<PAGE>

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


                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                              __________________

                                   FORM 10-Q

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

               For the quarterly period ended December 31, 1999
                                      or

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

                   For the transition period from         to

                        Commission file number 0-27886

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

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

                         22 Fourth Street, 16th Floor
                            San Francisco, CA 94103
                   (Address of principal executive offices)

                               ________________

                                (415) 645-9200
             (Registrant's telephone number, including area code)


                               ________________

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

                               ________________

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

                               ________________

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]

The number of outstanding shares of the Registrant's Common Stock, par value
$0.001 per share, on December 31, 1999 was 11,376,964 shares.

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

                                       1
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                       Number
<S>                                                                                                    <C>
PART I    FINANCIAL INFORMATION

ITEM 1:   Financial Statements

          Consolidated Balance Sheets as of  December 31, 1999 (unaudited) and
            March 31, 1999........................................................................       3

          Consolidated Statements of Operations for the three months and nine months
            ended December 31, 1998 and 1999 (unaudited)............................................     4

          Consolidated Statements of Cash Flows for the nine months ended

           December 31, 1998 and 1999 (unaudited).................................................       5

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

ITEM 2:   Management's Discussion and Analysis of Financial Condition and Results of Operations...      12

ITEM 3:   Quantitative and Qualitative Disclosures About Market Risk..............................      27

PART II   OTHER INFORMATION

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

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

ITEM 3.   Defaults upon Senior Securities.........................................................      28

ITEM 4.   Submission of Matters to a Vote of Security Holders.....................................      28

ITEM 5.   Other Information.......................................................................      28

ITEM 6:   Exhibits and Reports on Form 8-K........................................................      28

          Signature...............................................................................      29

          Exhibits................................................................................      30
</TABLE>
                                       2
<PAGE>

PART I:  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
                                   SALON.COM
                          CONSOLIDATED BALANCE SHEETS
                        ($ in 000, except share data)
<TABLE>
<CAPTION>
                                                                                          March 31,          December,
                                                                                            1999               1999
<S>                                                                                     <C>                <C>
Assets                                                                                                      (unaudited)
Current assets:
    Cash and cash equivalents                                                           $         754      $      13,639
    Short term investments                                                                          -             10,240
    Accounts receivable, net                                                                      497              2,451
    Inventories                                                                                    26                 16
    Prepaid expenses and other current assets                                                     578              1,022
                                                                                     -----------------  -----------------
        Total current assets                                                                    1,855             27,368

Property and equipment, net                                                                       707              1,681
Other assets                                                                                      136                257
Intangible assets, net                                                                          5,110              4,344
                                                                                     -----------------  -----------------
        Total assets                                                                    $       7,808           $ 33,650
                                                                                     -----------------  -----------------

Liabilities and Stockholders' Equity
Current liabilities:
    Accounts payable                                                                    $       1,036      $       3,530
    Accrued liabilities                                                                           439              2,377
    Deferred revenue                                                                              541                 35
    Bank borrowings                                                                               364                 74
                                                                                     -----------------  -----------------
        Total current liabilities                                                               2,380              6,016

Bank borrowings, net of current portion                                                            75                  -
                                                                                     -----------------  -----------------
        Total liabilities                                                                       2,455              6,016
                                                                                     -----------------  -----------------

Stockholders' Equity:
    Convertible preferred stock, no par value;
      8,108,750 and 5,000,000 shares authorized at March 31, 1999 and December
      31, 1999, respectively; 4,815,345 and 0 shares
      were issued and outstanding at March 31, 1999 and December 31, 1999,
      respectively;                                                                            15,789                  -
    Common stock, $0.001 par value;
    12,500,000 and 50,000,000 shares authorized at March 31, 1999 and December
    31, 1999, respectively; 447,496 and 11,376,964 shares were issued and
     outstanding at March 31, 1999 and December 31, 1999, respectively.                             1                 11
    Additional paid-in capital                                                                  3,147             70,228
    Unearned compensation                                                                        (834)            (2,633)
    Accumulated deficit                                                                       (12,750)           (39,972)
                                                                                     -----------------  -----------------
        Total stockholders' equity                                                              5,353             27,634
                                                                                     -----------------  -----------------
           Total liabilities and stockholders' equity                                   $       7,808      $      33,650
                                                                                     -----------------  -----------------
</TABLE>

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

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                               Three Months                  Nine Months
                                                                                  Ended                         Ended
                                                                               December 31,                 December 31,
                                                                        --------------------------- -----------------------------
                                                                               (unaudited)                   (unaudited)
                                                                        --------------------------- -----------------------------
                                                                             1998          1999         1998            1999
                                                                        -------------- ------------ -------------  --------------
<S>                                                                     <C>            <C>          <C>            <C>
Revenue                                                                 $     1,031    $   3,016    $    2,058     $      5,399
                                                                        -------------- ------------ -------------  --------------
Operating expenses:
     Production, content, and product                                         1,120        2,356         2,928            6,577
     Sales and marketing                                                        923        5,641         2,410           10,108
     Research and development                                                   109          427           284              961
     General and administrative                                                 122          531           331            1,658
     Amortization of intangibles                                                  -          256             -              767
     Stock-based compensation                                                   144          606           420            1,838
                                                                        -------------- ------------ -------------  --------------
       Total operating expenses                                               2,418        9,817         6,373           21,909
                                                                        -------------- ------------ -------------  --------------
Loss from operations                                                         (1,387)      (6,801)       (4,315)         (16,510)
Other income(expense), net                                                       (2)         355            16              802
                                                                        -------------- ------------ -------------  --------------
       Net loss                                                              (1,389)      (6,446)       (4,299)         (15,708)
Preferred deemed dividend                                                        59            -           272           11,515
                                                                        -------------- ------------ -------------  --------------
Net loss attributable to common stockholders                            $    (1,448)   $  (6,446)      $(4,571)    $    (27,223)
                                                                        ============== ============ =============  ==============
Basic and diluted net loss per share attributable to
   common stockholders                                                  $     (3.70)   $    (.57)   $   (11.81)    $      (3.30)
                                                                        ============== ============ =============  ==============
Weighted average shares used in computing basic
   and diluted net loss per share attributable to common
   stockholders                                                                 391       11,371           387            8,254
                                                                        ============== ============ =============  ==============
Pro forma net loss per share, basic and diluted (see note 3)            $     (0.28)   $   (0.49)   $    (0.96)    $      (1.25)
                                                                        ============== ============ =============  ==============
Supplemental information:
Net loss attributable to common stockholders                                 (1,448)      (6,446)       (4,571)         (27,223)

 Less: Amortization of intangible assets                                          -          256             -              767

       Stock-based compensation                                                 144          606           420            1,838
       Preferred deemed dividend                                                 59            -           272           11,515
                                                                        -------------- ------------ -------------  --------------
Pro forma net loss attributable to common stockholders                       (1,245)      (5,584)       (3,879)         (13,103)
Shares used in computing pro forma net loss, basic and
   diluted                                                                    4,432       11,371         4,060           10,502
Pro forma net loss per share, basic and diluted                         $     (0.28)   $   (0.49)   $     (.96)    $      (1.25)
                                                                        ============== ============ =============  ==============
</TABLE>


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

                                       4
<PAGE>

                                   SALON.COM
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 ($, in 000's)

<TABLE>
<CAPTION>
                                                                                              Nine Months Ended
                                                                                                 December 31,
                                                                                            1998               1999
                                                                                                  (unaudited)
<S>                                                                                 <C>                <C>
Cash flows from operating activities:
Net loss                                                                                  $  (4,299)          $(15,708)
Adjustments to reconcile net loss
    to net cash used in operating activities:
      Stock-based compensation                                                                  420              1,838
      Depreciation and amortization                                                             171              1,071
      Amortization of discount on bank borrowings                                                10                 20
      Changes in operating assets and liabilities:
        Accounts receivable                                                                    (596)            (1,953)
        Inventories                                                                               -                 10
        Prepaid expenses and other assets                                                        42               (350)
        Accounts payable                                                                        227              2,494
        Accrued liabilities                                                                     103              1,938
        Deferred revenue                                                                        168               (506)
                                                                                    ----------------   ----------------
             Net cash used in operating activities                                           (3,754)           (11,146)
                                                                                    ----------------   ----------------
Cash flows from investing activities:
Purchase of property and equipment                                                             (394)            (1,277)
Net purchase of investments                                                                       -            (10,240)
                                                                                    -----------------  ----------------
             Net cash used in investing activities                                             (394)           (11,517)
                                                                                    ----------------   ----------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock and common stock warrants, net                      3,439             10,936
Proceeds from issuance of common stock, net                                                       4             24,908
Proceeds from exercise of options                                                                 -                 90
Proceeds from bank debt                                                                         461                  -
Repayments of bank borrowings                                                                   (74)              (386)
                                                                                    ----------------   ----------------
             Net cash provided by financing activities                                        3,830             35,548
                                                                                    ----------------   ----------------
Net decrease in cash and cash equivalents                                                      (318)            12,885

Cash and cash equivalents - beginning of period                                     $         1,926                754
                                                                                    ----------------   ----------------
Cash and cash equivalents - end of period                                           $         1,608    $        13,639
                                                                                    ----------------   ----------------
Non-cash investing and financing transactions:
    Unearned compensation in connection with the issuance
      of stock options                                                              $           901    $         3,795
                                                                                    ----------------   ----------------
    Issuance of warrants in connection with bank borrowings                         $            33    $             -
                                                                                    ----------------   ----------------
    Issuance of warrants in connection with agreements                              $           217    $           244
                                                                                    ----------------   ----------------
    Value assigned to reciprocal advertising agreements                             $           307    $           462
                                                                                    ----------------   ----------------
    Conversion of preferred stock to common stock                                   $             -    $        25,301
                                                                                    ----------------   ----------------
    Preferred deemed dividend                                                       $             -    $        11,515
                                                                                    ----------------   ----------------
</TABLE>


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

                                       5
<PAGE>

                                   SALON.COM
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   The Company

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


2.   Basis of Presentation

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


3.   Summary of Significant Accounting Policies

     Recent Accounting Pronouncements

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

          In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements", which provides guidance on the recognition, presentation,
and disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. Management
believes that the impact of SAB 101 will not have a material effect on the
financial position or result of operations of the Company.

                                       6
<PAGE>

                                   SALON.COM
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Net loss per share

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

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

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


                                                                   Three months ended                    Nine months ended
                                                                       December 31                          December 31
                                                                 1998             1999                   1998           1999
                                                             ------------------------------------------------------------------
<S>                                                          <C>                  <C>                  <C>          <C>
Net loss attributable to common stockholders                     $  (1,448)       $ (6,446)            $ (4,571)    $ (27,223)
Less:      Amortization of intangible assets                             -             256                    -           767
           Stock based compensation                                    144             606                  420         1,838
           Preferred deemed dividends                                   59               -                  272        11,515
                                                             ------------------------------------------------------------------

Adjusted net loss attributable to common                         $  (1,245)       $ (5,584)            $ (3,879)    $ (13,103)
stockholders                                                 ==================================================================

Shares used in computing net loss attributable to common
stockholders, basic and diluted                                        391          11,371                  387         8,254
Adjustment to reflect the assumed conversion of
preferred stock                                                      4,041               -                3,673         2,248
                                                             ------------------------------------------------------------------

Shares used in computing pro forma net loss, basic                   4,432          11,371                4,060        10,502
and diluted                                                  ==================================================================


Pro forma net loss per share, basic and diluted                  $   (0.28)       $  (0.49)            $  (0.96)    $   (1.25)
                                                             ==================================================================
</TABLE>

                                   SALON.COM

                                       7
<PAGE>

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Investments

     Investments consist of high quality debt securities with original maturity
dates greater than ninety days. In accordance with SFAS No. 115, "Accounting for
Certain investments in Debt and Equity Securities," Salon's investments are
classified as available-for-sale and, at the balance sheet date, are reported at
fair value, with the unrealized gains and losses, net of related taxes, reported
as a component of other comprehensive income (loss). Unrealized gains and losses
were immaterial as of December 31, 1999. The cost of these investments at
December 31, 1999 was $10,240,000.

     Inventories

     Inventories consist solely of finished goods.

     Concentrations

          No customer accounted for more than 10% of total revenues for the
three months ended December 31, 1998 and 1999. No customer accounted for more
than 10% of total revenues for the nine months ended December 31, 1999. One
customer accounted for 18% of total revenues for the nine months ended December
31, 1998.

          Included in sponsorship and advertising revenues are barter
transactions that accounted for $462,000, or approximately 15% of total revenues
and $124,000, or 12% of total revenues for the three months ended December 31,
1999 and 1998, respectively. Barter transactions accounted for $940,000, or 17%
and $307,000, or 15% of total revenues for the nine months ended December 31,
1999 and 1998, respectively.

4.   Stockholders' Equity

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

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

On April 14, 1999, Salon completed an additional offering of Series C preferred
stock. Pursuant to this offering, a total of 2,967,782 additional shares of
Series C preferred stock were sold at a price of $3.88 per share, for total net
proceeds of approximately $10.9 million. The difference between the offering
price and the deemed fair value of the common stock on the date of the
transaction resulted in a beneficial conversion feature in the amount of
$11,515,000. The beneficial conversion feature has been reflected as a preferred
dividend in the statement of operations. In connection with investment broker
services provided during this offering Salon issued warrants to entities
affiliated with Daiwa Securities America, Inc. to purchase an aggregate of
148,389 shares of Series C preferred stock at an exercise price


                                    SALON.COM

                                       8
<PAGE>

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of $3.88 per share. Upon completion of the Salon's IPO, the warrants converted
into the right to purchase an equivalent number of shares of Salon's common
stock at the same exercise price. The warrants may be exercised at any time
within five years after issuance. Salon valued the warrants using the Black-
Scholes option pricing model, applying an expected life of 5 years, a weighted
average risk-free rate of 5.14%, an expected dividend yield of zero percent, a
volatility of 107% and a deemed fair value of common stock of $10.80. The fair
market value of the warrants of $1.4 million has been netted against the
proceeds from the offerings.

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

          On April 14, 1999, in connection with marketing consulting services to
be provided to Salon, a warrant was issued to ACT III Communications to purchase
25,773 shares of Series C preferred stock at an exercise price of $3.88 per
share. Upon completion of Salon's IPO, the warrant converted into the right to
purchase an equivalent number of shares of Salon's common stock at the same
exercise price.

The warrant may be exercised at any time within five years after issuance. Salon
valued the warrant using the Black-Scholes option pricing model, applying an
expected life of 5 years, a weighted average risk-free rate of 5.14%, an
expected dividend yield of zero percent, a volatility of 107% and a deemed fair
value of common stock of $10.80. The fair market value of the warrant of
$244,000 was recorded in other assets, and is being amortized over the term of
the agreement.

                                       9
<PAGE>

                                   SALON.COM
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders' equity activity for the nine months ended December 31, 1999 was as
follows:
                                 ($, in 000's)
<TABLE>
<CAPTION>
                                                                            Additional
                                            Preferred        Common            Paid-In           Unearned      Accumulated
                                                Stock         Stock            Capital       Compensation          Deficit
                                       --------------------------------------------------------------------------------------
<S>                                    <C>                   <C>            <C>              <C>               <C>
Balance - March 31, 1999                    $  15,790         $    1        $    3,147        $    (834)        $  (12,750)

Issuance of Series C
      preferred stock and warrants,
      net                                       9,511              -             1,421                -                  -
Unearned compensation                               -              -             3,611           (3,611)                 -
Exercise of stocks options for cash                 -              -                90                -                  -

Issuance of common stock for cash                   -              -               997                -                  -

Issuance of preferred stock warrants                -              -               244                -                  -

Initial public offering                             -              2            23,910                -                  -

Conversion of preferred stock to
common                                        (25,301)             8            25,293                -                 -

Amortization of unearned compensation               -              -                 -            1,812                 -

Net loss                                            -              -                 -                -           (15,707)
Preferred deemed dividend                           -              -            11,515                -           (11,515)
                                       ----------------------------------------------------------------------------------------
Balance - December 31, 1999                 $       -         $   11        $   70,228        $  (2,633)        $ (39,972)
                                       ========================================================================================
</TABLE>

                                       10
<PAGE>

                                   SALON.COM
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          If the stock-based compensation for the three and nine months ended
December 31, 1998 and 1999 had been allocated across the relevant functional
expense categories within operating expenses, it would be allocated as follows:
(in 000's);

                                      Three months ended   Nine months ended
                                          December 31          December 31
                                       1998        1999       1998     1999
                                     -----------------------------------------

Production, content and product      $  70         $ 295      $ 207  $   906
Sales and marketing                     60           253        170      744
Research and development                 7            29         33      144
General and administrative               7            29         10       44
                                     -----------------------------------------
                                     $ 144         $ 606      $ 420  $ 1,838
                                     -----------------------------------------

5.   Subsequent Events

          In December 1999, Salon.com entered into an agreement with Rainbow
Media Holdings, Inc. to issue 1,125,000 common shares to Rainbow, representing
approximately 10% of Salon.com's outstanding common stock. In exchange, Rainbow
Media Holdings, Inc. will provide Salon.com approximately $11.8 million in
advertising and promotional time, delivered over ten years. Salon and Bravo
Networks will exchange content and cross-promote throughout their Web
properties. Bravo Networks is Rainbow Media Holding's film and art network.

          In January 2000, Salon.com received the appropriate approvals for the
agreement and have issued the 1,125,000 shares to Rainbow Media Holdings
accordingly.

                                       11
<PAGE>

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

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

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

Overview

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

     Our network of subject-specific Web sites includes:

               .   Salon News                     .   Salon Books
               .   Salon Technology               .   Salon Media
               .   Salon Arts & Entertainment     .   Salon Travel
               .   Salon Mothers Who Think        .   Salon People
               .   Salon Health & Body            .   Salon Comics
               .   Politics 2000

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

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

     In December 1999, approximately 3.4 million unique users visited Salon's
network of Web sites, compared to approximately 1.9 million unique users in
September 1999 and approximately 650,000 unique users in December 1998. Salon
generated approximately 69 million page views for the three months ended
December 31, 1999, compared to approximately 59 million page views for the three
months ended September 30, 1999 and approximately 34 million page views for the
three months ended December 31, 1998. Salon generated 380 million ad impressions
for the three months ended December 31, 1999

                                       12
<PAGE>

compared to 260 million for the three months ended September 30, 1999 and 80
million for the three months ended December 31, 1998.

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

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

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


     Salon has derived a significant amount of its revenues to date from
Internet advertising, advertising sponsorships and e-commerce sponsorships.
Advertising and sponsorship revenues represented 95% of net revenues for the
three months ended December 31, 1999.

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

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

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

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

     .  Barnesandnoble.com       .  Flowerbud             .  Virgin Records
     .  DrKoop.com               .  Gavelnet              .  911 Gifts

     Sponsorship and advertising revenues also include barter revenues, which
are the exchange of advertising space on Salon's Web sites for reciprocal
advertising space on other Web sites. Revenues from

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<PAGE>

these barter transactions are recorded as advertising revenues at the estimated
fair value of the advertisements received or delivered, whichever is more
reliably measurable, and are recognized when the advertisements are run on
Salon's Web sites. Barter expenses are recorded in sales and marketing in the
consolidated statements of operations when Salon's advertisements are run on
Salon's Web sites.

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

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

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

Results of Operations

Net Revenues

     Net revenues increased 193% to $3.0 million for the three months ended
December 31, 1999 from $1.0 million for the three months ended December 31, 1998
and 162% to $5.4 million for the nine months ended December 31, 1999 from $2.1
million for the nine months ended December 31, 1998. The increase in revenues
was primarily due to Salon's ability to generate significantly higher
sponsorship and advertising revenues and development of its subscription
strategy through the acquisition of The Well and launch of Salon Members. The
net increase in Internet advertising, advertising sponsorship and e-commerce
sponsorship revenues was primarily due to an increase in the number of
impressions sold and an increase in the number of sponsors advertising on
Salon's Web sites. Sponsorship and advertising revenues accounted for
approximately 95% and 88% of net revenues for the three months ended December
31, 1999 and 1998, respectively, and 90% and 93% of net revenues for the nine
months ended December 31, 1999 and 1998, respectively.

     No customer accounted for more than 10% of total revenues for the three
months ended December 31, 1998 and 1999. No customer accounted for more than 10%
of total revenues for the nine months ending December 31, 1999 and one customer
accounted for 18% of total revenues for the nine months ended December 31, 1998.

     Included in sponsorship and advertising revenues are barter transactions
that accounted for $462,000, or approximately 15% of total revenues and
$124,000, or 12% of total revenues for the three months ended December 31, 1999
and 1998, respectively. Barter transactions accounted for $940,000, or 17% of
total revenues and $307,000, or 15% of total revenues for the nine months ended
December 31, 1999 and 1998, respectively.


Operating Expenses

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<PAGE>

Production, Content and Product

     Production, content and product expenses consist primarily of payroll and
related expenses for Salon's editorial, artistic, production and The Well staff,
payments to freelance writers and artists, and telecommunications and computer
related expenses for the support and delivery of Salon's Web sites and online
communities. Also included in production, content and product expenses are costs
associated with electronic commerce transactions, including the costs of product
inventory and distribution. Production, content and product expenses were
approximately $2.4 million or 78% of net revenues and $1.1 million or 109% of
net revenues for the three months ended December 31, 1999 and 1998,
respectively, and $6.6 million or 122% of net revenues and $2.9 million or 142%
of net revenues for the nine months ended December 31, 1999 and 1998,
respectively. The increase in production, content and product expenses is
primarily attributable to increased costs relating to growth in Salon's
editorial, art, and production staff, costs associated with Salon's new online
community The Well, and payments to freelance writers and artists.

Sales and Marketing

     Sales and marketing expenses consist of payroll and related expenses,
including commissions, travel expenses and other costs associated with Salon's
advertising and sponsorship sales force, as well as advertising, promotional and
distribution costs. Sales and marketing expenses were $5.6 million, or 187% of
revenues and $923,000, or 90% of total revenues for the three months ended
December 31, 1999 and 1998, respectively; and $10.1 million or 187% of total
revenues and $2.4 million or 117% of total revenues for the nine months ended
December 31, 1999 and 1998, respectively. The increase in sales and marketing
expenses was primarily attributable to Salon's advertising campaign in print,
radio and a national television campaign launched at the end of September 1999,
as well as the hiring of additional sales personnel.

     Included in sales and marketing expenses are barter expenses of $381,000
and $124,000 for the three months ended December 31, 1999 and 1998,
respectively; and $893,000 and $307,000 for the nine months ended December 31,
1999 and 1998, respectively.


Research and Development

     Research and development expenses consist of costs associated with the
development and maintenance of technology, including Salon's publishing platform
software and archival database, as well as technical support for Salon's Web
sites and online communities. Research and development expenses increased 291%
to $427,000 in the three months ended December 31, 1999 from $109,000 in the
three months ended December 31, 1998. Research and development expenses as a
percentage of total revenue increased to 14% for the three months ended December
31, 1999 from 11% for the same period in 1998 and 18% for the nine months ended
December 31, 1999 from 14% in the same period in 1998. Research and development
expenses also increased 238% to $961,000 from $284,000 for the nine months ended
December 31, 1999 compared to the same period in 1998. The increase in research
and development expenses is primarily attributable to salary and payroll related
expenses for the technical support of Salon's new Websites, online communities,
and increased staff, as well as the maintenance and development of new
technology.

General and Administrative

     General and administrative expenses consist primarily of salaries, payroll
taxes and benefits and related costs for general corporate functions including
executive management, finance, and legal and other professional fees. General
and administrative expenses were $531,000 or 18% of total revenues, and $122,000
or 12% of total revenues for the three months ended December 31, 1999 and 1998,
respectively; and $1.7 million or 31% and $331,000 or 16% of total revenues for
the nine months ended December 31, 1999 and 1998, respectively. The increase in
general and administrative expenses is primarily attributable

                                       15
<PAGE>

to salary and related expenses for additional personnel hired to support the
growth of Salon's business and activities as a public company and higher
professional fees. General and administrative expenses increased as a percentage
of total revenues as a result of the increased growth of general and
administrative expenses in relation to revenue growth.

Amortization of Intangibles

     Amortization of intangibles consists of the costs associated with the
amortization of the intangibles and goodwill associated with the acquisition of
The Well. The acquisition of The Well is being accounted for using the purchase
method of accounting and is being amortized on a straight-line basis over 60
months. Amortization expenses were $256,000 or 8% of total revenue, for the
three months ended December 31, 1999 and $767,000 or 14% of total revenue for
the nine months ended December 31, 1999. There was no amortization expense in
1998.

Stock-based Compensation

     Stock-based compensation consists of expenses associated with the issuance
of stock options and warrants. Stock-based compensation charges were $606,000 or
20% of net revenue for the three months ended December 31, 1999, compared to
$144,000 or 14% of revenue for the three months ended December 31, 1998. Stock
based compensation charges were $1.8 million or 34% of net revenue and $420,000
or 20% of net revenue for the nine months ended December 31, 1999 and 1998,
respectively. The increase in stock based compensation expenses is primarily
attributable to an increased number of employee options to new and existing
employees.


Other Income, Net

     Other income consists primarily of interest earned on Salon's cash, cash
equivalents and short term investments, offset by interest expense on
borrowings. Other income increased to $355,000 in the three months ended
December 31, 1999 from ($2,000) for the three months ended December 31, 1998 and
increased to $802,000 in the nine months ended December 31, 1999 from $16,000
for the nine months ended December 31, 1998. The increase in other income is
primarily attributable to an increase in the amount of interest earned by Salon
due to an increase in Salon's cash balance as a result of its financing
activities including Salon's initial public offering and Series C Financing
activities during the quarter ended June 30, 1999 and the sale of additional
stock in July 1999.

Preferred Deemed Dividend

     The preferred deemed dividend of $11.5 million for the nine months ended
December 31, 1999 is the difference between the offering price of Salon's Series
C preferred stock sold in April 1999, and the deemed fair value of Salon's
common stock on the date of the transaction. This is a one-time non-cash
expense. The preferred dividend expense for the three months ended December 31,
1999 was $0 compared to $59,000 in 1998.

Net Loss

     Salon recorded a pro forma net loss of $5.6 million, or $.49 per share for
the three months ended December 31, 1999 compared to a pro forma net loss of
$1.2 million, or $.28 per share, for the three months ended December 31, 1998.
For the nine months ended December 31, 1999 and 1998, Salon recorded a pro forma
net loss of $13.1 million, or $1.25 per share and $3.9 million, or $.96 per
share, respectively. Salon recorded a net loss of $6.4 million, or $.57 per
share for the three months ended December 31, 1999 compared to a net loss of
$1.4 million, or $3.70 per share for three months ended December 31, 1998. Salon
recorded a net loss of $27.2 million for the nine months ended December 31,

                                       16
<PAGE>

1999, or $3.30 per share compared to a net loss of $4.6 million, or $11.81 per
share for the same period in 1998.

Liquidity and Capital Resources

     Since its inception, Salon has primarily financed its operations through
the private placement of its convertible preferred stock and its initial public
offering of common stock. As of December 31, 1999, Salon had approximately $23.9
million in cash and cash equivalents, and short-term investments which was
obtained through Salon's initial public offering in June 1999 and the sale of
the additional stock in July 1999.

     Net cash used for operations was $11.1 million for the nine months ended
December 31, 1999, compared to $3.8 million for the nine months ended December
31, 1998. The principal use of cash from operations was the net loss generated
from operations.

     Net cash used for investing activities totaled $11.5 million for the nine
months ended December 31, 1999, compared to $394,000 for the nine months ended
December 31, 1998. Net cash used for investing activities in each of these
respective periods consisted of purchases of short-term investments and
purchases of certain equipment.

     Net cash provided by financing activities increased to $35.5 million for
the nine months ended December 31, 1999 from net cash used in financing
activities of $3.8 million for the nine months ended December 31, 1998. The
increase was primarily due to the receipt of $24.0 million of net proceeds from
Salon's initial public offering in June 1999 and $10.9 million of net proceeds
from the private placement of preferred stock in April 1999 and $1.0 million for
the sale of additional stock in July 1999.

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

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



Year 2000 Compliance

     The company has completed its Year 2000 ("Y2K") Project as scheduled,
including addressing leap year calendar date calculation concerns. The
possibility of significant interruptions of normal operations has been reduced.
As of February 9, 2000, the company has operated without any significant or
material Y2K related problems. The company believes that all its critical
systems are Y2K ready. However, there is no guarantee that the company has
discovered all possible failure points.

     Salon is heavily dependent on a significant number of third party vendors
to provide both network services and equipment. A significant year 2000-related
disruption of the service or equipment that third

                                       17
<PAGE>

party vendors provide to Salon could cause Salon's users, advertisers or
sponsors to consider seeking alternate content providers or cause an
unmanageable burden on its technical support, which in turn could harm Salon's
business. Salon is not aware that any of its major customers or third party
suppliers have experienced significant Y2K related problems

     To date, Salon has spent an estimated $200,000 on this project. Most of
Salon's expenses have related to the operating costs associated with time spent
by employees and consultants in the evaluation process and year 2000 readiness
matters generally.

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

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

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

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

     We have not achieved profitability and expect to incur operating losses for
the foreseeable future. We incurred net losses attributable to common
stockholders of $27.2 million in the nine months ended December 31 1999 and $6.2
million in the fiscal year ended March 31, 1999. As of December 31, 1999, our
accumulated deficit was $40.0 million. We expect these operating losses to
continue for at least the foreseeable future. We will need to generate
significant revenues to achieve and maintain profitability, and we may not be
able to do so. Even if we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis in the future.
If our revenues grow more slowly than we anticipate or if our operating expenses
exceed our expectations, our financial results would be severely harmed.

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

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

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

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

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

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

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

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

     .    the level of Internet usage;

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

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

                                       18
<PAGE>

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

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

     In order to attract and retain a larger user base, we plan to significantly
increase our expenditures on sales and marketing, content development,
technology and infrastructure. Many of these expenditures are planned or
committed in advance and in anticipation of future revenues. If our revenues in
a particular quarter are lower than we anticipate, we may be unable to reduce
spending in that quarter. As a result, any shortfall in revenues would likely
harm our quarterly operating results.

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

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

     Our revenues for the foreseeable future will depend substantially on sales
of advertising and sponsorships. In the three months ended December 31, 1999,
advertising and sponsorship sales accounted for 95% of our net revenues, and in
the fiscal year ended March 31, 1999 they accounted for 94% of our net revenues.
In order to increase our revenues, we will need to attract additional
significant banner advertisers, advertising sponsors and electronic commerce
sponsors on an ongoing basis. We may not be able to attract or retain a
sufficient number of banner advertisers or advertising sponsors in the future,
and if we cannot, our business would likely be severely harmed. Increasing our
advertising and sponsorship revenues depends upon many factors, including
whether we will be able to:

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

     .    increase our user base;

     .    increase the amount of revenues we receive per sponsorship;

     .    increase awareness of the Salon brand;

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

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

     .    attract and retain sales personnel.

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

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

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

                                       19
<PAGE>

contractually obligated to purchase any advertising in the future, we are unable
to anticipate our mix of banner advertisers and advertising sponsors in future
fiscal periods.

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

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

     .    advertisers' and sponsors' budgets;

     .    internal acceptance reviews by advertisers and their agencies;

     .    the timing of completion of advertisements and sponsorships; and

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

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

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

     .    expand our content and communities;

     .    expand our network of distribution partners;

     .    grow Salon brand recognition through advertising and syndication;

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

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

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

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

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

                                       20
<PAGE>

We must continually develop compelling content to attract Internet users

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

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

     . the quality of our editorial staff; and

     . the technical expertise of our production staff.

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

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

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

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

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

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

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

         We expect that we will need to hire additional personnel in all areas
in 1999. Competition for personnel in the Internet industry is intense. We may
be unable to retain our current key employees or

                                       21
<PAGE>

attract, integrate or retain other qualified employees in the future. If we do
not succeed in attracting new personnel or integrating, retaining and motivating
our current personnel, our business could be harmed.

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

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

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

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

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

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

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

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

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

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<PAGE>

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

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

     We have experienced and are currently experiencing a period of significant
growth. In the year ended December 31, 1999 our number of employees increased
225%. In the three months ended December 31, 1999 our total revenues increased
approximately 193% and our net expenses increased approximately 306% compared to
the three months ended December 31, 1998. If we cannot manage our growth
effectively, we may not be able to coordinate the activities of our technical,
accounting, finance, marketing, sales and production staffs, and our business
could be harmed. We intend to add new subject-specific Web sites to our network,
hire additional staff in all departments, expand existing offices and open new
offices. As part of this growth, we will have to implement new operational
procedures and controls to train and manage our employees and to expand and
coordinate the operations of our various departments. If we acquire new
businesses, we will also need to integrate new operations, technologies and
personnel. If we cannot manage the growth of our network of Web sites, staff,
offices and business generally our business could be harmed.

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

     Acquisitions and business combinations entail numerous operational
     risks, including:

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

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

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

     . potential loss of key employees of acquired businesses.

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

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

     We believe that our current cash resources, combined with the net proceeds
from this offering, will meet our anticipated working capital and capital
expenditure requirements for at least the 12 months. We may need to raise
additional capital to do the following:

     . expand our network of Web sites and interactive communities;

     . increase our electronic commerce opportunities;

     . aggressively promote awareness of the Salon brand;

     . make payments under distribution relationships;

     . respond to competitive pressures; or

     . acquire complementary businesses or technologies.

     If we raise additional capital by issuing equity or convertible debt
securities, the percentage ownership of our then-current stockholders will be
reduced, and such securities may have rights,

                                       23
<PAGE>

preferences or privileges senior to those of our current stockholders.
Additionally, we may not be able to obtain additional financing on favorable
terms, or at all. If adequate capital is not available on acceptable terms, our
ability to expand, take advantage of unanticipated opportunities, develop or
enhance services or otherwise respond to competitive pressures would be
significantly limited. This limitation could harm our business.

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

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

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

     Different pricing models are used to sell Internet advertising. It is
difficult to predict which pricing models, if any, will emerge as the industry
standard. This uncertainty makes it difficult to project our future advertising
rates and revenues. Any failure to adapt to pricing models that develop or
respond to competitive pressures could reduce our advertising revenues.
Moreover, "filter" software programs that limit or prevent advertising from
being delivered to an Internet user's computer are commonly available.
Widespread use of this software could adversely affect the commercial viability
of Internet advertising and our business.

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

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

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

     It is important to our advertisers and sponsors that we accurately measure
the demographics of our user base and the delivery of advertisements on our Web
sites. We depend on third parties to provide certain of these measurement
services. If they are unable to provide these services in the future, we would
need to perform them ourselves or obtain them from another provider, if
available. This could cause us to incur additional costs or cause interruptions
in our business while we are replacing these services.

                                       24
<PAGE>

Companies may choose to not advertise on Salon or may pay less for advertising
or sponsorships if they do not perceive our measurements or measurements made by
third parties to be reliable.

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

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

     . inadequate network infrastructure;

     . security concerns;

     . inconsistent quality of service; and

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

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

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

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

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

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

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

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

                                       25
<PAGE>

adoption of new standards and protocols to handle increased levels of activity.
If the Internet infrastructure is not adequately developed or maintained, use of
our network of Web sites may be reduced.

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

We may be held liable for content on our Web sites

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

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

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

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

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

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

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

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

                                       26
<PAGE>

be harmed. Our insurance policies may not adequately compensate us for any
losses that may occur due to any failures of or interruptions in our systems. We
do not presently have a formal disaster recovery plan.

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

Governmental regulation of the Internet may restrict our business

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

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

                                       27
<PAGE>

       PART II: OTHER INFORMATION
_______________________________________________________________________________

Item 1. Legal Proceedings.

None at this time.

Item 2. Changes in Securities and Use of Proceeds

Not Applicable

Item 3. Default upon senior securities.

Not Applicable

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

Not applicable

Item 5. Other Information

Not applicable.

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

     (a)  Exhibits
          --------
          10.0 Rainbow Media Holdings stock purchase agreement

          10.1 Bravo Website Agreement

          10.2 Bravo Production Agreement

          27.1 Financial Data Schedule


     (b)  Reports on Form 8-K. No reports on form 8-K were filed during the
          quarter ended December 31, 1999.

                                       28
<PAGE>

Signatures

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

                        SALON.COM

                        (Registrant)

       Dated:           By: /s/  Michael O'Donnell         2/14/00
                        --------------------------------------------
                        Michael O'Donnell, Chief Executive Officer

       Dated:           By:  /s/ Todd Hagen                2/14/00
                        --------------------------------------------
                        Todd Hagen, Chief Financial Officer

                                       29
<PAGE>

                                 EXHIBIT INDEX

       Exhibits
       --------
       10.0 Rainbow Media Holdings stock purchase agreement

       10.1 Bravo Website Agreement

       10.2 Bravo Production Agreement

       27.1 Financial Data Schedule

                                       30