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

                       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 June 30, 2006
                                       or

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

                        For the transition period from to

                         Commission file number 0-26395

                             SALON MEDIA GROUP, INC.
             (Exact name of Registrant as specified in its charter)

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

                           101 Spear Street, Suite 203
                             San Francisco, CA 94105
                    (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 [ ]

Indicate by check mark whether the Registrant is an accelerated filer as defined
by Rule 12b-12 of the act. Yes [ ] No [X]

The number of outstanding shares of the Registrant's Common Stock, par value
$0.001 per share, on August 10, 2006 was 34,527,329 shares.

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

<PAGE>

--------------------------------------------------------------------------------
FORM 10-Q
SALON MEDIA GROUP, INC.
INDEX
--------------------------------------------------------------------------------


                                                                           Page
PART I     FINANCIAL INFORMATION                                          Number

ITEM 1:    Condensed Consolidated Financial Statements

           Condensed Consolidated Balance Sheets as of June 30, 2006
           and March 31, 2006 (unaudited)....................................  3

           Condensed Consolidated Statements of Operations for the
           three months ended June 30, 2006 and 2005 (unaudited) ............  4

           Condensed Consolidated Statements of Cash Flows for the
           three months ended June 30, 2006 and 2005(unaudited) .............  5

           Notes to Condensed Consolidated Financial Statements (unaudited)..  6

ITEM 2:    Management's Discussion and Analysis of Financial Condition
           and Results of Operations......................................... 18

ITEM 3:    Quantitative and Qualitative Disclosures About Market Risk........ 24

ITEM 4:    Controls and Procedures........................................... 24

PART II    OTHER INFORMATION

ITEM 1:    Legal Proceedings................................................. 25

ITEM 1a:   Risk Factors...................................................... 25

ITEM 2.    Unregistered Sales of Equity Securities and Use of Proceeds....... 36

ITEM 3.    Defaults upon Senior Securities................................... 37

ITEM 4.    Submission of Matters to a Vote of Security Holders............... 37

ITEM 5.    Other Information................................................. 37

ITEM 6:    Exhibits and Reports on Form 8-K.................................. 38

           Signatures........................................................ 38


                                       2
<PAGE>

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

                             SALON MEDIA GROUP, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
               (in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                   June 30,        March 31,
                                                                     2006            2006
                                                                 ------------    ------------
                                                                  (Unaudited)
<S>                                                              <C>             <C>
Assets
    Current assets:
       Cash and cash equivalents                                 $        381    $        441
       Accounts receivable, net                                           788             502
       Prepaid expenses and other current assets                          165             184
                                                                 ------------    ------------
       Total current assets                                             1,334           1,127
    Property and equipment, net                                           147             155
    Prepaid advertising rights                                          3,673           3,718
    Goodwill, net                                                         200             200
    Other assets                                                          106             104
                                                                 ------------    ------------
       Total assets                                              $      5,460    $      5,304
                                                                 ============    ============
Liabilities and stockholders' equity
    Current liabilities:
       Accounts payable and accrued liabilities                  $        762    $        747
       Deferred revenue                                                   746             820
                                                                 ------------    ------------
       Total current liabilities                                        1,508           1,567
    Long-term liabilities

       Other long-term liabilities                                        111             120
                                                                 ------------    ------------
       Total liabilities                                                1,619           1,687
                                                                 ------------    ------------
Stockholders' equity:
    Preferred stock, $0.001 par value, 5,000,000 shares
       authorized, 8,558 shares issued and outstanding at
       June 30, 2006 and March 31, 2006 (liquidation value
       of $21,653 at June 30, 2006)                                         -               -
    Common stock, $0.001 par value, 600,000,000 shares
       authorized, 30,988,439 shares issued and outstanding
       at June 30, 2006 and 19,129,012 shares issued and
       outstanding at March 31, 2006                                       31              19
    Additional paid-in-capital                                         97,790          97,093
    Unearned compensation                                                   -             (40)
    Accumulated deficit                                               (93,980)        (93,455)
                                                                 ------------    ------------
       Total stockholders' equity                                       3,841           3,617
                                                                 ------------    ------------
       Total liabilities and stockholders' equity                $      5,460    $      5,304
                                                                 ============    ============
</TABLE>

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


                                       3
<PAGE>

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


                                                        Three Months Ended
                                                             June 30,
                                                      ------------------------
                                                         2006          2005
                                                      ----------    ----------

Net revenues                                          $    1,545    $    1,630
                                                      ----------    ----------

Operating expenses:
     Production and content                                1,268         1,053
     Sales and marketing                                     334           317
     Information technology support                          180           184
     General and administrative                              291           211
                                                      ----------    ----------
         Total operating expenses                          2,073         1,765
                                                      ----------    ----------

Loss from operations                                        (528)         (135)

Other income, net                                              3            19
                                                      ----------    ----------
Net loss                                              $     (525)   $     (116)
                                                      ==========    ==========


Basic and diluted net loss per share                  $    (0.02)   $    (0.01)

Weighted average shares used in computing basic
     and diluted net loss per share                       24,767        15,132


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


                                       4
<PAGE>

                             SALON MEDIA GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                       Three Months Ended
                                                                                            June 30,
                                                                                    ------------------------
                                                                                       2006          2005
                                                                                    ----------    ----------
<S>                                                                                 <C>           <C>
Cash flows from operating activities:
   Net loss                                                                         $     (525)   $     (116)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                          20            21
     Atock compensation expense                                                             48            48
     Amortization of prepaid advertising rights                                             45            44
     Changes in assets and liabilities:
        Accounts receivable                                                               (286)         (243)
        Prepaid expenses, other current assets and other assets                             17            63
        Accounts payable, accrued liabilities and other long-term liabilities                6          (103)
        Deferred revenue                                                                   (74)         (100)
                                                                                    ----------    ----------
           Net cash used in operating activities                                          (749)         (386)
                                                                                    ----------    ----------

Cash flows from investing activities:
   Purchase of property and equipment                                                      (12)          (19)
                                                                                    ----------    ----------
           Net cash used by investing activities                                           (12)          (19)
                                                                                    ----------    ----------

Cash flows from financing activities:
   Proceeds from issuance of common stock                                                  701            20
                                                                                    ----------    ----------
           Net cash provided by financing activities                                       701            20
                                                                                    ----------    ----------


Net increase (decrease) in cash and cash equivalents                                       (60)         (385)

Cash and cash equivalents at beginning of period                                           441           686
                                                                                    ----------    ----------

Cash and cash equivalents at end of period                                          $      381    $      301
                                                                                    ==========    ==========
</TABLE>

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


                                       5
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)

1.   The Company and Significant Accounting Policies

The Company:

     Salon Media Group, Inc ("Salon") is an Internet media company that produces
a content Website with eight primary subject-specific sections, two online
communities and a video blog. One of the sections provides audio streaming.
Salon was originally incorporated in July 1995 in the State of California and
reincorporated in Delaware in June 1999. Salon operates in one business segment.

Basis of Presentation:

     These interim condensed consolidated financial statements are unaudited and
have been prepared on the same basis as the annual financial statements and, in
the opinion of management, reflect all adjustments, which include only normal
recurring adjustments necessary to present fairly Salon's consolidated financial
position, consolidated results of operations and consolidated cash flows for the
periods presented. The condensed consolidated balance sheet data as of March 31,
2006 is derived from and should be read in conjunction with the audited
financial statements, which are included in Salon's Annual Report on Form 10-K
filed with the Securities and Exchange Commission. Pursuant to 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 ended June 30, 2006 are not necessarily indicative
of the expected results for any other interim period or for the fiscal year
ending March 31, 2007.

     These condensed consolidated financial statements contemplate the
realization of assets and the satisfaction of liabilities in the normal course
of business. Salon has incurred annual losses and negative cash flows from
operations since inception and has an accumulated deficit at June 30, 2006 of
$93,980. Salon's independent accountants for the years ended March 31, 2004,
2005 and 2006 have therefore included a paragraph in their reports indicating
substantial doubt as to Salon's ability to continue as a going concern.

     As of June 30, 2006, Salon has $0.4 million of cash. Subsequent to June 30,
2006, Salon issued 250 shares of Series D preferred stock and received $0.3
million in cash. The investors were the father of Salon's CEO and President and
a Director of Salon. The same Director has also committed to providing Salon
with an additional $0.2 million of cash by December 31, 2006 for which Salon
will issue additional shares of Series D preferred stock. The father of Salon's
CEO and President also committed to providing $0.2 million of additional cash by
December 31, 2006, which could include the purchase of additional shares of
Series D preferred stock and the exercise of an outstanding warrant. Such a
warrant was exercised on August 8, 2006 for which Salon received $44. Salon does
not expect to receive material amounts of cash from the exercise of other
outstanding warrants subsequent to August 8, 2006. Based on these factors,
forecasted trade receivable receipts, cash payments, advertising revenues of a
potential high of $5.5 million and total revenues of a potential high of $8.1
million, Salon estimates that its cash on hand may be $0.2 million as of June
30, 2007, while not incurring periods of limited cash during the next twelve
months. There is no certainty that Salon will be able to attain any of the above
mentioned projected revenue amounts.


                                       6
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)

     If anticipated cash balances are not realized, Salon may need to raise
additional working capital. Salon may secure additional working capital from:
(1) the sale of 792 authorized and unissued shares of Series D preferred stock
as of this filing, or (2) the issuance of securities to a strategic investor.

     Except for a commitment by the two investors noted above to provide $0.4
million in financing by December 31, 2006, the potential to raise additional
working capital from the issuance of additional shares of currently authorized
shares of Series D preferred stock, though viable, is not certain. In addition,
Salon may explore amending the "Securities Purchase Agreement", as amended to
date, and the "Certificate of Designation of Preferences and Rights of the
Series D-1 Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred
Stock, Series D-4 Preferred Stock and Series D-5 Preferred Stock,"
(collectively, the Series D preferred stock) to allow for the sale of additional
shares of Series D other than the 792 shares currently authorized and unissued
as of this filing. There is no certainty that Salon will be able to amend these
documents or sell any such additional shares.

     From time to time, Salon has explored the possibilities of aligning itself
with a strategic investor, a strategic partner, or being acquired by a third
party. Though these possibilities exist, there is no certainty that any of these
alternatives may come to fruition.

Concentration of Credit Risk

     No customer accounted for more than 10% of total revenue for the
three-month periods ended June 30, 2006 and June 30, 2005. No customer accounted
for more than 10% of the total accounts receivable as of June 30, 2006. One
customer accounted for 11% of the total accounts receivable balance as of June
30, 2005.

Stock-Based Compensation:

     On April 1, 2006, Salon adopted the provisions of, and accounted for
stock-based compensation in accordance with, the Financial Accounting Standards
Board's (FASB) Statement of Financial Accounting Standards No. 123 - revised
2004, "Share Based Payment" (SFAS 123R), which replaced SFAS No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) and supersedes Accounting
Principals Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Under the fair value provisions of this statement,
stock-based compensation cost is measured at the grant date based on the fair
value of the award and is recognized as expense over the requisite service
period, which is the vesting period. Salon uses the Black-Scholes option-pricing
model to determine the fair-value of stock-based awards under SFAS 123R,
consistent with that used for pro forma disclosures under SFAS 123. Prior to the
adoption of SFAS 123R, Salon accounted for stock-based awards to employees using
the intrinsic value method in accordance with APB No. 25 as allowed under SFAS
123. Under the intrinsic value method, no stock-based compensation expense had
been recognized in Salon's consolidated statement of operations, other than as
related to non-employees, because the exercise price of its stock options
granted to employees equaled the fair market value of the underlying stock at
the date of grant. Salon recognizes compensation cost related to stock options
granted prior to the adoption of SFAS 123R on an accelerated basis over the
applicable vesting period using the methodology described in FASB Interpretation
No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock
Option or Award Plans" (FIN 28). Salon recognizes compensation cost related to
options granted subsequent to the adoption of SFAS 123R on a straight-line basis
over the applicable vesting period.


                                       7
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)

     Salon utilized the modified prospective transition method, which requires
that stock-based compensation expense be recorded for all new and unvested stock
options and employee stock purchase plan shares that are ultimately expected to
vest as the requisite service is rendered beginning on April 1, 2006, the first
day of Salon's 2007 fiscal year. The consolidated financial statements as of and
for the three months ended June 30, 2006 reflect the impact of SFAS 123R. In
accordance with the modified prospective transition method, Salon's consolidated
financial statements for prior periods have not been restated to reflect, and do
not include, the impact of SFAS 123R. Stock-based compensation expense
recognized under SFAS 123R for the three months ended June 30, 2006 was $48
which consisted solely of stock-based compensation expense related to employee
stock options. See Note 2: "Stock-Based Compensation" to the condensed
consolidated financial statements for additional information.

     As of June 30, 2006, the aggregate stock compensation remaining to be
amortized to expenses was $776. Salon expects this stock compensation balance to
be amortized as follows: $200 during the remainder of fiscal 2007; $213 during
fiscal 2008; $180 during fiscal 2009; $157 during fiscal 2010; and $26 during
fiscal 2011. The expected amortization reflects only outstanding stock awards as
of June 30, 2006.

     No amounts were recorded related to excess tax benefits from the exercise
of stock-based compensation awards during the quarter ended June 30, 2006, and
as a result there were no differences in net cash used in operating and
financing activities due to the implementation of SFAS 123R.

     On November 10, 2005, the FASB issued Staff Position (FSP) No. SFAS
123(R)-3 "Transition Election Related to Accounting for Tax Effects of
Share-Based Payment Awards." Effective upon issuance, this FSP describes an
alternative transition method for calculating the tax effects of stock-based
compensation pursuant to SFAS 123(R). The alternative transition method includes
simplified methods to establish the beginning balance of the additional paid-in
capital pool ("APIC pool") related to the tax effects of employee stock-based
compensation, and to determine the subsequent impact on the APIC pool and
consolidated statements of cash flows of the tax effects of employee stock-based
compensation awards that are outstanding upon adoption of SFAS 123R. Companies
have one year from the later of the adoption of SFAS 123R or the effective date
of the FSP to evaluate their transition alternatives and make a one-time
election. We expect to make such election by the end of fiscal 2007.

     The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions and
fair value per share:

                               Three Months Ended June 30,
                               ---------------------------
                                   2006           2005
                               -------------  ------------
Risk-free interest rates       4.94 - 4.97        3.8%
Expected lives (in years)           4              4
Expected volatility            126% - 129%        120%
Dividend yield                      0%             0%

     The expected term of the options of four years represents the estimated
period of time until exercise and is based on historical experience of similar
awards, including the contractual terms, vesting


                                       8
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)

schedules and expectations of future employee behavior. For the quarter ended
June 30, 2006, expected stock price volatility is based on historical volatility
of Salon's stock. The risk-free interest rate is based on the implied yield
available on U.S. Treasury securities with a term equivalent to the vesting
period of the stock options, or four years. Salon has not paid dividends in the
past.

     The following table illustrates the effect on net loss and net loss per
share if Salon had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation during the quarter ended June 30, 2005:

                                                               Three Months
                                                                  Ended
                                                               June 30, 2005
                                                               -------------
Net loss attributable to common stockholders:
       As reported                                             $       (116)
       Add back: stock-based employee compensation
       expense included in reported net loss                              -

       Deduct: total stock-based compensation expense
       determined under the fair value based method, net
       of related tax                                                (1,159)
                                                               ------------
       Pro forma net loss attributable to common
       stockholders                                            $     (1,275)
                                                               ============

Basic and diluted net loss per share attributable
to common stockholders:
       As reported                                             $      (0.01)
       Pro forma net loss per share                            $      (0.08)


Recent Accounting Pronouncements

     Effective June 6, 2006, the FASB issued Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109"
(FIN 48). FIN48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, "Accounting for Income Taxes," and prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
This Interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN48 is effective for fiscal years beginning after December 15,
2006. Salon does not currently believe adoption will have a material impact on
its results of operations, financial position, or cash flows.


                                       9
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)

2.   Stock-Based Compensation

     Salon has two stock option plans approved by shareholders. The Salon
Internet, Inc. 1995 Stock Option Plan (the 1995 Plan), which was terminated in
November 2004, and the Salon Media Group, Inc. 2004 Stock Plan (the 2004 Plan)
that was approved by Salon's stockholders in November 2004. The 2004 Plan allows
the issuance of incentive and nonstatutory options to employees and
non-employees of Salon. In October 2005, Salon's stockholders approved an
amendment to the 2004 Plan to increase the maximum number of shares of common
stock that may be issued under the plan by 16,000,000 to a total of 46,000,000.

     Under the 2004 Plan, incentive and nonqualified stock options may be
granted to officers, employees, directors and consultants of Salon. Options
generally vest over periods of four years. Options generally became exercisable
as to 25% of the option shares one year from the date of grant and then ratably
over the following 36 months (1/48 per month). However, in the case of
20,910,000 options granted on February 7, 2005 and 7,641,000 options granted on
May 16, 2005, half vested on the date of grant, and the remaining half vested on
February 7, 2006. The exercise price of options is determined by the Board of
Directors and is equal to the fair market value of the stock on the grant date.
Generally, Salon's options expire, if not exercised, ten years after the date of
grant.

     Salon has granted options pursuant to plans not approved by shareholders.
These grants include an option to purchase 1,000,000 shares of common stock
issued in June 2006 to Salon's Senior Vice President - Publisher and an option
to purchase 1,000,000 shares of common stock issued in February 2005 to Salon's
Chairman.

     At June 30, 2006 Salon had 13,465,000 shares of common stock authorized and
available for grants under the 2004 Plan.

     The following table summarizes activity under Salon's plans from April 1,
2006 through June 30, 2006:

                                                     Weighted
                                    Outstanding       Average        Aggregate
                                       Stock         Exercise        Intrinsic
                                      Options          Price           Value
                                   -------------   -------------   -------------
Balance as of April 1, 2006           31,538,000      $   0.30
Options granted under all plans        5,229,000      $   0.16
Exercised                                      -      $
Cancelled                               (330,000)     $   0.20
                                   -------------
Outstanding at June 30, 2006          36,437,000      $   0.28      $   1,005
                                   =============
Exercisable at June 30, 2006          29,240,000      $   0.31            857
Ending vested and expected to vest                                  $     973


                                       10
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)

     The following table summarizes information about stock options outstanding
at June 30, 2006:

<TABLE>
<CAPTION>
                                Options Outstanding                  Options Exercisable
                       --------------------------------------      ------------------------
                                       Weighted
                                       Average       Weighted                      Weighted
                        Number of     Remaining      Average        Number of      Average
      Range of           Shares      Contractual     Exercise         Shares       Exercise
  Exercise Prices      Outstanding   Life (Years)     Price        Exercisable      Price
  ---------------      -----------   ------------    --------      -----------     --------
<S>                    <C>               <C>        <C>             <C>           <C>
   $0.06 - $ 0.06           8,000        6.2        $    0.06            7,000    $    0.06
   $0.12 - $ 0.18      27,388,000        8.7             0.14       21,252,000         0.14
   $0.19 - $ 0.26       7,191,000        8.7             0.26        6,840,000         0.26
   $0.32 - $ 0.37       1,164,000        7.6             0.36          455,000         0.36
   $0.52 - $ 0.52          18,000        2.3             0.52           18,000         0.52
   $1.38 - $ 2.00         257,000        4.2             1.88          257,000         1.88
   $2.92 - $ 3.63          40,000        2.8             2.96           40,000         2.96
   $5.06 - $ 5.25          30,000        3.3             5.22           30,000         5.22
   $8.50 - $10.06         341,000        3.1             9.67          341,000         9.67
                    -------------                                -------------
                       36,437,000        8.6        $    0.28       29,240,000    $    0.31
                    =============                                =============
</TABLE>

     The weighted average fair value of the stock options awards in the three
months ended June 30, 2006 and 2005 was $0.13 and $0.20, respectively. The total
intrinsic value of options exercised during the three months ended June 30, 2006
was zero as no options were exercised.

3.   Goodwill Amortization and Intangible Assets

     The following table sets forth information concerning Salon's goodwill and
intangible assets as of June 30, 2006 and March 31, 2006:

<TABLE>
<CAPTION>
                                                             Gross                             Net
                                                           Carrying       Accumulated       Carrying
                                                            Amount        Amortization       Amount
                                                        --------------   --------------   --------------
<S>                                                     <C>              <C>              <C>
Trade name                                              $        1,200   $        1,200   $            -
Proprietary technology                                             355              355                -
Audio technology                                                   158              158                -
                                                        --------------   --------------   --------------
Total intangible assets subject to amortization         $        1,713   $        1,713   $            -
                                                        ==============   ==============   ==============

Goodwill                                                $        3,555   $        3,355   $          200
                                                        --------------   --------------   --------------
Total intangible assets not subject to amortization     $        3,555   $        3,355   $          200
                                                        ==============   ==============   ==============
</TABLE>


                                       11
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)


4.   Net Loss Per Share

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

<TABLE>
<CAPTION>
                                                                                Three Months Ended
                                                                                     June 30,
                                                                           ------------------------------
                                                                                2006             2005
                                                                           -------------    -------------
<S>                                                                        <C>              <C>
Numerator:
  Net loss                                                                 $        (525)   $        (116)
                                                                           =============    =============

Denominator:
  Weighted average shares used in computing
     basic and diluted net loss per share                                     24,767,000       15,132,000
                                                                           =============    =============

   Basic and diluted net loss per share                                    $       (0.02)   $       (0.01)
                                                                           =============    =============
  Antidilutive securities including options, warrants and convertible
    preferred stock not included in net loss per share calculation           230,403,178      238,572,838
</TABLE>

Note 5. Commitments and Contingencies

     Salon has non-cancelable operating lease agreements for office space in San
Francisco, CA, New York, NY and Washington, D.C. and to host its servers in San
Francisco, CA. Salon has no capital leases as of June 30, 2006. Total future
minimum rental payments under non-cancelable operating leases in effect at June
30, 2006 are as follows:

                                                       Operating
        Year Ending March 31,                            Leases
        ---------------------                         ----------
                 2007                                 $      346
                 2008                                        327
                 2009                                        273
                 2010                                         11
                                                      ----------
                     Total lease payments                    957
                                                      ==========


                                       12
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)

6.   Warrants

     During the three months ending June 30, 2006, warrants to acquire
10,805,869 shares of common stock were exercised for which Salon received $701
in cash, which was used for working capital and other general corporate
purposes, as follows:

<TABLE>
<CAPTION>
Issue         Exercise                                                Warrant     Exercise Price     Cash
Date            Date     Warrant Holder                               Shares        per share      Received
--------------------------------------------------------------------------------------------------------------
<S>           <C>        <C>                                        <C>             <C>                   <C>
08/09/01      6/22/2006  Shea Ventures LLC                           1,000,000      0.10941919            109
06/26/03      6/22/2006  E&M RP Trust                                  300,000      0.04505918             14
                                                                 --------------                 --------------
                         Total non-related parties                   1,300,000                            123

04/10/03       4/5/2006  John Warnock                                  300,000      0.04168543             13
04/29/03       4/5/2006  John Warnock                                  300,000      0.04505918             14
08/09/01      5/11/2006  Sarah & William Hambrecht Foundation          600,000      0.10941919             66
06/12/03      5/11/2006  The Hambrecht 1980 Revocable Trust            150,000      0.04505918              7
06/12/03      5/11/2006  WR Hambrecht + Co LLC                         150,000      0.04505918              7
07/10/03      5/11/2006  HAMCO Capital Corporation                     150,000      0.04168543              6
11/24/03      5/11/2006  HAMCO Capital Corporation                     150,000      0.04505918              7
02/10/04      5/11/2006  The Hambrecht 1980 Revocable Trust            300,000      0.03450000             10
06/04/04      5/11/2006  HAMCO Capital Corporation                      81,290      0.13742362             11
06/04/04      5/11/2006  The Hambrecht 1980 Revocable Trust            282,580      0.13742362             39
02/02/05      5/11/2006  HAMCO Capital Corporation                      34,363      0.16100000              6
02/02/05      5/11/2006  The Hambrecht 1980 Revocable Trust            307,636      0.16100000             50
05/28/03      5/12/2006  John Warnock                                  900,000      0.04505918             41
07/10/03      5/12/2006  John Warnock                                  300,000      0.04168543             12
07/30/03      5/12/2006  John Warnock                                  300,000      0.03450000             10
08/29/03      5/12/2006  John Warnock                                  300,000      0.03450000             10
09/12/03      5/12/2006  John Warnock                                  300,000      0.04505918             13
09/29/03      5/12/2006  John Warnock                                  300,000      0.05180668             16
10/10/03      5/12/2006  John Warnock                                  300,000      0.04505918             13
10/30/03      5/12/2006  John Warnock                                  300,000      0.04505918             13
11/12/03      5/12/2006  John Warnock                                  300,000      0.04843293             15
11/24/03      5/12/2006  John Warnock                                  300,000      0.04505918             14
12/11/03      5/12/2006  John Warnock                                  300,000      0.04505918             14
12/30/03      5/12/2006  John Warnock                                1,500,000      0.03450000             52
12/31/03      5/12/2006  John Warnock                                  300,000      0.03450000             10
08/09/01      6/29/2006  John Warnock                                1,000,000      0.10941919            109
                                                                 --------------                 --------------
                         Total related parties                       9,505,869                            578

                         Total exercised                            10,805,869                            701
                                                                 ==============                 ==============
</TABLE>


                                       13
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)

The related parties in the previous page table include:

1.   John Warnock, a Director of Salon Media Group,
2.   The Hambrecht 1980 Revocable Trust, a trust of the father of Salon's CEO
     and President,
3.   Sarah & William Hambrecht Foundation for which Salon's CEO and President
     serves as a Director and has voting rights,
4.   HAMCO Capital Corporation, in which Salon's CEO and President, and her
     father, each have an ownership interest therein.

     During the three months ended June 30, 2006, warrants for 1,344,015 shares
of common stock were converted to 1,053,558 shares of common stock by two
investors for which Salon did not receive any consideration under the next
exercise provisions of the warrants, as follows:

<TABLE>
<CAPTION>
Issue        Conversion                                   Warrant       Exercise Price     Converted
Date            Date     Warrant Holder                   Shares           per share        Shares
------------------------------------------------------------------------------------------------------
<S>           <C>        <C>                              <C>             <C>                 <C>
04/10/03       4/4/2006  Ironstone Group, Inc               300,000       0.04168543          255,337
04/29/03      4/25/2006  Ironstone Group, Inc               300,000       0.04505918          243,676
10/30/03      5/11/2006  Ironstone Group, Inc               150,000       0.04505918          114,426
10/06/03      5/11/2006  Ironstone Group, Inc               300,000       0.05180668          218,199
                                                    ----------------                  ----------------
                         Total related parties            1,050,000                           831,638

07/10/03       6/5/2006  Octavia, LLC                       294,015       0.04168543          221,920
                                                    ----------------                  ----------------
                         Total converted                  1,344,015                         1,053,558
                                                    ================                  ================
</TABLE>

William Hambrecht, the father of Salon's CEO and President has an ownership
interest in Ironstone Group, Inc.

     Subsequent to June 30, 2006, warrants to acquire 472,000 shares of common
stock were exercised for which Salon received $52 in cash, which will be used
for working capital and other general corporate purposes, as follows:

<TABLE>
<CAPTION>
Issue          Exercise                                    Warrant         Exercise Price          Cash
Date             Date    Warrant Holder                     Shares            per share          Received
------------------------------------------------------------------------------------------------------------
<S>           <C>        <C>                                 <C>             <C>              <C>
08/09/01      7/31/2006  Stewart Carrell                      48,000         0.10941919       $           5
08/09/01      7/31/2006  Arthur Bruno                         24,000         0.10941919                   3
                                                        -------------                         --------------
                         Total non related parties            72,000                                      8

08/09/01      7/31/2006  WR Hambrecht + Co LLC               400,000         0.10941919                  44
                                                        -------------                         --------------
                         Total related parties               400,000                                     44

                                                        -------------                         --------------
                         Total exercised                     472,000                          $          52
                                                        =============                         ==============
</TABLE>


                                       14
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)

     Subsequent to June 30, 2006, warrants to purchase 1,600,000 shares of
common stock were converted to 536,155 shares of common stock for which Salon
did not receive any consideration under the net exercise provisions of the
warrants, as follows:

<TABLE>
<CAPTION>
Issue         Conversion                                                   Warrant     Exercise Price   Converted
Date             Date     Warrant Holder                                   Shares        per share       Shares
------------------------------------------------------------------------------------------------------------------
<S>            <C>        <C>                                             <C>            <C>              <C>
08/09/01       7/31/2006  Alacrity Tertiare LLC                             200,000      0.10941919        63,226
08/09/01       7/31/2006  Thomas H Dittmer Declaration of Trust             496,000      0.10941919       156,800
08/09/01        8/8/2006  Constellation Venture Capital Offshore, LP         88,000      0.10941919        27,819
08/09/01        8/8/2006  Constellation Venture Capital, LP                 416,000      0.10941919       131,510
                                                                        ------------                 -------------
                          Total non related parties                       1,200,000                       379,355

08/09/01       7/31/2006  McKay Investment Group                            400,000      0.10941919       156,800
                                                                        ------------                 -------------
                          Total related parties                             400,000                       156,800

                                                                        ------------                 -------------
                          Total converted                                 1,600,000                       536,155
                                                                        ============                 =============
</TABLE>

7.   Subsequent Preferred Stock Events

Issuance of additional shares of preferred stock:

     On July 27, 2006 Salon issued 208 shares of Series D-3 preferred stock and
42 shares of Series D-4 stock and raised $300 in cash. The investors included
the father of Salon's CEO and President and a Director of Salon. The financing
was effected in accordance with Amendment No. 5 to the Securities Purchase
Agreement dated as of July 27, 2006.

     The 250 shares of Series D-3 and Series D-4 preferred stock were sold at a
price of $1,200 per share and are convertible into, and have the voting rights
of 2,425,868 shares of common stock. The total outstanding shares of common
stock, including shares of common stock issuable upon the conversion of all
shares of preferred stock, all with voting rights, after the transaction, is
approximately 216,428,000 shares. As part of the transaction, Salon issued
warrants to purchase 363,879 shares of common stock at an exercise price of
$0.161 per share.

     The Certificate of Designation of Preferences and Rights of the Series D
preferred stock stipulates that the conversion price to common stock be equal to
70% of the average closing price of Salon's common stock for the thirty days
prior to the date Salon provides notice to purchasers regarding the sale of
shares of Series D preferred stock. The resulting conversion price on the date
Salon made its announcement to investors was $0.123667, subject to downward
adjustment in the event of certain subsequent stock issuances by Salon.
Therefore, the preferred stock issued in this transaction is convertible into
common stock at the conversion rate determined by dividing the Series D-3 and
Series D-4 preferred stock per share price of $1,200 by the conversion price of
$0.123667.


                                       15
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)

     The warrants issued may be exercised at any time until July 27, 2009. In
the event of a change in control within the exercise period, Salon will give the
warrant holders thirty (30) days advance notice of the effective date of such
transaction, and to the extent the warrant has not been exercised in full by the
effective date of such transaction, the warrant will terminate. The exercise
price of the warrants may be adjusted downward in the event of certain
subsequent Salon stock issuances. The warrants to purchase 363,879 shares of
common stock that was issued was valued at $37 using the Black-Scholes
option-pricing model, applying an expected life of three years, a weighted
average risk-free interest rate of 5.058%, a volatility of 128% and a deemed
fair value of common stock of $0.14 per share. As a result of this transaction,
Salon will record a preferred deemed dividend of $69 during the three month
period ending September 30, 2006.

     The Purchase Agreement, as amended, and the Certificate of Designation of
Preferences and Rights of the Series D preferred stock allows for the sale and
issuance of an additional 792 shares of Series D preferred stock.

     The holders of the Series D preferred stock are entitled to dividends of
5.0%, as and if declared by the Board of Directors. In event of a liquidation,
the holders of Series D preferred stock and the holders of the Series C
preferred stock rank in parity, and are entitled to receive, prior and in
preference to any distribution of any assets or property of Salon to the holders
of common stock, Series A and B preferred stock, an amount per share equal to
$1,200 plus an amount equal to all declared but unpaid dividends, and in the
case of the Series C preferred stock, $1,600 per share, plus an amount equal to
all declared but unpaid dividends, based on an annual rate of 8%. If the assets
and funds available for distribution are insufficient to permit the payment to
the holders of Series C and D preferred stock of their full preferential
amounts, then the entire assets and funds of Salon legally available for
distribution to stockholders will be distributed among the holders of Series C
and D preferred stock ratably in proportion to the full preferential amounts
which they are entitled to receive. After an initial distribution to the holders
of Series C and D preferred stock, the holders of the Series A and B preferred
stock, who rank in parity, are entitled to receive, prior and in preference to
any distribution of any assets or property of Salon to the holders of common
stock, an amount per share equal to $8,000 plus an amount equal to all declared
but unpaid dividends, based on an annual rate of 8%. If, after the initial
distribution to holders of Series C and D preferred stock, the remaining assets
and funds available for distribution are insufficient to permit the payment to
the holders of Series A and B preferred stock of the full preferential amounts,
then the entire remaining assets and funds of Salon legally available for
distribution to stockholders will be distributed among the holders of Series A
and B preferred stock ratably in proportion to the full preferential amounts
which they are entitled to receive. As of December 31, 2005, no dividend has
been declared to the holders of preferred stock.

     If, after initial preferential liquidation payments to the holders of
Series A, B, C and D preferred stock, any assets remain available for
distribution, such assets are to be distributed ratably among the holders of
common stock and preferred stock, based on the shares of common stock then held
by them and issuable upon conversion of the shares of preferred stock then held
by them until aggregate distributions per share reach $12,000 for the holders of
Series A and B preferred stock, $2,400 for the holders of Series C Preferred
Stock and $3,600 for the holders of Series D preferred stock. Salon has
previously issued 809 shares of Series A preferred stock, 125 shares of Series B
preferred stock and 6,618


                                       16
<PAGE>

                             SALON MEDIA GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (amounts in thousands, except share and per share data)
                                   (unaudited)

shares of Series C preferred stock. If, after payment has been made to the
holders of common stock and holders of preferred stock mentioned above, any
assets remain available for distribution, such assets are to be distributed
ratably among the holders of common stock and the holders of Series C preferred
stock, based on the number of shares of common stock then held by them and
issuable upon conversion of the Series C preferred stock then held by them.
Based on information currently available and following this transaction, Salon
estimates that preferred stockholders as a group own approximately 95% of the
outstanding shares of common stock and common stock issuable upon conversion of
the shares of preferred stock, all with voting rights.

Conversion of preferred stock:

     On July 31, 2006, a stockholder converted 62 shares of Series A preferred
stock to 2,490,735 shares of Salon's common stock. Salon did not receive any
cash proceeds from this transaction.



                                       17
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Conditions and Results
        of Operations

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

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

Overview

     Salon is an Internet media company. The main entry and navigation point to
Salon's eight primary subject-specific sections is Salon's home page at
www.salon.com. The Website provides original investigative stories and
provocative personal essays along with quick-take commentary and staff-written
Weblogs about politics, technology, culture and entertainment. Committed to
interactivity, the Website also hosts two online communities, Table Talk and The
Well, a user blogging program, a daily music download column Audiofile, and the
Daou Report, an opinionated guide to the blogosphere.

     Salon believes that its original, award-winning content allows it to
attract and retain users who are more affluent, better educated and more likely
to make online purchases than typical Internet users. Salon believes its user
profile makes its Website a valuable media property for advertisers and
retailers who are allocating marketing resources to target consumers online.

     This section and other parts of this Form 10-Q should be considered in
conjunction with the audited financial statements, which are included in Salon's
Annual Report on Form 10-K, as amended, filed with the Securities and Exchange
Commission. Matters of interest therein include, but are not limited to, Salon's
disclosure of critical accounting policies.

Sources of Revenue

     A significant portion of Salon's revenues is derived from advertising
revenues from the sale of promotional space on its Website. The sale of
promotional space is generally less than ninety days in duration. Advertising
units sold include "rich media" streaming advertisements, as well as traditional
banner and pop-up advertisements.

     Salon also derives a significant portion of its revenues from its Salon
Premium subscription program. Subscriptions to Salon Premium are generally $35
for one year. Salon Premium revenue is recognized ratably over the period that
services are provided. This source of revenue has been decreasing


                                       18
<PAGE>

since Salon's quarter ended December 31, 2004 when subscriptions peaked at
89,100 paid subscribers. Salon cannot determine at this time when this downward
trend will cease.

     Through March 31, 2004, Salon offered The Well and Table Talk online
discussion forums as monthly subscription services. During the year ended March
31, 2005, Salon made access to Table Talk free to Salon Premium members. Revenue
from the on-line discussion forums has been recognized ratably over the
subscription period. Salon generates nominal revenue from the licensing of
content that previously appeared in Salon's Website and for hosting links to a
third party's personals/dating Website.

Expenses

     Production and content expenses consist primarily of salaries and related
expenses for Salon's editorial, artistic, and production staff, online
communities' staff, payments to freelance writers and artists, bandwidth costs
associated with serving pages and hosting our online communities on our Website,
credit card transaction costs and costs of serving ads.

     Sales and marketing expenses consist primarily of salaries, commissions and
related personnel costs, travel, and other costs associated with Salon's sales
force, business development efforts and its Salon premium service. It also
includes advertising, promotional and distribution costs and the amortization of
prepaid advertising rights.

     Information technology support expenses consist primarily of salaries and
related personnel costs associated with the development, testing and enhancement
of Salon's software to manage its Website, and to maintain and enhance the
software utilized in managing Salon Premium, as well as supporting marketing and
sales efforts.

     General and administrative expenses consist primarily of salaries and
related personnel costs, accounting and legal fees, and other fees associated
with operating a publicly traded company.

     Salon's expenses include stock-based expenses related to stock option
grants to employees, non-employee directors and consultants. As described below,
on April 1, 2006 Salon adopted the provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SFAS 123R,
which requires companies to expense their stock option awards. Salon adopted
SFAS 123R using the modified prospective transition method and therefore did not
restate results for prior periods. These charges are insignificant and are
reflected in our financial results.

Critical Accounting Policies

     The preparation of financial statements in conformity with generally
accepted accounting principles requires Salon to utilize accounting policies and
make estimates and assumptions that affect our reported amounts. Salon's
significant accounting policies are described in Note 1 to the consolidated
financial statements. Salon believes accounting policies and estimates related
to revenue recognition and prepaid advertising rights are the most critical to
Salon's financial statements. Future results may differ from current estimates
if different assumptions or conditions were to prevail.

Revenue Recognition

     Salon recognizes revenues once persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable and
collectibility is reasonably assured. Revenues are recognized ratably in the
period over which Salon's obligations are fulfilled. Payments received before


                                       19
<PAGE>

Salon's obligations are fulfilled are classified as "Deferred revenue" in
Salon's consolidated balance sheet.

     Advertising revenues, derived from the sale of promotional space on its
Website, comprised 57% and 54% of Salon's revenues, respectively for the years
ended March 31, 2006 and 2005. The duration of the advertisements are generally
short term, usually less than ninety days. Revenues derived from such
arrangements are recognized during the period the advertising space is provided.
Salon's obligations typically include the guarantee of a minimum number of
impressions, a set number of Site Pass advertisement viewed, or a set number of
days that a Site Pass advertisement will run. To the extent minimum guaranteed
amounts are not achieved, Salon defers recognition of the corresponding revenue
until the remaining guaranteed amounts are provided, if mutually agreeable with
an advertiser. If these "make good" impressions are not agreeable to an
advertiser, no further revenue is recognized.

     Salon Premium, a pay for online content service, provides unrestricted
access to Salon's content with no banners, pop-ups or site pass advertisements,
and includes free magazine subscriptions, free access to Table Talk, an on-line
forum, and the ability to download easily content in text or PDF format, a
convenience that enables readers to view Salon's content when not connected to
the Internet. The subscription duration for Salon Premium is generally one year.
Non Salon Premium subscribers can gain access to Salon's content after viewing
some form of advertisement.

     Salon offers The Well as a monthly subscription service for access to
on-line discussion forums. Revenue is recognized ratably over the subscription
period.

Prepaid Advertising Rights

     In January 2000, Salon sold 1,125,000 shares of common stock to Rainbow
Media Holdings and received $11.8 million of advertising credits that were to be
utilized for up to ten years. As the per share price of Salon's common stock
declined from the time the agreement was made and the date the agreement was
finalized and signed, the advertising credits were valued for financial
reporting purposes at $8.1 million. As of June 30, 2006, Salon has $5.4 million
advertising credits resulting from the transaction, valued at $3.7 million for
financial reporting purposes. The common stock sale agreement stipulates that
the advertising credits be utilized through December 31, 2009. Salon therefore
contemplates accelerating the use of these credits in future years.

Accounting for Stock-Based Awards

     Effective April 1, 2006, Salon adopted the fair value recognition
provisions of SFAS 123R, using the modified prospective transition method and
therefore did not restate results for prior periods. SFAS 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized as expense in the statement of operations based on their fair
values and vesting periods. Salon recognizes the fair value of our stock awards
on a straight-line basis over the requisite service period of the award, which
is the vesting term of four years.

     As a result of implementing SFAS 123R, Salon recognized stock-based expense
of $48,000 during the three months ended June 30, 2006. As of June 30, 2006,
Salon had an aggregate of $776,000 of stock compensation remaining to be
amortized to expense over the remaining requisite service period of the
underlying awards. Salon currently expects this stock compensation balance to be
amortized as follows: $200,000 during the remainder of fiscal 2007; $213,000
during fiscal 2008; $180,000 during fiscal 2009; $157,000 during fiscal 2010;
and $26,000 during fiscal 2011. The expected amortization reflects only
outstanding stock awards as of June 30, 2006. Salon expects to continue to issue
share-based awards to our employees in future periods.


                                       20
<PAGE>

     The full impact of SFAS 123R in the future is dependent upon, among other
things, the timing of when Salon hires additional employees, the effect of new
long-term incentive strategies involving stock awards in order to continue to
attract and retain employees, the total number of stock awards granted, the fair
value of the stock awards at the time of grant and the tax benefit that Salon
may or may not receive from stock-based expenses. Additionally, the application
of SFAS 123R requires the use of an option-pricing model to determine the fair
value of stock option awards. This determination of fair value is affected by
Salon's stock price as well as assumptions regarding a number of highly complex
and subjective variables. These variables include, but are not limited to,
Salon's expected stock price volatility over the term of the awards.

Results of Operations for the Three Months Ended June 30, 2006 Compared To the
Three Months Ended June 30, 2005

Net revenues:

     Net revenues decreased 5% to $1.55 million for the three months ended June
30, 2006 from $1.63 million for the three months ended June 30, 2005.

     Advertising revenues were $0.9 million for the three months ended June 30,
2006 and for the three months ended June 30, 2005. Growth in advertising
revenues was adversely impacted by the departure in April 2006 of a key
salesperson. Included in the results for the three months ended June 30, 2005 is
$13,000 of barter revenue. Salon estimates that advertising revenues for the
three months ended September 30, 2006 will be approximately $1.0 million.

     An important factor in increasing advertising revenues in future periods,
including Salon's pivotal quarter ending December 31, 2006, is an increase in
unique visitors to Salon's Website. Increasing the number of unique Website
visitors is important to Salon as they generate page views, and resulting
advertising impressions that are sold to advertisers. Due to various factors,
the average number of unique Website visitors for the three months ended June
30, 2006 was 2.9 million as compared to 2.1 million for the three months ended
June 30, 2005.

     Salon Premium subscription revenues have continued to decline, from a
record high for the three months ended December 31, 2004 of $588,000, to
$546,000 for the three months ended June 30, 2005, and to $433,000 for the three
months ended June 30, 2006. The steady decline in this source of revenue
reflects a decline in subscriptions. Paid subscriptions to Salon Premium reached
a peak as of December 31, 2004 of approximately 89,100, decreased to
approximately 80,600 as of June 30, 2005 and decreased further to approximately
61,800 as of June 30, 2006. As of August 6, 2006 Salon had approximately 59,500
paid subscriptions to Salon Premium. The decline in memberships is expected to
continue in the near future as indicated by a dropping renewal rate for paid one
year subscriptions. The renewal rate for one year paid subscriptions as of June
30, 2006 was 61% compared to 69% a year ago. Salon has developed plans to
reinvigorate its Premium program around a membership model, however the
implementation of this plan has been delayed until completion of an upgrade to
the underlying software to manage this business. Salon hopes to launch this
program during its quarter ending December 31, 2006, but cannot accurately
predict if it will successfully turn around its decline in membership.

     Salon believes that the decline in memberships is due to subscribers not
perceiving any value in a subscription, website visitors are now more willing to
view advertisements, lack of a robust technology platform to administer the
program and the lack of a perceived need to support Salon. Due to these factors,
Salon cannot accurately predict Salon Premium revenues for the three months
ending September 30, 2006.


                                       21
<PAGE>

     Salon has been analyzing the Website traffic patters of its Salon Premium
subscribers the last several months. Preliminary results of this analysis show
that this group of individuals generates considerable page views, and if they
were not subscribers, could potentially generate a significant number of
additional advertising impressions. The potential to gain additional advertising
impressions may alleviate some, if not all, of the inventory shortages that
Salon has incurred in the past. An inventory shortage to Salon relates to when
sellable impressions exceed those expected to be generated by Website visitors.
The increase in advertising impressions, if completely sold, could potentially
generate advertising revenues to offset some of the decrease in Salon Premium
revenues. In conjunction with this analysis is the relationship with Salon's
Site Pass advertising model, which provides a significant barrier to entry to
Salon's Website and Salon Premium subscriptions. Salon's Site Pass gives a
Website visitor a choice of: (1) becoming a Salon Premium subscriber and avoid
having to view advertisements on future visits to Salon's Website or (2) viewing
an advertisement to gain access to all of Salon's content. As this model is not
currently succeeding in increasing the number of Salon Premium subscriptions,
Salon is analyzing the merits of this model to increase the number of unique
Website visitors and the corresponding generation of advertising impressions and
related advertising revenues.

     Revenues from all other sources were $0.2 million for the three months
ended June 30, 2006 and June 30, 2005. Approximately $0.1 million of this
revenue was derived from the Well, an online discussion forum. Salon does not
anticipate material changes to this amount for the three months ending September
30, 2006.

Production and content:

     Production and content expenses during the three months ended June 30, 2006
were $1.3 million compared to $1.1 million for the three months ended June 30,
2005, an increase of $0.2 million or 20%. The increase between periods is
primarily a result of an increase in staff between periods. Both periods include
nominal charges for the value of stock options. Salon does not anticipate
material changes to production and content expenditures in the near future.

Sales and marketing:

     Sales and marketing expenses during the three months ended June 30, 2006
and for the three months ended June 30, 2005 were $0.3 million. Salon
anticipates a nominal increase in sales and marketing costs in future periods
from an increase in staff.

Information technology support:

     Information technology support expenses during the three months ended June
30, 2006 and for the three months ended June 30, 2005 were $0.2 million. Salon
anticipates a nominal increase to information technology support expenses in
future periods as it upgrades its software used to operate its business.

General and administrative:

     General and administrative expenses for the three months ended June 30,
2006 were $0.3 million compared to $0.2 million for the three months ended June
30, 2005, an increase of $0.1 million or 38%. The increase is attributable to a
general increase in corporate expenses and from hiring a new Senior Vice
President - Publisher. Salon does not anticipate material future changes in
general and administrative expenditures.


                                       22
<PAGE>

Liquidity and capital resources:

     As of June 30, 2006, Salon had approximately $0.4 million in cash. This
amount includes $0.2 million from the June 2006 exercise of two warrants.

     Net cash used in operations was $0.7 million for the three months ended
June 30, 2006 compared to the use of $0.4 million for the three months ended
June 30, 2005. The principal use of cash during the three months ended June 30,
2006 was to fund the $0.5 million net loss for the period and the $0.3 million
increase in accounts receivable, offset by $0.1 million of non-cash charges. The
principal use of cash during the three months ended June 30, 2005 was to fund
the $0.1 million net loss for the period and the $0.2 million increase in
accounts receivable, offset by $0.1 million of non-cash charges.

     Net cash used in investing activities was an immaterial amount during the
three months ended June 30, 2006 and for the three months ended June 30, 2005.

     Net cash from financing activities provided $0.7 million from the exercise
of warrants. The net cash from financing activities provided an immaterial
amount for the three months ended June 30, 2005.

     Salon has incurred annual losses and negative cash flows from operations
since inception and has an accumulated deficit at June 30, 2006 of $93,980.
Salon's independent accountants for the years ended March 31, 2004, 2005 and
2006 have therefore included a paragraph in their reports indicating substantial
doubt as to Salon's ability to continue as a going concern.

     As of June 30, 2006, Salon has $0.4 million of cash. Subsequent to June 30,
2006, Salon issued 250 shares of Series D preferred stock and received $0.3
million in cash. The investors were the father of Salon's CEO and President and
a Director of Salon. The same Director has also committed to providing Salon
with an additional $0.2 million of cash by December 31, 2006 for which Salon
will issue additional shares of Series D preferred stock. The father of Salon's
CEO and President also committed to providing $0.2 million of additional cash by
December 31, 2006, which could include the purchase of additional shares of
Series D preferred stock and the exercise of an outstanding warrant. Such a
warrant was exercised on August 8, 2006 for which Salon received $44. Salon does
not expect to receive material amounts of cash from the exercise of other
outstanding warrants subsequent to August 8, 2006. Based on these factors,
forecasted trade receivable receipts, cash payments, advertising revenues of a
potential high of $5.5 million and total revenues of a potential high of $8.1
million, Salon estimates that its cash on hand may be $0.2 million as of June
30, 2007, while not incurring periods of limited cash during the next twelve
months. There is no certainty that Salon will be able to attain any of the above
mentioned projected revenue amounts.

     If anticipated cash balances are not realized, Salon may need to raise
additional working capital. Salon may secure additional working capital from:
(1) the sale of 792 authorized and unissued shares of Series D preferred stock
as of this filing, or (2) the issuance of securities to a strategic investor.

     Except for a commitment by the two investors noted above to provide $0.4
million in financing by December 31, 2006, the potential to raise additional
working capital from the issuance of additional shares of currently authorized
shares of Series D preferred stock, though viable, is not certain. In addition,
Salon may explore amending the "Securities Purchase Agreement", as amended to
date, and the "Certificate of Designation of Preferences and Rights of the
Series D-1 Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred
Stock, Series D-4 Preferred Stock and Series D-5 Preferred Stock,"
(collectively, the Series D preferred stock) to allow for the sale of additional
shares of Series D other than the 792 shares currently authorized and unissued
as of this filing. There is no certainty that Salon will be able to amend these
documents or sell any such additional shares.


                                       23
<PAGE>

     From time to time, Salon has explored the possibilities of aligning itself
with a strategic investor, a strategic partner, or being acquired by a third
party. Though these possibilities exist, there is no certainty that any of these
alternatives may come to fruition.

     Salon has non-cancelable operating lease agreements for office spaces in
San Francisco, CA, New York, NY and Washington, D.C. and to host its servers in
San Francisco, CA. Salon has no capital leases as of June 30, 2006. Total future
minimum rental payments under non-cancelable operating leases in effect at June
30, 2006 are as follows:

                                                    Operating
          Year Ending March 31,                       Leases
          ---------------------                   -------------
                   2007                           $         346
                   2008                                     327
                   2009                                     273
                   2010                                      11
                                                  -------------
                       Total lease payments                 957
                                                  =============


Recent Accounting Pronouncements

     Effective June 6, 2006, the FASB issued Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109"
(FIN 48). FIN48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, "Accounting for Income Taxes" and prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
This Interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN48 is effective for fiscal years beginning after December 15,
2006. Salon does not currently believe adoption will have a material impact on
its results of operations, financial position or cash flows.

Item 3. Qualitative and Quantitative Disclosure About Market Risk

     Salon maintains all of its cash in immediately available cash deposits at
its bank. These funds are not subject to market risk and no interest is paid on
such funds. Salon has no debt arrangements that expose Salon to market risk in
the event of changes in interest rates. As Salon conducts all of its business in
the United States, Salon is not subject to foreign exchange risk.

Item 4. Controls and Procedures

Evaluation of Our Disclosure Controls and Internal Controls

     Our management evaluated, with the participation of our Chief Executive
Officer and our Chief Financial Officer, the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Quarterly
Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures are effective to ensure that information we are required to disclose
in reports that we file or submit under the Exchange


                                       24
<PAGE>

Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.

Changes in internal controls over financial reporting

     There was no change in our internal controls over financial reporting that
occurred during the period covered by this Quarterly Report on Form 10-Q that
has materially affected, or is reasonably likely to materially affect, our
internal controls over financial reporting.



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

Item 1.  Legal Proceedings.

     Not applicable.

Item 1a.  Risk Factors.

Factors That May Affect Our Future Results or the Market Price of Our Stock

     Salon's business faces significant risks. The risks described below may not
be the only risks Salon faces. Additional risks that are not yet known of or
that are currently immaterial may also impair its business operations or have a
negative impact on its stock price. If any of the events or circumstances
described in the following risks actually occurs, its business, financial
condition or results of operations could suffer, and the trading price of its
common stock could decline.

Salon's projected cash flows may not meet expectations

     Salon relies on cash projections to run its business and changes such
projections as new information is made available or events occur. The most
significant component of Salon's cash projections is cash to be generated from
advertising sales and, to a lesser extent, cash to be generated from Salon
Premium. Forecasting cash receipts from advertising sales for an extended period
of time is problematic due to the short duration of most advertising sales. If
projected cash inflows and outflows do not meet expectations, Salon's ability to
continue as a going concern may be adversely affected.

     If Salon forecasts or experiences periods of limited, or diminishing cash
resources, Salon may need to issue additional securities. There is no guarantee
that Salon will be able to issue additional securities in future periods to meet
cash needs and, if it is unable to raise additional cash, Salon's ability to
continue as a going concern may be adversely affected.

Salon may issue additional preferred stock at effective prices lower than
current common stock market prices that may result in non-cash charges to
operations

     The certificate of designation and preferences and rights of the Series D
preferred stock stipulates that the Series D conversion price will be equal to
70% of the average closing sales price of Salon's common stock for the thirty
days prior to the date Salon provides notice to purchasers of its intent to sell
additional shares of Series D preferred stock. Such a discount, and the time lag
between the date of the notice and the date a transaction is consummated, may
trigger a non-cash preferred deemed dividend charge. In connection with the sale
of 209 shares of Series D-3 in December 2005, it incurred a preferred


                                       25
<PAGE>

deemed dividend charge of $1.0 million. The issuance of 250 shares of Series D-3
and Series D-4 subsequent to June 30, 2006 will result in a preferred deemed
dividend of $0.1 million. As of this filing, there are 792 shares of authorized
and unissued shares of Series D preferred that it may sell. Salon cannot predict
to what extent it may incur future preferred deemed dividend charges, if any.

Salon has relied on related parties for significant investment capital

     Salon has been relying on cash infusions from related parties to fund
operations. The related parties are primarily John Warnock, a Director of Salon,
and William Hambrecht. William Hambrecht is the father of Salon's President and
Chief Executive Officer. Subsequent to June 30, 2006, these two related parties
purchased a combined total of 250 shares of Series D preferred stock for which
Salon received $0.3 million, with one related party also exercising a warrant
for which Salon received approximately $44,000 in cash. In addition, William
Hambrecht and John Warnock have committed to provide Salon with $0.4 million in
cash by December 2006 from the exercise of outstanding warrants and from the
purchase of additional shares of Series D preferred stock. Curtailment of cash
investments by related parties could detrimentally impact Salon's cash
availability and its ability to fund its operations.

Salon's principal stockholders can exercise a controlling influence over Salon's
business affairs and they may make business decisions with which non-principal
stockholders disagree that may affect the value of their investment

     Based on information available to Salon, the holders of Salon's Series A,
B, C and D preferred stock collectively own approximately 95% of all voting
securities. These stockholders therefore own a controlling interest in Salon. Of
this amount, approximately 69% is held by related parties, including former
Directors, of which approximately 21% is controlled directly or indirectly by
William Hambrecht and approximately 41% by Director John Warnock. Therefore,
related parties by themselves own a controlling interest in Salon.

     If these stockholders were to act together, they would be able to exercise
control over all matters requiring approval by other stockholders, including the
election of Directors and approval of significant corporate transactions. This
concentration of ownership could also have the effect of accelerating, delaying
or preventing a change in control of Salon, which could cause Salon's stock
price to decline.

Future sales of significant number of shares of Salon's common stock by
principal stockholders could cause its stock price to decline.

     As of June 30, 2006, Salon's preferred stock holders can convert 8,558
shares of preferred stock to approximately 183 million shares of common stock at
their discretion, and as a group, hold over 20.7 million shares of common stock.
In January 2006 a shareholder converted one share of Series A preferred stock
and 36 shares of Series C preferred stock to 760,173 shares of common stock.
Subsequent to June 30, 2006, a shareholder converted 62 shares of Series A
preferred stock to 2,490,735 shares of common stock. If other preferred
stockholders convert their shares of preferred stock to common stock and sell
the resulting shares, such an inflow of common stock into the securities market
may cause the price of Salon's common stock to decline.

Salon's preferred stockholders are entitled to potentially significant
liquidation preferences of Salon's assets over common stockholders in the event
of such an occurrence

     Salon's Series A, B, C and D preferred stockholders have liquidation
preferences over common stockholders of the first approximately $21.9 million in
potential sales proceeds as of June 30, 2006,


                                       26
<PAGE>

which includes the effect of undeclared dividends of $2.6 million. If a
liquidation event were to occur, and preferred stock dividends were declared,
the holders of preferred stock would be entitled to the first $21.9 million of
cash distributions, while the holders of common stock would receive none of this
amount. If a liquidation event were to occur in excess of $21.9 million and if
preferred stock dividends were to be declared, the holders of preferred stock
would be entitled to receive a relatively larger distribution than the holders
of common stock would be entitled to receive.

Salon has historically lacked significant revenues and has a history of losses

     Salon has a history of significant losses and expects to incur a loss from
operations, based on generally accepted accounting principals, for its fiscal
year ending March 31, 2007 and potentially in future years. Once Salon attains
profitability, it may not be able to sustain or increase profitability on a
quarterly or annual basis in the future. If revenues grow slower than Salon
anticipates or operating expenses exceed expectations, financial results will
most likely be severely harmed and the ability of Salon to continue its
operations will be seriously jeopardized.

     Burr, Pilger & Mayer LLP, Salon's independent registered public accounting
firm for the years ended March 31, 2004, March 31, 2005, and March 31, 2006,
included a "going-concern" audit opinion on the consolidated financial
statements for those years. The audit opinions report substantial doubt about
Salon's ability to continue as a going concern, citing issues such as the
history of losses and absence of current profitability. As a result of the
"going-concern" opinions, Salon's stock price and investment prospects have been
and will continue to be adversely affected, thus limiting financing choices and
raising concerns about the realization of value on assets and operations.

Salon's Site Pass advertising model may inhibit traffic to its Website, which
would harm its revenues and business

     As a result of analyzing the traffic patterns to Salon's Website, Salon
believes that its Site Pass advertising model, which Salon credits as
instrumental in increasing advertising revenues, and driving memberships to
Salon Premium, inhibits growth in traffic to its Website. Salon contemplates
further analysis of these relationships and may adjust its Site Pass advertising
model to attract a wider audience. While a wider audience is intended to
increase the supply of advertising impressions, and to introduce more potential
members to Salon Premium, Salon cannot estimate when, or if, membership to Salon
Premium will again increase or if it will be successful in adjusting its Site
Pass to achieve desired results.

Salon's operations require attractive content, subscriber interest, and
confidence by subscribers that the subscription offering warrants their
long-term support and investment

     Salon is under budgetary constraints to control expenditures. These
constraints affect editorial staffing levels and the purchase of content from
freelance writers. These constraints affect the quantity of content published on
Salon's Website and consequently, a positive experience of Website visitors. The
positive experience leads to recurring Website visits and new subscriptions to
Salon Premium. The absence of any of these factors could impair the results,
revenue and cash flow from subscriptions. Salon cannot predict how many new
Salon Premium subscriptions it will acquire.

Salon Premium memberships have been declining and may continue to decline,
adversely affecting revenues and available cash

     Salon has been relying on the revenues and cash generated from Salon
Premium subscriptions since its implementation in April 2002. Salon Premium
subscriptions grew from nothing to a high of


                                       27
<PAGE>

approximately 89,100 as of December 31, 2004. However, since the high
experienced in December 31, 2004, subscriptions have been declining to
approximately 61,800 as of June 30, 2006. If this decline were to continue,
Salon's operations and available cash could be adversely affected.


Salon has depended on advertising sales for much of its revenues, and its
inability to maintain or increase advertising revenues will harm its business

     Maintaining or increasing Salon's advertising revenues depends upon many
factors, including whether it will be able to:

     o    successfully sell and market its Website Site Pass or other rich media
          advertisements;

     o    entice non Salon Premium Website visitors to view and advertisers to
          sell new ad units and formats;

     o    maintain a significant number of unique Website visitors and
          corresponding significant reach of Internet users;

     o    maintain a significant number of sellable impressions generated from
          Website visitors available to advertisers;

     o    successfully sell and market its network to advertisers;

     o    increase the dollar amount of the advertising orders it receives;

     o    increase awareness of the Salon brand;

     o    improve the technology for serving advertising on its Website;

     o    handle temporary high volume traffic spikes to its Website;

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

     o    attract and retain key sales personnel.

Legislative Action and Potential New Accounting Pronouncements are likely to
cause its general and administrative expenses and other operating expenses to
increase

     To comply with the Sarbanes-Oxley Act of 2002 and proposed accounting
changes by the Securities and Exchange Commission, Salon may be required to hire
additional personnel and utilize additional outside legal, accounting and
advisory services, all of which will cause its general and administrative costs
to increase. Recently adopted changes in the accounting rules for employee stock
options as a compensation expense, among other accounting rules, could
materially increase the expenses that it reports under generally accepted
accounting principles and adversely affect its operating results.


                                       28
<PAGE>

Hackers may attempt to penetrate Salon's security system; online security
breaches could harm its business

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

Salon's stock has been and will likely continue to be subject to substantial
price and volume fluctuations due to a number of factors, many of which will be
beyond its control, that may prevent its stockholders from reselling its common
stock at a profit

     The securities markets have experienced significant price and volume
fluctuations. This market volatility, as well as general economic, market or
political conditions, have and may continue to reduce the market price of its
common stock, regardless of its operating performance. In addition, Salon's
operating results could be below the expectations of public market analysts and
investors, and in response, the market price of its common stock could decrease
significantly.

With a volatile share price, Salon may be the target of securities litigation,
which is costly and time-consuming to defend

     In the past, following periods of market volatility in the price of a
company's securities, security holders have instituted class action litigation.
Salon's share price has in the past experienced price volatility, and may
continue to do so in the future. Many companies have been subjected to this type
of litigation. If the market value of its common stock experiences adverse
fluctuations and it becomes involved in this type of litigation, regardless of
the merits or outcome, Salon could incur substantial legal costs and our
management's attention could be diverted, causing its business, financial
condition and operating results to suffer. To date, Salon has not been subjected
to such litigation.

Salon's quarterly operating results are volatile and may adversely affect its
common stock price

     Salon's future revenues and operating results, both GAAP and non GAAP, are
likely to vary significantly from quarter to quarter due to a number of factors,
many of which are outside Salon's control, and any of which could severely harm
Salon's business. These factors include:

     o    Salon's ability to attract and retain advertisers and subscribers;

     o    Salon's ability to attract and retain a large number of users;

     o    the introduction of new Websites, services or products by Salon or by
          its competitors;

     o    the timing and uncertainty of Salon's advertising sales cycles;


                                       29
<PAGE>

     o    the mix of advertisements sold by Salon or its competitors;

     o    the economic and business cycle;

     o    the level of Internet usage;

     o    Salon's ability to attract, integrate and retain qualified personnel;

     o    technical difficulties or system downtime affecting the Internet
          generally or the operation of Salon's Website; and

     o    the amount and timing of operating costs.

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

The controversial content of Salon's Website may limit its revenues

     Salon's Website contains, and will continue to contain, content that is
politically and culturally controversial. As a result of this content, current
and potential advertisers, potential Salon Premium subscribers, or third parties
who contemplate aggregating content, may refuse to do business with Salon.
Salon's outspoken stance on political issues has and may continue to result in
negative reactions from some users, commentators and other media outlets. From
time to time, certain advocacy groups have successfully targeted Salon's
advertisers in an attempt to persuade such advertisers to cease doing business
with Salon. These efforts may be a material impediment to Salon's ability to
grow and maintain advertising revenue.

Salon's promotion of the Salon brand must be successful to attract and retain
users as well as advertisers and strategic partners

     The success of the Salon brand depends largely on its ability to provide
high quality content and services. If Internet users do not perceive Salon's
existing content and services to be of high quality, or if Salon introduces new
content and services or enters into new business ventures that are not favorably
perceived by users, Salon may not be successful in promoting and maintaining the
Salon brand. Any change in the focus of its operations creates a risk of
diluting its brand, confusing consumers and decreasing the value of its user
base to advertisers. If Salon is unable to maintain or grow the Salon brand, its
business could be severely harmed.

Salon needs to hire, integrate and/or retain qualified personnel because these
individuals are important to its growth

     Salon's success significantly depends on key personnel. In addition,
because Salon's users must perceive the content of Salon's Website as having
been created by credible and notable sources, Salon's success also depends on
the name recognition and reputation of its editorial staff. Due to Salon's
history of losses, Salon may experience difficulty in hiring and retaining
highly skilled employees with appropriate qualifications. Salon may be unable to
retain its current key employees or attract, integrate or


                                       30
<PAGE>

retain other qualified employees in the future. If Salon does not succeed in
attracting new personnel or retaining and motivating its current personnel, its
business could be harmed.

Salon may expend significant resources to protect its intellectual property
rights or to defend claims of infringement by third parties, and if Salon is not
successful it may lose rights to use significant material or be required to pay
significant fees

     Salon's success and ability to compete are significantly dependent on its
proprietary content. Salon relies exclusively on copyright law to protect its
content. While Salon actively takes steps to protect its proprietary rights,
these steps may not be adequate to prevent the infringement or misappropriation
of its content, which could severely harm its business. Salon also licenses
content from various freelance providers and other third-party content
providers. While Salon attempts to ensure that such content may be freely
licensed to it, other parties may assert claims of infringement against it
relating to such content.

     Salon may need to obtain licenses from others to refine, develop, market
and deliver new services. Salon 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 Salon acquired the Internet address www.salon.com. Because
www.salon.com is the address of the main home page to its Website and
incorporates its company name, it is a vital part of its intellectual property
assets. Salon does not have a registered trademark on the address, and therefore
it may be difficult for it to prevent a third party from infringing on its
intellectual property rights in the address. If Salon fails to adequately
protect its rights in the Website address, or if a third party infringes its
rights in the address, or otherwise dilutes the value of www.salon.com, its
business could be harmed.

Salon's technology development efforts may not be successful in improving the
functionality of its network, which could result in reduced traffic on its
Website, reduced advertising revenues, or a loss of Salon Premium subscribers

     Salon is currently upgrading its technology to manage its Website and its
Salon Premium program, as well as redesigning its Website homepage. In addition,
it is creating technology for new products that Salon hopes to launch during its
current fiscal year. If these systems do not work as intended, or if Salon is
unable to continue to develop these systems to keep up with the rapid evolution
of technology for content delivery and subscription management, its Website or
subscription management systems may not operate properly, which could harm
Salon's business. Additionally, software product design, development and
enhancement involve creativity, expense and the use of new development tools and
learning processes. Delays in software development processes are common, as are
project failures, and either factor could harm Salon's business. Moreover,
complex software products like its online publishing and subscription management
systems frequently contain undetected errors or shortcomings, and may fail to
perform or scale as expected. Although Salon has tested and will continue to
test its systems, errors or deficiencies may be found in these systems that may
adversely impact its business.

Salon relies on software, purchased from an independent supplier, to deliver and
report some of its advertising, the failure of which could impair its business

     Salon uses software, purchased from an independent supplier, to manage and
measure the delivery of advertising on its Website. The software is essential to
Salon whenever an advertiser does not stipulate ad serving from a third party
such as Doubleclick. This type of software may fail to perform as expected. If
this software malfunctions, advertisements may not be served correctly on its
Website, or if


                                       31
<PAGE>

the software does not accurately capture impression information, then Salon's
advertising revenues could be reduced, and its business could be harmed.

Measurement standards for Internet based advertising may not evolve to the
extent necessary to support Internet advertising, thereby creating uncertainty
about the viability of Salon's business model

     It is important to Salon's advertisers that Salon accurately presents the
demographics of its user base and the delivery of advertisements on its Website.
Salon depends on third parties to provide certain advertiser-requested services.
If such third parties are unable to provide these services in the future, Salon
will need to perform this function itself or obtain such services from another
provider, if available. This could cause Salon to incur additional costs or lose
revenue due to a lower level of service. Companies may choose not to advertise
on Salon or may pay less for advertising if they do not perceive its
measurements or measurements made by third parties to be reliable.

Increasing competition among Internet content providers could reduce Salon's
advertising sales or market share, thereby harming its business

     The market for Internet content is rapidly changing and intensely
competitive. Salon expects competition for Internet content to continue to
increase, and if it cannot compete effectively, its business could be harmed.
The number of Websites competing for the attention and spending of users and
advertisers may continue to increase with the most trafficked Websites receiving
a disproportionate share of advertising dollars. Salon is not one of the most
trafficked Websites, or even one of the top fifty Websites.

     Increased competition could result in advertising price reductions or loss
of market share, any of which could harm Salon's business. Competition is likely
to increase as new companies enter the market and current competitors expand
their services. Many of Salon's present and potential competitors are likely to
enjoy substantial competitive advantages over Salon. If Salon does not compete
effectively or if it experiences any pricing pressures or loss of market share
resulting from increased competition, its business could be harmed.

Salon may be held liable for content or third party links on its Website or
content distributed to third parties

     As a publisher and distributor of content over the Internet, including
user-generated content, links to third party Websites that may be accessible
through Salon.com, or content that includes links or references to a third
party's Website, Salon faces potential liability for defamation, negligence,
copyright, patent or trademark infringement and other claims based on the
nature, content or ownership of the material that is published on or distributed
from its Website. These types of claims have been brought, sometimes
successfully, against online services, Websites and print publications in the
past. Other claims may be based on errors or false or misleading information
provided on linked Websites, including information deemed to constitute
professional advice such as legal, medical, financial or investment advice.
Other claims may be based on links to sexually explicit Websites. Although Salon
carries general liability and media insurance, its insurance may not be adequate
to indemnify Salon for all liabilities imposed. Any liability that is not
covered by its insurance or is in excess of its insurance coverage could
severely harm its financial condition and business. Implementing measures to
reduce its exposure to these forms of liability may require Salon to spend
substantial resources and limit the attractiveness of Salon's service to users.


                                       32
<PAGE>

Concerns about transactional security may hinder electronic commerce on Salon's
Website and may expose Salon to potential liability

     A significant barrier to sale of subscriptions and electronic commerce is
the secure transmission of confidential information over public networks. Any
breach in Salon's security could expose it to a risk of loss or litigation and
possible liability. Salon relies on encryption and authentication technology
licensed from third parties to provide secure transmission of confidential
information. As a result of advances in the capabilities of Internet hackers, or
other developments, a compromise or breach of the algorithms Salon uses to
protect customer transaction data may occur. A compromise of Salon's security
could severely harm its 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 its Website.

     Salon 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. Protection may not be available at a reasonable price or at
all.

Salon's internally developed software and software platforms provided by a third
party to manage Salon's subscription business might fail resulting in lost
subscription income

     Salon's software to manage its subscription business was developed
internally to interface with the software provided by a third party. The third
party's software provides a gateway to authenticate credit card transactions.
Even though Salon is Payment Card Industry (PCI) compliant, if these systems
were to fail or not function as intended, credit card transactions might not be
processed and Salon's cash resources and revenues would therefore be harmed.

     Salon is currently upgrading its software to manage its subscription
business in order to reinvigorate its Premium program. If this upgrade does not
perform as expected, Salon's premium revenues may continue to decline.

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

     Substantially all of Salon's communications hardware and computer hardware
operations for its Website are in a facility in San Francisco, California that
has been extensively retrofitted to withstand a major earthquake. Fire, floods,
earthquakes, power loss, telecommunications failures, break-ins, supplier
failure to meet commitments, and similar events could damage these systems and
cause interruptions in its services. Computer viruses, electronic break-ins or
other similar disruptive problems could cause users to stop visiting Salon's
Website and could cause advertisers to terminate any agreements with Salon. In
addition, Salon 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, Salon's business could be
harmed. Salon's insurance policies may not adequately compensate it for any
losses that may occur due to any failures of or interruptions in its systems.
Salon does not presently have a formal disaster recovery plan.

     Salon's Website must accommodate a high volume of traffic and deliver
frequently updated information. It is possible that Salon will experience
systems failures in the future and that such failures could harm its business.
In addition, its users depend on Internet service providers, online service
providers and other Website operators for access to its Website. Many of these
providers and operators have experienced significant outages in the past, and
could experience outages, delays and other


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<PAGE>

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

Privacy concerns could impair Salon's business

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

Possible state sales and other taxes could adversely affect Salon's results of
operations

     Salon does not collect sales or other taxes from individuals who sign up
for Salon subscriptions. During the year ended March 31, 2003, the State of
California audited Salon's sales tax returns and found Salon in compliance with
its filings and did not object to the fact that it did not collect sales tax on
subscriptions. However, one or more other states may seek to impose sales tax
collection obligations on out-of-state companies, including Salon, which engage
in or facilitate electronic commerce. State and local governments have discussed
and made proposals imposing 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 Salon's ability to derive revenue from
electronic commerce. Moreover, if any state or foreign country were to assert
successfully that Salon should collect sales or other taxes on the exchange of
merchandise on its network or to tax revenue generated from Salon subscriptions,
its financial results could be harmed.

Provisions in Delaware law and Salon's charter, stock option agreements and
offer letters to executive officers may prevent or delay a change of control

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

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

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


                                       34
<PAGE>

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

     A Delaware corporation may opt out of the Delaware anti-takeover laws if
its certificate of incorporation or bylaws so provide. Salon has 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 Salon.

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

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

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

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

     Salon's certificate of incorporation and bylaws provide that it will
indemnify officers and directors against losses that they may incur in
investigations and legal proceedings resulting from their services to Salon,
which may include services in connection with takeover defense measures. These
provisions may have the effect of preventing changes in Salon's management.

     In addition, an employment agreement with an executive officer provides for
the payment of severance and acceleration of the vesting of options in the event
of termination of the executive officer following a change of control of Salon.
These provisions in offer letters could have the effect of discouraging
potential takeover attempts.


                                       35
<PAGE>

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

         During the three months ended June 30, 2006, warrants to acquire
10,805,869 shares of common stock were exercised for which Salon received
$699,496 in cash that was used for working capital and other general corporate
purposes, as follows:

<TABLE>
<CAPTION>
Issue         Exercise                                               Warrant     Exercise Price     Cash
Date            Date    Warrant Holder                               Shares        per share      Received
-------------------------------------------------------------------------------------------------------------
<S>          <C>        <C>                                        <C>             <C>               <C>
08/09/01     6/22/2006  Shea Ventures LLC                           1,000,000      0.10941919        109,419
06/26/03     6/22/2006  E&M RP Trust                                  300,000      0.04505918         13,518
                                                                --------------                 --------------
                        Total non-related parties                   1,300,000                        122,937

04/10/03      4/5/2006  John Warnock                                  300,000      0.04168543         12,506
04/29/03      4/5/2006  John Warnock                                  300,000      0.04505918         13,518
08/09/01     5/11/2006  Sarah & William Hambrecht Foundation          600,000      0.10941919         65,652
06/12/03     5/11/2006  The Hambrecht 1980 Revocable Trust            150,000      0.04505918          6,759
06/12/03     5/11/2006  WR Hambrecht + Co LLC                         150,000      0.04505918          6,759
07/10/03     5/11/2006  HAMCO Capital Corporation                     150,000      0.04168543          6,253
11/24/03     5/11/2006  HAMCO Capital Corporation                     150,000      0.04505918          6,759
02/10/04     5/11/2006  The Hambrecht 1980 Revocable Trust            300,000      0.03450000         10,350
06/04/04     5/11/2006  HAMCO Capital Corporation                      81,290      0.13742362         11,171
06/04/04     5/11/2006  The Hambrecht 1980 Revocable Trust            282,580      0.13742362         38,833
02/02/05     5/11/2006  HAMCO Capital Corporation                      34,363      0.16100000          5,532
02/02/05     5/11/2006  The Hambrecht 1980 Revocable Trust            307,636      0.16100000         49,529
05/28/03     5/12/2006  John Warnock                                  900,000      0.04505918         40,553
07/10/03     5/12/2006  John Warnock                                  300,000      0.04168543         12,506
07/30/03     5/12/2006  John Warnock                                  300,000      0.03450000         10,350
08/29/03     5/12/2006  John Warnock                                  300,000      0.03450000         10,350
09/12/03     5/12/2006  John Warnock                                  300,000      0.04505918         13,518
09/29/03     5/12/2006  John Warnock                                  300,000      0.05180668         15,542
10/10/03     5/12/2006  John Warnock                                  300,000      0.04505918         13,518
10/30/03     5/12/2006  John Warnock                                  300,000      0.04505918         13,518
11/12/03     5/12/2006  John Warnock                                  300,000      0.04843293         14,530
11/24/03     5/12/2006  John Warnock                                  300,000      0.04505918         13,518
12/11/03     5/12/2006  John Warnock                                  300,000      0.04505918         13,518
12/30/03     5/12/2006  John Warnock                                1,500,000      0.03450000         51,750
12/31/03     5/12/2006  John Warnock                                  300,000      0.03450000         10,350
08/09/01     6/29/2006  John Warnock                                1,000,000      0.10941919        109,419
                                                                --------------                 --------------
                        Total related parties                       9,505,869                        576,561

                        Total exercised                            10,805,869                        699,498
                                                                ==============                 ==============
</TABLE>

The related parties in the above table include:

1.   John Warnock, a Director of Salon Media Group,
2.   The Hambrecht 1980 Revocable Trust, a trust of the father of Salon's CEO
     and President,
3.   Sarah & William Hambrecht Foundation for which Salon's CEO and President
     serves as a Director and has voting rights,
4.   HAMCO Capital Corporation in which Salon's CEO and President, and her
     father, each have an ownership interest therein.


                                       36
<PAGE>

     During the three months ending June 30, 2006, warrants for 1,344,015 shares
of common stock were converted to 1,053,558 shares of common stock by two
investors for which Salon did not receive any consideration under the net
exercise provision of the warrants, as follows:

<TABLE>
<CAPTION>
Issue         Conversion                                 Warrant        Exercise Price     Converted
Date             Date     Warrant Holder                 Shares           per share         Shares
------------------------------------------------------------------------------------------------------
<S>            <C>        <C>                             <C>             <C>               <C>
04/10/03        4/4/2006  Ironstone Group, Inc              300,000       0.04168543          255,337
04/29/03       4/25/2006  Ironstone Group, Inc              300,000       0.04505918          243,676
10/30/03       5/11/2006  Ironstone Group, Inc              150,000       0.04505918          114,426
10/06/03       5/11/2006  Ironstone Group, Inc              300,000       0.05180668          218,199
                                                    ----------------                  ----------------
                          Total related parties           1,050,000                           831,638

07/10/03        6/5/2006  Octavia, LLC                      294,015       0.04168543          221,920
                                                    ----------------                  ----------------
                          Total converted                 1,344,015                         1,053,558
                                                    ================                  ================
</TABLE>

William Hambrecht, the father of Salon's CEO and President has an ownership
interest in Ironstone Group, Inc.

     The securities were issued to "accredited investors" as that term is
defined in Rule 501(a) under the Securities Act. of 1933 and pursuant to an
exemption from the registration requirements of the Securities Act of 1933 set
forth in Section 506 of Regulation D.

Item 3.  Default upon senior securities.

         Not applicable.

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

         Not applicable.

Item 5.  Other Information.

         Not applicable.


                                       37
<PAGE>

Item 6.  Exhibits and Reports on Form 10-Q.

(a)  Exhibits.

31.1      Certification of Elizabeth Hambrecht, President and Chief Executive
          Officer of the Registrant pursuant to Section 302, as adopted pursuant
          to the Sarbanes-Oxley Act of 2002

31.2      Certification of Conrad Lowry, Chief Financial Officer and Secretary
          of the Registrant pursuant to Section 302, as adopted pursuant to the
          Sarbanes-Oxley Act of 2002

32.1      Certification of Elizabeth Hambrecht, President and Chief Executive
          Officer of the Registrant pursuant to Section 906, as adopted pursuant
          to the Sarbanes-Oxley Act of 2002

32.2      Certification of Conrad Lowry, Chief Financial Officer and Secretary
          of the Registrant pursuant to Section 906, as adopted pursuant to the
          Sarbanes-Oxley Act of 2002



Signature

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


                             SALON MEDIA GROUP, INC.


Dated:  8/11/06              /s/ Conrad Lowry
                             -----------------------------------
                             Conrad Lowry
                             Chief Financial Officer and Secretary



                                       38