
       Accounts receivable, net                                                   1,329              2,425
       Inventories                                                                    -                 16
       Prepaid expenses and other current assets                                    583                391
                                                                  ---------------------   ----------------
       Total current assets                                                       7,662             20,814
    Property and equipment, net                                                   2,771              2,312
    Other assets                                                                    678                186
    Intangible assets, net                                                        3,458              4,088
                                                                  ---------------------   ----------------
       Total assets                                               $              14,569   $         27,400
                                                                  =====================   ================
Liabilities and stockholders' equity
Current liabilities:
       Accounts payable and accrued liabilities                   $               2,899   $          4,303
       Deferred revenue                                                             209                210
       Short-term borrowings                                                          -                 90
                                                                  ---------------------   ----------------
       Total current liabilities                                                  3,108              4,603
    Long-term liabilities                                                           509                473
                                                                  ---------------------   ----------------
       Total liabilities                                                          3,617              5,076
Stockholders' equity:
    Common stock, $0.001 par value, 50,000,000 shares
       authorized, 13,939,449 and 12,546,569 shares
       issued and outstanding at December 31, 2000
       (unaudited) and March 31, 2000                                                14                 13
    Additional paid-in-capital                                                   78,350             78,448
    Advertising receivable from stockholder                                      (7,277)            (7,884)
    Unearned compensation                                                          (351)            (2,098)
    Accumulated deficit                                                         (59,784)           (46,155)
                                                                  ---------------------   ----------------
       Total stockholders' equity                                                10,952             22,324
                                                                  ---------------------   ----------------
       Total liabilities and stockholders' equity                 $              14,569   $         27,400
                                                                  =====================   ================
</TABLE>

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

                                       3
<PAGE>

                                   SALON.COM
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                       Three Months Ended           Nine Months Ended
                                                                          December 31,                December 31,
                                                                   --------------------------    -----------------------
                                                                          2000           1999          2000         1999
                                                                   -----------   ------------    ----------   ----------
<S>                                                                <C>           <C>             <C>          <C>
Net revenues                                                       $     2,270   $      3,016    $    6,226   $    5,399
                                                                   -----------   ------------    ----------   ----------

Operating expenses:
   Production, content and product (including stock-based
       compensation of $43, $295, $75 and $906 respectively)             2,500          2,651         7,658        7,483
   Sales and marketing (including stock-based
       compensation of $(31), $253, $50 and $744 respectively)           1,956          5,894         6,110       10,852
   Research and development (including stock-based
       compensation of $4, $29, $7 and $144 respectively)                  501            456         1,331        1,105
   General and administrative (including stock-based
       compensation of $(3), $29, $5 and $44 respectively)                 955            560         2,506        1,702
   Amortization of intangibles                                             265            256           944          767
   Write-down of long-lived assets                                       1,717        -               1,717            -
                                                                   -----------   ------------    ----------   ----------
       Total operating expenses                                          7,894          9,817        20,266       21,909

Loss from operations                                                    (5,624)        (6,801)      (14,040)     (16,510)
Other income, net                                                           25            355           417          802
                                                                   -----------   ------------    ----------   ----------
       Net loss before taxes                                            (5,599)        (6,446)      (13,623)     (15,708)
Taxes                                                                       (6)             -            (6)           -
                                                                   -----------   ------------    ----------   ----------
       Net loss after taxes                                             (5,605)        (6,446)      (13,629)     (15,708)
Preferred deemed dividend                                                    -              -             -       11,515
                                                                   -----------   ------------    ----------   ----------
Net loss attributable to common stockholders                       $    (5,605)  $     (6,446)   $  (13,629)  $  (27,223)
                                                                   ===========   ============    ==========   ==========

Basic and diluted net loss per share attributable to               $     (0.43)  $      (0.57)   $    (1.06)  $    (3.30)
   common stockholders

Weighted average shares used in computing basic                         13,051         11,371        12,907        8,254
   and diluted net loss per share attributable
   to common stockholders
</TABLE>


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

                                       4
<PAGE>

                                   SALON.COM
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                 (unaudited)


<TABLE>
<CAPTION>
                                                                                                Nine Months Ended
                                                                                                    December 31,
                                                                                           ----------------------------------
                                                                                              2000                1999
                                                                                           -------------      ---------------
<S>                                                                                        <C>                <C>
Cash flows from operating activities:
Net loss after taxes                                                                       $     (13,629)     $       (15,708)
Adjustments to reconcile net loss to net cash used in operating activities:
          Write-down of long-lived assets                                                          1,717                    -
          Stock-based compensation                                                                   137                1,838
          Depreciation and amortization                                                            1,585                1,071
          Amortization of discount on short-term borrowings                                            -                   20
          Amortization of advertising receivable from stockholder                                    607                    -
          Changes in working capital:
              Accounts receivable                                                                  1,096               (1,953)
              Inventories                                                                             16                   10
              Prepaid expenses and other assets                                                     (709)                (350)
              Accounts payable and accrued liabilities                                            (1,635)               4,432
              Deferred revenue                                                                        (1)                (506)
                                                                                           -------------      ---------------
                  Net cash used in operating activities                                          (10,816)             (11,146)
                                                                                           -------------      ---------------
Cash flows from investing activities:
       Purchase of property and equipment                                                           (874)              (1,277)
       Net purchase of investments                                                                     -              (10,240)
       Acquisition of MP3Lit                                                                        (400)                   -
                                                                                           -------------      ---------------
                  Net cash used in investing activities                                           (1,274)             (11,517)
                                                                                           -------------      ---------------
Cash flows from financing activities:
       Proceeds from issuance of preferred stock and common stock warrants, net                        -               10,936
       Proceeds from issuance of common stock, net                                                     -               24,908
       Proceeds from exercise of stock options                                                        73                   90
       Principal payments under capital leases                                                      (125)                   -
       Repayments of short-term borrowings                                                           (90)                (386)
                                                                                           -------------      ---------------
                  Net cash (used in) provided by financing activities                               (142)              35,548
                                                                                           -------------      ---------------
Net (decrease) increase in cash and cash equivalents                                             (12,232)              12,885
Cash and cash equivalents - beginning of period                                                   17,982                  754
                                                                                           -------------      ---------------
Cash and cash equivalents - end of period                                                  $       5,750      $        13,639
                                                                                           =============      ===============

Non-cash investing and financing activities:
       Conversion of preferred stock to common stock                                       $           -       $       25,301
       Preferred deemed dividend                                                                       -               11,515
       Unearned compensation in connection with the issuance of stock options                      1,454                3,795
       Issuance of stock and warrants in connection with acquisition                               1,469                    -
       Issuance of warrants in connection with agreements                                             47                  244
       Value assigned to reciprocal advertising agreements                                            63                  462
       Property and equipment purchased under capital lease                                          221                    -

</TABLE>


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

                                       5
<PAGE>

                                   SALON.COM
             NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                                  STATEMENTS


1.     The Company

         Salon.com (Salon) is an internet media company that produces a network
of nine primary subject-specific, demographically targeted web sites, an audio
streaming web site and a variety of online communities designed to attract
internet advertisers and electronic commerce partners. Salon was originally
incorporated in July 1995 in the State of California and reincorporated in
Delaware in June 1999. The Company operates in one business segment.

2.     Basis of Presentation

         The interim 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, results of operations and consolidated cash flows as of
December 31, 2000 and for the three months and nine months ended December 31,
2000 and 1999 and are derived from the audited financial statements which are
included in Salon's report on Form 10-K. These consolidated financial statements
and notes thereto are unaudited and should be read in conjunction with Salon's
audited financial statements, filed with the Securities and Exchange Commission
on Form 10-K, as amended, as of March 31, 2000. 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 months and nine months ended December 31, 2000 are not
necessarily indicative of the expected results for any other interim period or
the fiscal year ending March 31, 2001.

         These consolidated financial statements contemplate the realization of
assets and the satisfaction of liabilities in the normal course of business.
Salon has incurred losses since inception and has an accumulated deficit at
December 31, 2000 of $59,784,000. The operating loss in the nine months ended
December 31, 2000 includes the write-down of certain long-lived assets acquired
in connection with the purchase of MP3Lit.com (MP3Lit). Management's plans to
decrease operating losses are to increase revenues while controlling costs. If
Salon in unable to generate sufficient cash flows from operations, 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.

3.     Acquisition of MP3Lit

         On May 5, 2000, Salon acquired MP3Lit, a web site dedicated to offering
spoken word and audio literature recordings in the MP3 format.

         The acquisition of MP3Lit consisted of: (i) 380,400 shares of common
stock valued at $3.375 per share; (ii) $400,000 of cash consideration; (iii)
warrants to purchase 100,000 shares of common stock over a five-year period at a
price of $10.50 per share. These shares were valued at $185,000 using the
Black-Scholes option-pricing model, applying an expected life of five years, a
weighted risk-free rate of 6.73%, an expected dividend yield of 0%, a volatility
of 90% and a deemed fair value of common stock of $1.85; and (iv) acquisition
costs of $135,000. An additional 887,600 shares have been issued and are held in
escrow. These shares are contingent

                                       6
<PAGE>

                                   SALON.COM
              NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                                  STATEMENTS

upon the meeting of certain business benchmarks over a three-year period. If the
business benchmarks are met, the shares will be released to certain former
stockholders of MP3Lit. When the contingencies are resolved, the shares will be
recorded at their fair value on the respective dates, as either an additional
cost of the acquisition or as compensation expense of the appropriate period.

          Salon's acquisition of MP3Lit has been accounted for under the
purchase method of accounting which requires the results of MP3Lit to be
included in the consolidated financial statements since the date of acquisition
and also requires the purchase price to be allocated to the acquired assets and
liabilities of MP3Lit on the basis of their estimated fair values as of the date
of acquisition. The assets acquired consist primarily of identifiable intangible
assets and goodwill. Identifiable intangible assets acquired include the
purchase of audio streaming technology which serves as the platform for Salon
Audio, digital downloadable spoken word recordings, an acquired workforce and
non-compete agreements. The acquired intangible assets are being amortized over
a five-year period.

          The excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets acquired resulted in $1,873,000 of
goodwill. Effective October 1, 2000 Salon determined that no significant income
could be generated in the near future from the sale of digital downloadable
spoken word recordings which was Salon's intent in acquiring of MP3Lit in May
2000. Accordingly, Salon determined that this asset was impaired and recorded an
impairment charge of $1,717,000 in the quarter ended December 31, 2000, net of
$156,000 amortization previously recorded.

         The following unaudited pro forma consolidated financial information
presents the consolidated results of Salon as if the MP3Lit acquisition had
occurred on April 1, 2000 or April 1, 1999 and includes adjustments for
amortization of goodwill and other intangible assets and includes the write-off
of goodwill discussed above. There was no activity for MP3Lit for the period
April 1, 1999 to August 31, 1999 as the date of inception of MP3Lit was not
until September 1, 1999. This pro forma financial information is not intended to
be indicative of the results of operations that would have been achieved if the
acquisition had been consummated at these dates or of Salon's actual or future
results.

<TABLE>
<CAPTION>
                                                                (in thousands, except per share data)
                                                          Three Months Ended           Nine Months Ended
                                                             December 31,                 December 31,
                                                      ---------------------------   --------------------------
                                                             2000           1999           2000         1999
                                                      -----------   -------------   ------------    ----------
<S>                                                   <C>           <C>             <C>             <C>
Net revenues                                          $    2,270    $      3,016    $   6,226       $   5,399
Net loss attributable to common stockholders              (5,605)         (6,613)     (13,663)        (27,424)
Basic and diluted net loss per share attributable

      to common stockholders                               (0.43)          (0.56)       (1.05)          (3.26)
</TABLE>

                                       7
<PAGE>

                                   SALON.COM
              NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                                  STATEMENTS


4.     Net Loss Per Share

         Basic earnings per share is computed using the weighted average number
of common shares outstanding during the period. Diluted earnings 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 nine months ended December 31, 2000 and 1999 does not include
the effect of common stock equivalent shares, comprised of stock options, common
stock warrants and contingently issuable shares of 4,761,401 and 2,767,879
respectively, as the effect of their inclusion is anti-dilutive during each
period.

5.     Concentrations

         Two customers accounted for 13% and 10% of total revenues for the three
months ended December 31, 2000 and no customer accounted for more than 10% of
total revenue for the nine months ended December 31, 2000. No customer accounted
for more than 10% of revenues for the three months or nine months ended December
31, 1999. Salon did not record any barter revenues for the three months ended
December 31, 2000 and recorded $462,000 of barter revenue or 15% of total
revenues for the three months ended December 31, 1999. Barter revenues accounted
for $63,000 or 1% of total revenues for the nine months ended December 31, 2000
and $940,000 or 17% of revenues for the nine months ended December 31, 1999. One
customer accounted for 10% of the total accounts receivable balance at December
31, 2000 and no customer accounted for 10% or more of total accounts receivable
at March 31, 2000.

         Salon relies on a number of third-party suppliers for various services,
including web hosting, banner advertising, delivery software, internet traffic
measurement software and electronic commerce fulfillment services. While Salon
believes it could obtain these services from other qualified suppliers on
similar terms and conditions, a short-term disruption in the provision of these
services by the current suppliers could have a materially adverse effect on the
business.

6.     Short-Term Borrowings

         On April 1, 2000 the Company had a revolving loan agreement with a bank
providing a maximum borrowing amount of $2,000,000 and was used to secure
$866,000 of letters of credit. The loan agreement expired on December 31, 2000
and was not renewed by the bank. Subsequent to December 31, 2000 Salon pledged
as collateral $866,000 in certificates of deposit to secure the $866,000 of
letters of credit.

7.     Capitalized Software Costs

         Salon has been incurring and capitalizing costs to enhance its
proprietary software originally developed to manage its web sites and plans on
marketing the software. As of December 31, 2000 Salon has capitalized $520,000
of such costs.

                                       8
<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 contains forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act, as amended,
that involve risks and uncertainties, including but not limited to statements
regarding our strategy, plans, objectives, expectations, intentions, financial
performance, and revenue sources. Our 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 Operating Results and Market Price of Stock." In this report, the
words "anticipates," "believes," "expects," "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.com (Salon) is a leading Internet media company that produces a
network of nine primary subject-specific, demographically-targeted Web sites,
and hosts two online communities -- Table Talk, a free interactive forum and The
Well, a paid subscription service. In May 2000, Salon acquired MP3Lit.com
(MP3Lit), a pioneering web site offering quality spoken word and audio
literature recordings in MP3 and Real Audio formats. MP3Lit was incorporated
into Salon's web site as Salon Audio. Salon believes that its network of Web
sites combines the thoughtfulness of print, the timeliness of television and the
interactivity of talk radio.

          The main entry and navigation point to Salon's nine content sites is
Salon's home page at www.salon.com. The sites 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. Because of Salon's reputation for community building, Salon also has
agreed with third parties to host communities within its network. Salon's users
can access Table Talk or The Well through www.salon.com or through Salon's nine
content web sites.

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

Results of Operations For The Three And Nine Months Ended December 31, 2000
Compared To The Three And Nine Months Ended December 31, 1999

Net Revenues:

          Net revenues decreased 25% to $2.3 million for the three months ended
December 31, 2000 from $3.0 million for the three months ended December 31, 1999
and increased 15% to $6.2 million for the nine months ended December 31, 2000
from $5.4 million for the nine months

                                       9
<PAGE>

ended December 31, 1999. The decrease was attributable to an overall decrease in
web-based advertising during the 2000 Christmas season compared to the 1999
Christmas season and an overall decline in advertising by internet-based
businesses this year compared to last year. Sponsorship and banner advertising
revenues accounted for approximately 71% and 94% of net revenues for the three
months ended December 31, 2000 and 1999, respectively. For the nine months ended
December 31, 2000 and 1999, these percentages were 82% and 90%, respectively.
Barter transactions, included in sponsorship and advertising revenues, were $0
during the three months ended December 31, 2000 compared to $0.5 million for the
three months ended December 31, 1999 or 15% of total sales.

          Two customers accounted for 13% and 10% of total revenues for the
three months ended December 31, 2000 and no customer accounted for more than 10%
of total revenue for the nine months ended December 31, 2000. No customer
accounted for more than 10% of revenues for the three or nine months ended
December 31, 1999.

Production, Content and Product:

          Production, content and product costs consist primarily of payroll and
related costs for Salon's editorial, artistic, and production staffs, online
communities staff, Salon Audio staffs, payments to freelance writers and
artists, and telecommunications and computer related expenses for the support
and delivery of Salon's Web sites and online communities. Production, content
and product costs during the three months ended December 31, 2000 were $2.5
million or 110% of net revenues versus $2.7 million or 88% of net revenues for
the three months ended December 31, 1999, a decline of 6%. The 6% decrease in
production, content and product costs for the three months ended December 31,
2000 versus December 31, 1999, is primarily attributable to a $0.3 million
decrease in stock-based compensation between periods. In December 2000, Salon
eliminated nine staff positions to reduce expenses.

          Production, content and product costs during the nine months ended
December 31, 2000 were $7.7 million or 123% of net revenues versus $7.5 million
or 139% of net revenues for the nine months ended December 31, 1999, an increase
of 2%.

Sales and Marketing:

          Sales and marketing expenses consist of payroll and related expenses,
including commissions, travel expenses and other costs associated with Salon's
advertising and sponsorship sales force, as well as advertising, promotional and
distribution costs. Sales and marketing expenses were $2.0 million, or 86% of
revenues and $5.9 million or 195% of total revenues for the three months ended
December 31, 2000 and 1999, respectively. The decrease between quarters is due
to incurring only $0.4 million of advertising expense this year versus $3.9
million last year as Salon has determined that these types of expenditures are
no longer warranted as Salon now has a strong user base. In December 2000, Salon
eliminated six sales and marketing positions to reduce expenses.

          Sales and marketing expenses were $6.1 million, or 98% of revenues and
$10.9 million or 201% of total revenues for the nine months ended December 31,
2000 and 1999, respectively. The decrease between periods is due to incurring
only $1.1 million of advertising expense this year versus $5.6 million last year
as Salon has reduced expenses.

          Included in sales and marketing expenses are non-cash advertising
expenses related to an investment in Salon by Rainbow Media Holdings, Inc. of
$8.1 million which is being amortized

                                       10
<PAGE>

over a ten year period. Amortized amounts for the three months ended December
31, 2000 and 1999 were $0.2 million and none, respectively. Amortized amounts
for the nine month periods ended December 31, 2000 and 1999 were $0.6 million
and none, respectively.

Research and Development:

         Research and development expenses consist of costs associated with the
development and maintenance of technology, including Salon's publishing platform
software and archival database, as well as technical support for Salon's web
sites and online communities. Research and development expenses stayed constant
at $0.5 million for the three month periods ended December 31, 2000 and 1999.
For nine months ended December 31, 2000 research and development costs were $1.3
million or 21% of sales, comparable to $1.1 million or 20% of sales for the nine
months ended December 31, 1999. In December 2000, Salon eliminated four research
and development positions to reduce expenses.

         Salon has been incurring and capitalizing costs to enhance its
proprietary software originally developed to manage its web sites and plans on
marketing the software. As of December 31, 2000 Salon has capitalized $0.5
million of such costs.

General and Administrative:

         General and administrative expenses consist primarily of payroll costs,
audit and legal fees, and other costs associated with managing a publicly traded
company. General and administrative expenses were $1.0 million or 42% of sales
in the three months ended December 31, 2000 compared to $0.6 million or 19% of
sales in the three months ended December 31, 1999. Expenses for the three months
ended December 31, 2000 include $0.1 million related to seeking venture capital
and customers for Salon's proprietary software utilized in managing web sites.

         General and administrative expenses were $2.5 million or 40% of sales
in the nine months ended December 31, 2000 from $1.7 million or 32% of sales in
the nine months ended December 31, 1999.

Amortization of Intangibles:

         Amortization of intangibles consists of the costs associated with the
amortization of intangibles and goodwill which are being amortized on a
straight-line basis over 60 months. Amortization expense was $0.3 million or 12%
of sales for the three months ended December 31, 2000 and $0.3 million or 9% of
sales for the three months ended December 31, 1999. No goodwill was amortized
for the three months ended December 31, 2000 related to Salon's acquisition of
MP3Lit as this asset was written off as an impaired asset during the period.

         Amortization for the nine months ended December 31, 2000 was $0.9
million or 15% of sales compared to $0.8 million or 14% of sales for the nine
months ended December 31, 1999. Period ended December 31, 2000 results include
$0.2 million of goodwill amortization related to Salon's acquisition of MP3Lit
in May 2000.

Write-down of Long-Lived Assets:

         Effective October 1, 2000 Salon determined that no significant income
could be generated in the near future from the sale of digital downloadable
spoken word recordings which was Salon's intent in acquiring of MP3Lit in May
2000. Accordingly, Salon wrote off the

                                       11
<PAGE>

unamortized balance of goodwill associated with the acquisition and recorded an
impairment charge of $1.7 million for the three months ended December 31, 2000.

Other Income, Net:

          Other income, net consists primarily of interest earned on Salon's
cash and cash equivalents, offset by interest expense on borrowings and long
term leases. Other income, net decreased to $0.0 million in the three months
ended December 31, 2000 from $0.4 million for the three months ended December
31, 1999. Other income, net decreased to $0.4 million in the nine months ended
December 31, 2000 from $0.8 million for the nine months ended December 31, 1999.
The decrease in other income, net is primarily attributable to a decrease in
cash between periods as Salon has been utilizing its cash to fund operations.

Net Loss after Taxes:

          As a result of the above factors, Salon recorded a net loss after
taxes of $5.6 million, or $0.43 per share loss for the three months ended
December 31, 2000 compared to a net loss after taxes of $6.4 million, or $0.57
per share loss for three months ended December 31, 1999. Salon recorded a net
loss after taxes of $13.6 million, or $1.06 per share loss for the nine months
ended December 31, 2000 compared to a net loss after taxes of $15.8 million, or
$1.90 per share loss for the nine months ended December 31, 1999. In December
2000, Salon eliminated twenty positions and an additional four positions
subsequent to December 31, 2000 to reduce payroll costs.

Liquidity and Capital Resources:

          Since its inception Salon has primarily financed its operations
through private placement of convertible preferred stock and its initial public
offering of common stock. As of December 31, 2000, Salon had approximately $5.8
million in cash and cash equivalents which was obtained through Salon's initial
public offering in June 1999 and the sale of additional common stock in July
1999.

          Net cash used in operations was $10.8 million for the nine months
ended December 31, 2000, compared to $11.1 million for the nine months ended
December 31, 1999. The principal use of cash during the nine months ended
December 31, 2000 was to fund the $13.6 million net loss after taxes for the
period, offset mostly by non-cash charges of $4.0 million.

          Net cash used in investing activities totaled $1.3 million for the
nine months ended December 31, 2000, compared to $11.5 million for the nine
months ended December 31, 1999. During the nine months ended December 31, 2000,
net cash used for investing activities consisted primarily of the cash
consideration for the MP3Lit acquisition and $0.5 million to fund software
development. Investment activities for the nine months ended December 31, 1999
included $10.2 million for the purchase of investments and $1.3 million for the
purchase of property and equipment.

          Net cash from financing activities decreased from an inflow of $35.5
million for the nine months ended December 31, 1999 to an outflow of $142,000
for the nine months ended December 31, 2000. The cash used in financing
activities during the nine months ended December 31, 2000 was primarily for the
repayment of leases and bank borrowings of $125,000 and $90,000, respectively,
which was offset by cash generated from options exercises. The cash provided by
financing activities during the nine months ended December 31, 1999 was
primarily

                                       12
<PAGE>

from the net proceeds from the issuance of preferred stock and common stock
warrants and the net proceeds from the issuance of common stock during the
Company's initial public offering.

         On April 1, 2000 Salon had a revolving loan agreement with a bank to
provide a maximum borrowing of $2.0 million which was used to secure $0.9
million of letters of credit. The loan agreement expired effective December 31,
2000 and was not renewed by the bank. Subsequent to December 31, 2000 Salon
pledged as collateral $0.9 million in certificates of deposit to secure the $0.9
million of letters of credit. Salon is attempting to secure replacement
financing similar in terms to the expired facility.

         Salon currently anticipates that its available cash resources will
be sufficient to meet its anticipated needs for working capital and capital
expenditures for approximately the next three to six months, depending on the
revenues generated during the period and the continuing reduction of operating
expenses. Salon will most likely need to raise additional funds, however, to
fund operations, to fund its software development efforts, and to develop new or
enhance existing services. 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. 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.


RISK FACTORS

Factors That May Affect Our Future Results and Market Price of Stock:

We lack significant revenues, and have a history of losses

         We have not achieved profitability and expect to incur operating losses
for the remainder of the fiscal year. If and when we do achieve profitability,
we may not be able to sustain or increase profitability on a quarterly or annual
basis in the future. If our revenues grow more slowly than we anticipate or if
our operating expenses exceed our expectations, financial results will most
likely be severely harmed.


Additional financing may not be available

         Salon will most likely need to raise additional funds within the next
three to six months to fund operations, to maintain its network of web sites and
on-line communities, to fund its software development efforts, and to develop
new or enhance existing services. 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. 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

                                       13
<PAGE>

discretionary costs, and reduce the size of its web site and corresponding web
site offerings to match revenue levels.

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

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

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

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

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

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

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

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

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

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

         .  the level of Internet usage;

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

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

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

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

         In order to attract and 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

                                       14
<PAGE>

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.

         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 and sponsorship sales for substantially all of our
revenues, and our inability to increase advertising and sponsorship revenues
will harm our business

         Revenues for the foreseeable future depend substantially on sales of
advertising and sponsorships. In order to increase revenues, Salon needs to
attract additional significant advertisers, sponsors and electronic commerce
sponsors on an ongoing basis. We may not be able to attract or retain a
sufficient number of advertisers or sponsors 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 sponsorships or do not engage a sufficient number of
advertisers or sponsors during a particular period, our business could be
severely harmed.

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

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

         .  increase our user base;

         .  increase the amount of revenues we receive per sponsorship;

         .  increase awareness of the Salon brand;

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

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

         .  retain sales personnel.

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

         Historically, we have relied on a small number of advertisers and
advertising sponsors for a significant percentage of our revenues. The loss of
any of our significant advertisers or advertising sponsors could harm our
business. We anticipate that our financial results in any given period will
continue to significantly depend on revenues from a small number of advertisers
and sponsors.

                                       15
<PAGE>

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

         .  advertisers' and sponsors' budgets;

         .  internal acceptance reviews by advertisers and their agencies;

         .  the timing of completion of advertisements and sponsorships; and

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

We must 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 Web sites 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 Web sites, their sites may not
attract significant numbers of users, and our Web sites may not attract
additional users from these relationships. Moreover, we have paid, and may in
the future pay, significant fees to establish these relationships.

We must continually develop compelling content to attract Internet users

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

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

         .  the quality of our editorial staff; and

         .  the technical expertise of our production staff.

         Consumer tastes and preferences change rapidly and we may not be able
to anticipate, monitor, and successfully respond to these changes to attract and
retain a sufficient number of users for our network of Web sites. Internet users
can freely navigate and instantly switch among

                                       16
<PAGE>

a large number of Web sites, many of which offer content and services that
compete with Salon. In addition, many Web sites offer very specific, highly-
targeted content that could have greater appeal than our network to particular
subsets of our target user base.

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

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

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

         The success of the Salon brand depends largely on our ability to
provide high quality content and services. If Internet users do not perceive our
existing content and services to be of high quality, or if we introduce new
content and services or enter into new business ventures that are not favorably
perceived by users, we may not be successful in promoting and maintaining our
brand. Any 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 Web
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.

         Do to sustaining operating losses, 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. Additionally, it is often more
difficult to attract employees once a company's stock is publicly traded because
the exercise price of equity awards such as stock options are based on the
public market, which is highly volatile. If we do not succeed in attracting new
personnel or integrating, retaining and motivating our current personnel, our
business could be harmed.

The integration of new management personnel may interfere with our operations

         During the fiscal year, we have hired new management personnel,
including a new Controller and Chief Financial Officer. To integrate into Salon,
these individuals must spend a significant amount of time learning our business
model and management system in addition to

                                       17
<PAGE>

performing their regular duties. Accordingly, the integration of new personnel
has resulted in and will continue to result in some disruption to our ongoing
operations.

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

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

         We have developed a proprietary online publishing system. If this
system does not work as intended, or if we are unable to continue to develop
this system to keep up with the rapid evolution of technology for content
delivery on the Internet, our network of Web sites may not operate properly
which could harm our business. Additionally, software product design,
development and enhancement involves 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.

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

         We rely on a number of third party suppliers for various services,
including Web hosting, 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.

                                       18
<PAGE>

         We use third-party software to manage and measure the delivery of
advertising on our network of Web sites. 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 Web
sites. 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.

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 do 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 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.

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.

                                       19
<PAGE>

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

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

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

         .  inadequate network infrastructure;

         .  security concerns;

         .  inconsistent quality of service; and

         .  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.
Additionally, we expect the number of Web sites competing for the attention and
spending of users, advertisers and sponsors to continue to increase, because
there are so few barriers to entry on the Internet.

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

                                       20
<PAGE>

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

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

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

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

We may be held liable for content on our Web sites

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

We may be liable for our links to third-party web sites

         We could be exposed to liability with respect to the selection of
third-party Web sites that may be accessible through Salon.com. These claims
might include, among others, that by linking to Web sites operated by third
parties, we may be liable for copyright or trademark infringement or other
unauthorized actions by these third-party Web sites. 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 Web sites 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 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.

                                       21
<PAGE>

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 Web
sites.

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

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

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

         Substantially all of our communications hardware and computer hardware
operations for our Web sites are located at Frontier GlobalCenter's facilities
in Sunnyvale, California. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems and cause interruptions in our services. Computer viruses, electronic
break-ins or other similar disruptive problems could cause users to stop
visiting our network of Web sites and could cause advertisers and sponsors to
terminate any agreements with us. 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 Web sites 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 Web site operators for access to our Web sites. Many of
these

                                       22
<PAGE>

providers and operators have experienced significant outages in the past, and
could experience outages, delays and other difficulties due to system failures
unrelated to our systems. Any of these system failures could harm our business.

Hackers may attempt to penetrate our security system; online security breaches
could harm our business

     Consumer and supplier confidence in our web sites 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. We voluntarily register members in order to
tailor content to them and assist advertisers in fulfilling advertising
campaigns. However, privacy concerns may cause users to resist providing the
personal data necessary to support this capability. Even the perception of
security and privacy concerns, whether or not valid, may indirectly inhibit use
of registration at our site. In addition,

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<PAGE>

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 Economic Community, 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.

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

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

Our stock could become less marketable

     The shares of our Common Stock are currently listed on the NASDAQ National
Market. Due to the decline in the price of our Common Stock, our Common Stock
could be suspended or delisted from the NASDAQ due to their minimum trading
requirements, particularly if our stock price is below $1.00 per share for a
prolonged period or certain financial requirements imposed by NASDAQ are not
met. If the shares of our Common Stock were to be suspended or delisted from the
NASDAQ system, it would be much more difficult to dispose of our Common Stock or
obtain accurate quotations as to the price of our securities.

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:

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


     .  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

     .  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.

                                       24
<PAGE>

     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:

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

     .  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 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.

Salon's stock price may fluctuate significantly regardless of Salon's actual
operating performance

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

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

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

     .  changes in financial estimates by securities analysts;

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

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

     .  additions or departures of key personnel;

     .  sales of common stock; and

                                       25
<PAGE>

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

     In addition, the NASDAQ National Market, where most publicly held Internet
companies are traded, 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.

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

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

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

Item 1.  Legal Proceedings.

     Salon has been named as a party in Kathleen Willey Schwicker vs. William
Jefferson Clinton, et. al., filed with the U.S. District Court for the District
of Columbia. 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 operation or consolidated cash flows.

Item 2.  Changes in Securities and Use of Proceeds.

     Not Applicable

Item 3.  Default upon senior securities.

     Not Applicable

                                       26
<PAGE>

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

     At our Annual Meeting of Stockholders held on September 27, 2000, the
following individuals were elected to the Board of Directors:

                                       Votes For        Votes Withheld
                                       ---------        --------------
Brian Dougherty                        9,584,192            58,934
Leonardo Mondadori                     9,583,492            59,634


The following proposals were approved at our Annual Meeting:

<TABLE>
<CAPTION>
                                                            Affirmative      Negative       Votes
                                                               Votes          Votes        Withheld
                                                            -----------     ---------    -----------
<S>                                                        <C>              <C>          <C>
     1.  Amend the Company's 1995 Stock
         Option Plan.                                       4,708,645         267,102       17,162
     2.  Ratify the appointment of
         PricewaterhouseCoopers LLP as the
         independent accountants of the Company
         for the fiscal year ending March 31, 2001          9,513,595           7,881       22,650
</TABLE>

Item 5.  Other Information.

     Not applicable

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

(a)   Exhibits.

         None


(b)   Reports on Form 8-K.

         None

Signatures

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

                       SALON.COM

Dated:  02/13/01       /s/ Michael O'Donnell
                       --------------------------------------------
                       Michael O'Donnell, Chief Executive Officer and President

Dated:  02/13/01       /s/ Robert O'Callahan
                       --------------------------------------------
                       Robert O'Callahan, Chief Financial Officer

                                       27