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

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

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

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 2005
                                       or

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

               For the transition period from ________ to ________

                         Commission file number 0-26395

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

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

                           101 Spear Street, Suite 203
                             San Francisco, CA 94105
                    (Address of principal executive offices)

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

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

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

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

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

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

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

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

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

The number of outstanding shares of the Registrant's Common Stock, par value
$0.001 per share, on November 9, 2005 was 16,095,046 shares.

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

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


                                                                           Page
PART I    FINANCIAL INFORMATION                                           Number


ITEM 1:   Condensed Consolidated Financial Statements

          Condensed Consolidated Balance Sheets as of September 30, 2005
          (unaudited) and March 31, 2005.....................................  3

          Condensed Consolidated Statements of Operations for the three
          months and six months ended September 30, 2005 and 2004
          (unaudited) .......................................................  4

          Condensed Consolidated Statements of Cash Flows for the six
          months ended September 30, 2005 and 2004 (unaudited) ..............  5

          Notes to Condensed Consolidated Financial Statements (unaudited)...  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......... 26

ITEM 4:   Controls and Procedures............................................ 26

PART II   OTHER INFORMATION

ITEM 1:   Legal Proceedings.................................................. 27

ITEM 2.   Unregistered Sales of Equity Securities and Use of Proceeds........ 27

ITEM 3.   Defaults upon Senior Securities.................................... 27

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

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

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

          Signatures......................................................... 28


                                       2
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                         September 30,     March 31,
                                                                             2005            2005
                                                                         ------------    ------------
                                                                         (Unaudited)
<S>                                                                      <C>             <C>
Assets
   Current assets:
       Cash and cash equivalents                                         $        374    $        686
       Accounts receivable, net                                                   786             623
       Prepaid expenses and other current assets                                  136             232
                                                                         ------------    ------------
       Total current assets                                                     1,296           1,541
   Property and equipment, net                                                    164             191
   Prepaid advertising rights                                                   3,872           3,970
   Goodwill, net                                                                  200             200
   Other assets                                                                   169             167
                                                                         ------------    ------------
       Total assets                                                      $      5,701    $      6,069
                                                                         ============    ============
Liabilities and stockholders' equity
   Current liabilities:
       Accounts payable and accrued liabilities                          $        624    $        788
       Deferred revenue                                                           944           1,047
                                                                         ------------    ------------
       Total current liabilities                                                1,568           1,835
   Long-term liabilities
       Other long-term liabilities                                                133              82
                                                                         ------------    ------------
       Total liabilities                                                        1,701           1,917
                                                                         ------------    ------------
Stockholders' equity:
   Preferred stock, $0.001 par value, 5,000,000 shares authorized,
       8,386 shares issued and outstanding at September 30, 2005
       and March 31, 2005 (liquidation value of $21,078 at
       September 30, 2005)                                                          -               -
   Common stock, $0.001 par value, 600,000,000 shares
       authorized, 15,452,189 shares issued and outstanding
       at September 30, 2005 and 14,970,622 shares issued
       and outstanding at March 31, 2005                                           15              15
   Additional paid-in-capital                                                  95,573          95,430
   Unearned compensation                                                          (19)              -
   Accumulated deficit                                                        (91,569)        (91,293)
                                                                         ------------    ------------
       Total stockholders' equity                                               4,000           4,152
                                                                         ------------    ------------
       Total liabilities and stockholders' equity                        $      5,701    $      6,069
                                                                         ============    ============
</TABLE>

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


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                             Three Months Ended         Six Months Ended
                                                               September 30,              September 30,
                                                           ----------------------    ----------------------
                                                              2005         2004         2005         2004
                                                           ---------    ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>          <C>
Net revenues                                               $   1,654    $   1,256    $   3,284    $   2,989
                                                           ---------    ---------    ---------    ---------

Operating expenses:
    Production and content                                     1,040        1,004        2,093        2,204
    Sales and marketing                                          348          387          665          855
    Research and development                                     189          156          373          291
    General and administrative                                   238          133          449          361
                                                           ---------    ---------    ---------    ---------
        Total operating expenses                               1,815        1,680        3,580        3,711
                                                           ---------    ---------    ---------    ---------

Loss from operations                                            (161)        (424)        (296)        (722)
Other income (expense), net                                        1          720           20          447
                                                           ---------    ---------    ---------    ---------
        Net profit (loss)                                       (160)         296         (276)        (275)

Preferred deemed dividend                                          -          722            -          129
                                                           ---------    ---------    ---------    ---------
Net profit (loss) attributable to common stockholders      $    (160)   $   1,018    $    (276)   $    (146)
                                                           =========    =========    =========    =========

Basic net profit (loss) per share attributable
        to common stockholders                             $   (0.01)   $    0.07    $   (0.02)   $   (0.01)
Diluted net profit (loss) per share attributable
        to common stockholders                             $   (0.01)   $    0.00    $   (0.02)   $   (0.01)
</TABLE>

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


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                          Six Months Ended
                                                                                            September 30,
                                                                                       ----------------------
                                                                                          2005         2004
                                                                                       ---------    ---------
<S>                                                                                    <C>          <C>
Cash flows from operating activities:
     Net loss                                                                          $    (276)   $    (275)
     Adjustments to reconcile net loss to net cash used in operating activities:
        Warrant re-valuation                                                                   -         (406)
        Depreciation and amortization                                                         80          178
        Allowance for recovery of doubtful accounts                                            -           (1)
        Stock compensation expense                                                            62            -
        Amortization of prepaid advertising rights                                            98          281
        Changes in assets and liabilities:
           Accounts receivable                                                              (163)        (309)
           Prepaid expenses, other current assets and other assets                            94          (16)
           Accounts payable, accrued liabilities, and other long-term liabilities           (113)        (210)
           Deferred revenue                                                                 (103)           9
                                                                                       ---------    ---------
              Net cash used in operating activities                                         (321)        (749)
                                                                                       ---------    ---------

Cash flows from investing activities:
     Purchase of property and equipment                                                      (20)        (130)
     Proceeds from asset sales                                                                 -            -
                                                                                       ---------    ---------
              Net cash used by investing activities                                          (20)        (130)
                                                                                       ---------    ---------

Cash flows from financing activities:
     Proceeds from issuance of common stock                                                   29            2
     Proceeds from issuance of preferred stock, net                                            -          744
     Principal payments under capital lease obligations                                        -          (16)
                                                                                       ---------    ---------
              Net cash provided by financing activities                                       29          730
                                                                                       ---------    ---------

Net decrease in cash and cash equivalents                                                   (312)        (149)
Cash and cash equivalents at beginning of period                                             686          696
                                                                                       ---------    ---------
Cash and cash equivalents at end of period                                             $     374    $     547
                                                                                       =========    =========

Supplemental schedule of non-cash investing and financing activities:
     Preferred deemed dividend in connection with preferred stock financing            $       -    $     218
     Preferred deemed dividend from warrant re-valuation                                       -         (347)
</TABLE>

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


                                       5
<PAGE>

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

1.   The Company

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

2.   Basis of Presentation

     These interim condensed consolidated financial statements are unaudited and
have been prepared on the same basis as the annual financial statements and, in
the opinion of management, reflect all adjustments, which include only normal
recurring adjustments necessary to present fairly Salon's consolidated financial
position, consolidated results of operations and consolidated cash flows for the
periods presented. The condensed consolidated balance sheet data as of March 31,
2005 is derived from and should be read in conjunction with the audited
financial statements, which are included in Salon's Annual Report on Form 10-K
filed with the Securities and Exchange Commission, as amended. Pursuant to the
rules of the Securities and Exchange Commission, these financial statements do
not include all disclosures required by generally accepted accounting
principles. The results for the six months ended September 30, 2005 are not
necessarily indicative of the expected results for any other interim period or
for the fiscal year ending March 31, 2006.

     These condensed consolidated financial statements contemplate the
realization of assets and the satisfaction of liabilities in the normal course
of business. Salon has incurred annual losses and negative cash flows from
operations since inception and has an accumulated deficit at September 30, 2005
of $91,569. These factors raise substantial doubt about Salon's ability to
continue as a going concern.

     Salon's independent accountants for the years ended March 31, 2003, 2004
and 2005 have included a paragraph in their reports indicating substantial doubt
as to Salon's ability to continue as a going concern due to recurring operating
losses and negative cash flows. To address the negative cash flows, Salon
reduced expenses, evidenced by net cash used in operating activities decreasing
from $5.0 million for the year ended March 31, 2002 to $2.8 million for the year
ended March 31, 2004. The reduction in use of cash facilitated raising capital
during this period, which in turn facilitated being awarded a greater number of
advertisements, as advertisers gained confidence in Salon's survivability.

     The renewed confidence in Salon, plus the resurging Internet ad market,
resulted in advertising revenues increasing from $1.8 million for the year ended
March 31, 2004 to $3.6 million for the year ended March 31, 2005 which in turn
caused the net cash used in operations to decrease to $0.8 million for the year
ended March 31, 2005. This trend has continued for the six months ended
September 30, 2005 as the cash used in operations was $0.3 million as compared
to $0.7 million for the six months ended September 30, 2004. Salon's available
cash therefore decreased from $0.7 million as of March 31, 2005 to $0.4 million
as of September 30, 2005, as Salon had immaterial investing and financing
activities during this six month period.

     Based on projected trade receivable receipts, expense payments, advertising
revenues of $2.2-$2.5 million and total revenues of $3.6-$3.9 million, Salon
estimates that for the six month period ending


                                       6
<PAGE>

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

March 31, 2006 that cash from operating activities may range from break-even to
providing up to $0.3 million in cash, while maintaining immaterial investing and
financing activities, except as noted below. Salon therefore estimates that its
cash on hand as of March 31, 2006 may range from $0.4 million to $0.7 million.
In addition, though more difficult to predict, based on projected trade
receivable receipts, expense payments, advertising revenues of $2.2-$2.5 million
and total revenues of $3.7-$4.0 million, Salon estimates that for the six month
period ending September 30, 2006 that cash from operating activities may range
from break even to providing up to $0.3 million in cash, while maintaining
immaterial investing and financing activities. Salon therefore estimates that
its cash on hand as of September 30, 2006 may range from $0.4 million to $0.7
million, assuming the prior 6-month goals are achieved. These forecasted amounts
assume that Salon will be able to maintain its cash receipts from Salon Premium
at current levels and does not experience a continual contraction in the number
of members to this service. There is no certainty that Salon will be able to
attain any of the above mentioned projected amounts.

     The "Securities Purchase Agreement", as amended to date, and the
"Certificate of Designation of Preferences and Rights of the Series D-1
Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred Stock, Series
D-4 Preferred Stock and Series D-5 Preferred Stock," (collectively, the Series D
preferred stock) allow Salon to sell and issue an additional 1,251 shares of
Series D preferred stock, for which Salon could receive approximately $1.5
million in cash. As Salon forecasts periods of available cash less than $0.3
million in November 2005 and December 2005, and in the event that projected cash
balances in the next twelve months are less than forecast, Salon anticipates
that it will seek purchasers for some or all of the remaining 1,251 shares of
Series D preferred stock. There is no guarantee that Salon will be successful in
finding buyers for these securities.

     Salon is currently attempting to sell The Well, an on-line community it
purchased in 1999. As of this filing, Salon has not found a suitable buyer for
this asset, which has a book value of approximately $0.2 million, all of which
is goodwill. The potential sale of The Well is not driven by a need to generate
cash to finance Salon's operations, but to free management to concentrate on its
core operations.

3.   Concentrations of Credit Risk

     No customers accounted for more than 10% of total revenue for the three or
six-month periods ended September 30, 2005 and September 30, 2004. No customer
accounted for 10% or more of the total accounts receivable balance as of
September 30, 2005. One customer accounted for 14% of the total accounts
receivable balance as of September 30, 2004.

4.   Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 123R (revised 2004),
"Share-Based Payment" (SFAS 123R). In annual periods beginning after June 15,
2005, as amended by the Securities and Exchange Commission (SEC), SFAS 123R
would eliminate the ability to account for equity-based compensation using the
intrinsic value-based method under Accounting Principles Board (APB) Opinion No.
25. SFAS 123R requires companies to calculate equity-based compensation expense
for stock compensation awards based on the fair value of the equity instrument
at the time of grant. Salon currently uses, and will use upon adoption of SFAS
123R, the Black-Scholes option pricing model to determine the value of its stock
compensation awards, but may later determine that an alternative model may be
more appropriate.


                                       7
<PAGE>

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


     Under SFAS 123R, public companies are allowed to select from two
alternative transition methods: the Modified Prospective Application, which
allows for the adoption of SFAS 123R without restatement of prior interim
periods in the year of adoption; and the Modified Retrospective Application
which allows companies to restate prior financial statements. Salon expects to
adopt SFAS 123R beginning in the first quarter of fiscal year 2007, as required,
using the Modified Prospective method, and will not restate prior periods for
the adoption of SFAS 123R.

     Currently, Salon discloses pro forma net income (loss) and related pro
forma net income (loss) per share in accordance with SFAS 123 "Accounting for
Stock-Based Compensation" and SFAS 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure-An Amendment of FASB Statement No. 123".
Under SFAS 123R, equity-based compensation expense is required to be recognized
in companies' financial statements.

     The amounts disclosed within the footnotes are not necessarily indicative
of the amounts that will be expensed upon the adoption of SFAS No. 123R.
Compensation expense calculated under SFAS No. 123R may differ materially from
amounts currently disclosed within the footnotes, as a result of changes in the
fair value of our common stock, the term in which the options vest, changes in
the number of options granted, the treatment of tax benefits that may result,
and changes in interest rates or other factors.

     In May 2005, the FASB issued SFAS 154 "Accounting Changes and Error
Corrections." which replaces APB Opinion No. 20 "Accounting Changes" and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements--An
Amendment of APB Opinion No. 28." SFAS 154 provides guidance on the accounting
for and reporting of accounting changes and error corrections. Specifically,
this statement requires "retrospective application" of the direct effect for a
voluntary change in accounting principle to prior periods' financial statements,
if it is practicable to do so. SFAS 154 also strictly redefines the term
"restatement" to mean the correction of an error by revising previously issued
financial statements. SFAS 154 replaces APB No. 20, which requires that most
voluntary changes in accounting principle be recognized by including in net
income of the period of the change the cumulative effect of changing to the new
accounting principle. SFAS 154 is effective for accounting changes and
correction of errors made in fiscal years beginning after December 15, 2005 and
is required to be adopted by Salon in the first quarter of fiscal 2007. Salon
does not currently believe adoption will have a material impact on its results
of operations, financial position or cash flows.

5.   Warrant Valuation

     Until November 22, 2004, Salon had an inadequate number of authorized
common shares to satisfy all convertible preferred shares, warrant agreements
and option grants, which required Salon to record as an additional liability the
value of any new warrants issued, and to re-measure the value of all warrants
issued at each balance sheet period, with such change recorded in Salon's
results of operations. At Salon's Annual Meeting of Stockholders held on
November 17, 2004, Salon's stockholders approved an amendment to the certificate
of incorporation to increase the number of authorized common shares from
50,000,000 to 600,000,000, with such amendment being filed with the Delaware
Secretary of State on November 22, 2004. As of that day, Salon was relieved of
the requirement to record the value of warrants as a long-term liability and
corresponding charges or benefits to its results of operations.


                                       8
<PAGE>

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

     The September 30, 2004 re-measurement of value of all warrants then
outstanding resulted in a non-cash charge to operations as follows:

                                  Three Months Ended       Six Months Ended
                                     September 30,           September 30,
                                 ---------------------   ---------------------
Operating results affected          2005        2004        2005        2004
                                 ---------   ---------   ---------   ---------
Production and content           $       -   $     134   $       -   $      62
General and administrative               -          68           -          33
Other income (expense), net              -         694           -         311
Preferred deemed dividend                -         745           -         347
                                 ---------   ---------   ---------   ---------
                                 $       -   $   1,641   $       -   $     753
                                 =========   =========   =========   =========

6.   Goodwill Amortization and Intangible Assets

     The following table sets forth information concerning Salon's goodwill and
intangible assets as of September 30, 2005 and March 31, 2005:

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

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

7.   Subsequent Events

     In October 2005, Salon's former Chief Executive Officer and President
converted a warrant for 1,000,000 shares of common stock at an exercise price of
$0.05 per share to 642,857 shares of common stock for which Salon did not
receive any consideration.

     In November 2005, the Series D Securities Purchase Agreement dated as of
June 4, 2004 as amended on September 30, 2004 and on February 2, 2005, was
further amended by a majority of the Purchasers and Salon to allow Salon to
deliver notice of its desire for Purchasers to purchase shares of Series D
preferred stock at any time prior to December 31, 2006. The original Purchase
Agreement, as previously amended, stipulated that Salon could deliver notice of
its desire for Purchasers to purchase shares of Series D preferred stock on or
before the 10th calendar day of the final month of each fiscal quarter up until
the first quarter of Fiscal Year 2006.


                                       9
<PAGE>

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

8.   Net Profit (Loss) Per Share

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

<TABLE>
<CAPTION>
                                                                Three Months Ended                 Six Months Ended
                                                                   September 30                      September 30
                                                           ------------------------------   ------------------------------
                                                                2005             2004            2005             2004
                                                           -------------    -------------   -------------    -------------
<S>                                                        <C>              <C>             <C>              <C>
Numerator:
     Numerator for basic and diluted net profit
     (loss) attributable to common stockholders            $        (160)   $       1,018   $        (276)   $        (146)

Denominator:
     Weighted average common shares outstanding               15,428,000       14,161,000      15,280,000       14,158,000
     Denominator for basic net profit (loss)
           attributable to common stockholders             -------------    -------------   -------------    -------------
           weighted average shares                            15,428,000       14,161,000      15,280,000       14,158,000

     Effect of dilutive preferred stock                                -      176,513,000               -                -
     Effect of dilutive common stock warrants                          -       14,238,000               -                -
     Effect of dilutive common stock options                           -          236,000               -                -
                                                           -------------    -------------   -------------    -------------
     Denominator for diluted net profit (loss)
           attributable to common stockholders per share      15,428,000      205,148,000      15,280,000       14,158,000

Antidilutive securities including options,
     warrants, and convertible preferred stock not
     included in net loss attributable to common
     stockholder per share calculation                       237,919,982        2,104,000     237,919,982      207,759,983
</TABLE>

     In May 2005, Salon issued options to purchase 393,000 shares of common
stock to two consultants. The options were granted at $0.26 per share, which was
the closing price of Salon's common stock on the date of grant. Of the options
granted, 50% of the shares subject to options vested on the date of grant and
50% of the shares subject to the options vest on February 7, 2006, as long as
the named individuals continue to provide services as a consultant. The
estimated grant date present value of $80 was calculated using the Black-Scholes
option-pricing model with the following material assumptions: (i) a risk-free
rate of 3.8%, (ii) expected volatility of 120%, (iii) expected life of 4 years,
and (iv) no dividend. Accordingly, $14 and $62 were charged to operations for
the three and six months ended September 30, 2005, respectively.


                                       10
<PAGE>

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

     If Salon's compensation expense under its stock option plan had been
determined pursuant to SFAS No. 123R, Salon's net loss per share would have been
as follows:

<TABLE>
<CAPTION>
                                                                        Three Months Ended         Six Months Ended
                                                                           September 30              September 30
                                                                      ----------------------    ----------------------
                                                                         2005         2004         2005         2004
                                                                      ---------    ---------    ---------    ---------
<S>                                                                   <C>          <C>          <C>          <C>
Net profit (loss) attributable to common stockholders:
    As reported                                                       $    (160)   $   1,018    $    (276)   $    (146)
    Add back: stock-based employee compensation
       expense included in reported net loss                                  -            -            -            -

    Deduct: total stock-based compensation
       expense determined under the fair value
       based method, net of related tax                                    (480)         (10)      (1,639)         (26)
                                                                      ---------    ---------    ---------    ---------
    Pro forma net profit (loss) attributable to common stockholders   $    (640)   $   1,008    $  (1,915)   $    (172)
                                                                      =========    =========    =========    =========

Basic net profit (loss) per share attributable
    to common stockholders:
       As reported                                                    $   (0.01)   $    0.07    $   (0.02)   $   (0.01)
       Pro forma                                                      $   (0.04)   $    0.07    $   (0.13)   $   (0.01)

Diluted net profit (loss) per share attributable
    to common stockholders:
       As reported                                                    $   (0.01)   $    0.00    $   (0.02)   $   (0.01)
       Pro forma                                                      $   (0.04)   $    0.00    $   (0.13)   $   (0.01)
</TABLE>


                                       11
<PAGE>

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

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

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

Overview

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

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

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

Results of Operations for the Three and Six Months Ended September 30, 2005
Compared To the Three and Six Months Ended September 30, 2004

Net revenues:

     Net revenues increased 32% to $1.7 million for the three months ended
September 30, 2005 from $1.3 million for the three months ended September 30,
2004 and increased 10% to $3.3 million for the six months ended September 30,
2005 from $3.0 million for the six months ended September 30, 2004.


                                       12
<PAGE>

     Advertising revenues increased to $0.9 million for the three months ended
September 30, 2005 from $0.5 million for the three months ended September 30,
2004, or 64%, and increased to $1.8 million for the six months ended September
30, 2005 from $1.5 million for the six months ended September 30, 2004. The
increase in advertising sales reflects an industry wide trend of corporations
earmarking more funds for Internet advertising. Salon estimates that advertising
revenues for the three months ending December 31, 2005 will be approximately
$1.2 - $1.5 million.

     Salon Premium subscription revenues were $0.5 million for each of the three
months ended September 30, 2005 and the three months ended September 30, 2004
and $1,076,000 for the six months ended September 30, 2005 and $1,036,000 for
the six months ended September 30, 2004. Even though the revenue recognized has
stayed constant, the number of subscribers has been declining. Salon had
approximately 17,000 and 31,900 paid one year subscribers for the three and six
months ended September 30, 2005, respectively, compared to 19,600 and 40,300 for
the three and six months ended September 30, 2004. The larger number of paid one
year subscribers last year was primarily attributable to capitalizing on reader
interest in Salon's political coverage during the 2004 election year, with no
comparable event taking place this year. The decline in paid subscriptions has
resulted in the total number of paid subscribers dropping from approximately
84,500 at March 31, 2005 to approximately 80,600 at June 30, 2005, to
approximately 77,400 at September 30, 2005. The number of paid subscribers
dropped further to approximately 73,300 on November 1, 2005. This downward trend
was somewhat mitigated by the renewal rate for one year paid subscriptions
increasing from 66% as of June 30, 2005 to 67% as of September 30, 2005. Salon
cannot predict if these trends will continue. Salon estimates that it will
recognize $0.5 million of Salon Premium revenue for the three months ended
December 31, 2005.

     Revenues from all other sources were $0.2 million and $0.4 million,
respectively, for each of the three months and six months ended September 30,
2005 and the three and six months ended September 30, 2004. Salon estimates that
all other sources of revenue for the three months ending December 31, 2005 will
be approximately $0.2 million. Approximately half of this revenue is derived
from The Well, an on-line discussion forum. Salon is seeking a buyer for this
business, but cannot estimate when, or if, it will be able to find a suitable
buyer.

Production and content:

     Production and content expenses were $1.0 million for each of the three
months ended September 30, 2005 and September 30, 2004. Temporary changes in
staffing and other reduced expenses of $0.1 million during the current period
offset the $0.1 million credit recorded last year for the reduction in value of
previously issued warrants.

     Production and content expenses during the six months ended September 30,
2005 were $2.1 million compared to $2.2 million during the six months ended
September 30, 2004, a decrease of $0.1 million or 5%. The decrease is
attributable to approximately a $0.1 million of reduced salary related expenses
from temporary changes in staffing levels and approximately $0.1 million of
reduced ad serving costs as Salon has been able to serve more site pass
advertisements itself this year as compared to last year, offset by
approximately $0.1 million of option related expenses.

     Salon does not expect material changes to production and content
expenditures in the near future.

Sales and marketing:

     Sales and marketing expenses during the three months ended September 30,
2005 of $348,000 were comparable to $387,000 for the three months ended
September 30, 2004.


                                       13
<PAGE>

     Sales and marketing expenses during the six months ended September 30, 2005
were $0.7 million compared to $0.9 million for the six months ended September
30, 2004, a decrease of $0.2 million or 22%. The decrease between years is
attributable to utilizing fewer advertising credits this year compared to last
year.

     Salon does not expect material changes to sales and marketing expenditures
in the near future.

Research and development:

     Research and development expenses during the three months ended September
30, 2005 of $189,000 were comparable to the $156,000 incurred for the three
months ended September 30, 2004.

     Research and development expenses during the six months ended September 30,
2005 were $0.4 million compared to $0.3 million for the six months ended
September 30, 2004. The $0.1 million increase was from incurring consulting and
other costs this year and not in the prior year.

     Salon does not anticipate material future changes in research and
development expenditures.

General and administrative:

     General and administrative expenses for the three months ended September
30, 2005 were $0.2 million compared to $0.1 million for the three months ended
September 30, 2004, an increase of $0.1 million or 79% as the prior year amounts
included a $0.1 million credit from the revaluation of previously issued
warrants without a comparable credit this year

     General and administrative expenses for the six months ended September 30,
2005 were $449,000 compared to $361,000 for the six months ended September 30,
2004, an increase of approximately $0.1 million. The increase between years is
primarily attributable to raises awarded to two officers last February 2005 and
staff increases.

     Salon does not anticipate material future changes in general and
administrative expenditures.

Other income (expense), net:

     The results for the three and six months ended September 30, 2005 included
an insignificant amount of other income (expense), net.

     The results for the three and six months ended September 30, 2004 include a
non-cash benefit of $0.7 million and $0.3 million, respectively, due to a change
in value of warrants issued to former convertible note holders. The results for
the six months ended September 30, 2004 also include $0.1 million of realized
income, derived from grant monies received by Salon to finance editorial
content, for which Salon's obligation was met during the period.

Preferred deemed dividend:

     The results for the three and six months ended September 30, 2005 did not
include any preferred deemed dividend.

     The non-cash preferred deemed dividend benefit of $0.7 million for the
three months ended September 30, 2004 is primarily attributable to a change in
value of warrants previously issued to preferred stockholders.


                                       14
<PAGE>

     The non-cash preferred deemed dividend benefit of $0.1 million for the six
months ended September 30, 2004 includes a benefit of $0.3 million attributable
to a decrease in value of warrants previously issued to preferred stockholders,
offset by a $0.2 million non-cash preferred deemed dividend charge primarily
from the June 4, 2004 issuance of 417 shares of Series D-1 preferred stock,
which represented the difference between the offering price of Salon's Series
D-1 preferred stock and the fair value of Salon's common stock into which the
preferred stock is convertible on the date of the transaction and the value of
the warrants issued in the transaction.

Net loss attributable to common stockholders:

     As a result of the above factors, Salon recorded a net loss attributable to
common stockholders of $0.2 million, or ($0.01) per share for the three months
ended September 30, 2005 compared to a net profit attributable to common
stockholders of $1.0 million, or $0.07 per basic share, or $0.00 per diluted
share, for the three months ended September 30, 2004. Also as a result of the
above factors, Salon recorded a net loss attributable to common stockholders of
$0.3 million, or ($0.02) per share for the six months ended September 30, 2005
compared to a net loss attributable to common stockholders of $0.1 million, or
($0.01) per share, for the six months ended September 30, 2004.

Liquidity and capital resources:

     Salon's independent accountants for the years ended March 31, 2003, 2004
and 2005 have included a paragraph in their reports indicating substantial doubt
as to Salon's ability to continue as a going concern due to recurring operating
losses and negative cash flows. To address the negative cash flows, Salon
reduced expenses, evidenced by net cash used in operating activities decreasing
from $5.0 million for the year ended March 31, 2002 to $2.8 million for the year
ended March 31, 2004. The reduction in use of cash facilitated raising capital
during this period, which in turn facilitated being awarded a greater number of
advertisements, as advertisers gained confidence in Salon's survivability.

     The renewed confidence in Salon, plus the resurging Internet ad market,
resulted in advertising revenues increasing from $1.8 million for the year ended
March 31, 2004 to $3.6 million for the year ended March 31, 2005 which in turn
caused the net cash used in operations to decrease to $0.8 million for the year
ended March 31, 2005. This trend has continued for the six months ended
September 30, 2005 as the cash used in operations was $0.3 million as compared
to $0.7 million for the six months ended September 30, 2004. Salon's available
cash therefore decreased from $0.7 million as of March 31, 2005 to $0.4 million
as of September 30, 2005, as Salon had immaterial investing and financing
activities during this six month period. During the six months ended September
30, 2004, Salon invested $0.1 million to fund the acquisition of computer
related equipment and received $0.7 million from the issuance of Series D-1 and
D-2 preferred stock, practically all of which was from related parties.

     Based on projected trade receivable receipts, expense payments, advertising
revenues of $2.2-$2.5 million and total revenues of $3.6-$3.9 million, Salon
estimates that for the six month period ending March 31, 2006 that cash from
operating activities may range from break-even to providing up to $0.3 million
in cash, while maintaining immaterial investing and financing activities, except
as noted below. Salon therefore estimates that its cash on hand as of March 31,
2006 may range from $0.4 million to $0.7 million. In addition, though more
difficult to predict, based on projected trade receivable receipts, expense
payments, advertising revenues of $2.2-$2.5 million and total revenues of
$3.7-$4.0 million, Salon estimates that for the six month period ending
September 30, 2006 that cash from operating activities may range from break even
to providing up to $0.3 million in cash, while maintaining immaterial investing
and financing activities. Salon therefore estimates that its cash on hand as of
September 30, 2006 may range from $0.4 million to $0.7 million, assuming the
prior 6-month goals are achieved. These forecasted


                                       15
<PAGE>

amounts assume that Salon will be able to maintain its cash receipts from Salon
Premium at current levels and does not experience a continual contraction in the
number of members to this service. There is no certainty that Salon will be able
to attain any of the above mentioned projected amounts.

     The "Securities Purchase Agreement", as amended to date, and the
"Certificate of Designation of Preferences and Rights of the Series D-1
Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred Stock, Series
D-4 Preferred Stock and Series D-5 Preferred Stock," (collectively, the Series D
preferred stock) allow Salon to sell and issue an additional 1,251 shares of
Series D preferred stock, for which Salon could receive approximately $1.5
million in cash. As Salon forecasts periods of available cash less than $0.3
million in November 2005 and December 2005, and in the event that projected cash
balances in the next twelve months are less than forecast, Salon anticipates
that it will seek purchasers for some or all of the remaining 1,251 shares of
Series D preferred stock. There is no guarantee that Salon will be successful in
finding buyers for these securities.

     Salon is currently attempting to sell The Well, an on-line community it
purchased in 1999. As of this filing, Salon has not found a suitable buyer for
this asset, which has a book value of approximately $0.2 million, all of which
is goodwill. The potential sale of The Well is not driven by a need to generate
cash to finance Salon's operations, but to free management to concentrate on its
core operations.

     Salon's merchant credit card processor has notified Salon that it must
comply with the Payment Card Industry (PCI) Data Security Standard as
promulgated by all major credit card issuers by December 31, 2005, failure of
which will result in suspension of services. As the original deadline for
compliance of June 30, 2005 was not met, Salon could be subject to material
fines if a breach of credit card data were to occur before Salon attains
compliance. Salon anticipates complying with the Standard by December 31, 2005.

Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board (FASB) issued
Standard Financial Accounting Standard (SFAS) No. 123R (revised 2004),
"Share-Based Payment" (SFAS 123R). In annual periods beginning after June 15,
2005, as amended by the Securities and Exchange Commission (SEC), SFAS 123R
would eliminate the ability to account for equity-based compensation using the
intrinsic value-based method under Accounting Principles Board (APB) Opinion No.
25. SFAS 123R requires companies' to calculate equity-based compensation expense
for stock compensation awards based on the fair value of the equity instrument
at the time of grant. Salon currently uses, and will use upon adoption of SFAS
123R, the Black-Scholes option pricing model to determine the value of its stock
compensation awards, but may later determine that an alternative model may be
more appropriate.

     Under SFAS 123R, public companies are allowed to select from two
alternative transition methods: the Modified Prospective Application, which
allows for the adoption of SFAS 123R without restatement of prior interim
periods in the year of adoption and the Modified Retrospective Application which
allows companies to restate prior financial statements. Salon expects to adopt
SFAS 123R beginning in the first quarter of fiscal year 2007, as required, using
the Modified Prospective method, and will not restate prior periods for the
adoption of SFAS 123R.

     Currently, Salon discloses pro forma net income (loss) and related pro
forma net income (loss) per share in accordance with SFAS 123 and SFAS 148
"Accounting for Stock-Based Compensation-Transition and Disclosure - An
Amendment of FASB Statement No. 123". Under SFAS 123R, equity-based compensation
expense is required to be recognized in companies' financial statements.


                                       16
<PAGE>

     The amounts disclosed within the footnotes are not necessarily indicative
of the amounts that will be expensed upon the adoption of SFAS 123R.
Compensation expense calculated under SFAS No. 123R may differ materially from
amounts currently disclosed within the footnotes, as a result of changes in the
fair value of our common stock, the term in which the options vest, changes in
the number of options granted, the treatment of tax benefits that may result,
and changes in interest rates or other factors.

     In May 2005, the FASB issued SFAS 154 "Accounting Changes and Error
Corrections." which replaces APB Opinion No. 20 "Accounting Changes" and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements--An
Amendment of APB Opinion No. 28." SFAS 154 provides guidance on the accounting
for and reporting of accounting changes and error corrections. Specifically,
this statement requires "retrospective application" of the direct effect for a
voluntary change in accounting principle to prior periods' financial statements,
if it is practicable to do so. SFAS 154 also strictly redefines the term
"restatement" to mean the correction of an error by revising previously issued
financial statements. SFAS 154 replaces APB No. 20, which requires that most
voluntary changes in accounting principle be recognized by including in net
income of the period of the change the cumulative effect of changing to the new
accounting principle. SFAS 154 is effective for accounting changes and
correction of errors made in fiscal years beginning after December 15, 2005 and
is required to be adopted by Salon in the first quarter of fiscal 2007. Salon
does not currently believe adoption will have a material impact on its results
of operations, financial position or cash flows.


RISK FACTORS

Factors That May Affect Salon's Future Results and Market Price of Stock

Salon's projected cash flows may not meet expectations

     Salon relies on projections of cash to be generated from operations to run
its operations. The most significant component of its cash projections is cash
to be generated from advertising sales and, to a lesser extent, cash projected
to be generated from subscription services. Forecasting cash receipts from
advertising sales for an extended period of time is problematic due to the short
duration of most advertising sales. If projected amounts of cash do not meet
expectations, Salon's ability to continue as a going concern may be adversely
affected.

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

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

     The certificate of designation and preferences and rights of the Series D
preferred stock stipulates that the Series D conversion price will be equal to
70% of the average closing sales price of Salon's common stock for the thirty
days prior to the date the issue of Series D preferred stock is called by Salon.
Such a discount may trigger a non-cash preferred deemed dividend charge. As
Salon has set a common stock equivalent price of $0.093 per share on the next
issuance of Series D preferred stock, if Salon's common stock were to trade in
excess of this amount on the date of sale of these securities, a preferred
deemed dividend will result. Salon cannot predict to what extent it may incur a
preferred deemed dividend charges, if any.


                                       17
<PAGE>

Salon has relied on related parties for significant investment capital

     Salon has been relying on cash infusions from related parties to fund
operations. The related parties are primarily John Warnock, a Director of Salon,
and William Hambrecht. William Hambrecht is the father of Salon's President and
Chief Executive Officer. Curtailment of cash investments by related parties
could detrimentally impact Salon's cash availability and its ability to fund its
operations.

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

     The holders of Salon's Series A, B, C and D preferred stock collectively
own approximately 95% of all voting securities as of September 30, 2005. These
stockholders therefore own a controlling interest in Salon. Of this amount,
approximately 69% is held by related parties, including former Directors, of
which approximately 21% is controlled directly or indirectly by William
Hambrecht and approximately 41% by Director John Warnock. Therefore, related
parties by themselves own a controlling interest in Salon.

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

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

     Salon's Series A, B, C and D preferred stockholders have liquidation
preferences to common stockholders of the first approximately $21.1 million in
potential sales proceeds as of September 30, 2005, which includes the effect of
undeclared dividends of $2.0 million. If a liquidation event were to occur, and
preferred stock dividends were declared, the holders of preferred stock would be
entitled to the first $21.1 million of cash distributions, while the holders of
common stock would receive none of this amount. If a liquidation event were to
occur in excess of $21.1 million and if preferred stock dividends were to be
declared, the holders of preferred stock would be entitled to receive a
relatively larger distribution than the holders of common stock would be
entitled to receive.

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

     Salon has a history of significant losses and expects to incur a loss from
operations, based on generally accepted accounting principals, for its fiscal
year ending March 31, 2006 and potentially in future years. Once Salon attains
profitability, it may not be able to sustain or increase profitability on a
quarterly or annual basis in the future. If revenues grow slower than Salon
anticipates or operating expenses exceed expectations, financial results will
most likely be severely harmed and the ability of Salon to continue its
operations will be seriously jeopardized.

     Burr, Pilger & Mayer LLP, Salon's independent registered public accounting
firm for the years ended March 31, 2004 and March 31, 2005, included a
"going-concern" audit opinion on the consolidated financial statements for those
years. The audit opinions report substantial doubt about Salon's ability to
continue as a going concern, citing issues such as the history of losses and
absence of current profitability.


                                       18
<PAGE>

As a result of the "going-concern" opinions, Salon's stock price and investment
prospects have been and will continue to be adversely affected, thus limiting
financing choices and raising concerns about the realization of value on assets
and operations.

Salon's operations require attractive content, subscriber interest, and
confidence by subscribers and suppliers that the subscription offering warrants
their long-term support and investment. The absence of any of these factors
could impair the results, revenue and cash flow from subscriptions.

     Salon is under budgetary constraints to control expenditures. These
constraints affect editorial staffing levels and the purchase of content from
freelance writers. These constraints affect the quantity of content published on
Salon's Website and consequently, the positive experience of Website visitors.
The positive experience leads to recurring Website visits, new subscriptions to
Salon Premium, and corresponding high renewal rates of Salon Premium
subscribers. As of September 30, 2005 Salon's renewal rate for one-year paid
subscription to Salon Premium was approximately 67%. Salon cannot predict if
this rate will continue in the future or how many new Salon Premium
subscriptions it will acquire.

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

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

     o    successfully sell and market its Website Site Pass advertisements;

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

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

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

     o    successfully sell and market its network to advertisers;

     o    increase the amount of the advertising order it receives;

     o    increase awareness of the Salon brand;

     o    improve the technology for serving advertising on our Website;

     o    handle temporary high volume traffic spikes to its Website;

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

     o    attract and retain key sales personnel.


                                       19
<PAGE>

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

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

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

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

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

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

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

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


                                       20
<PAGE>

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

     Salon's 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 Salon's control, and any of which could severely harm Salon's
business. These factors include:

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

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

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

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

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

     o    the economic and business cycle and the recovery speed;

     o    the level of Internet usage;

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

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

     o    the amount and timing of operating costs.

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

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

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

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

     The success of the Salon brand depends largely on its ability to provide
high quality content and services. If Internet users do not perceive Salon's
existing content and services to be of high quality, or if


                                       21
<PAGE>

Salon introduces new content and services or enters into new business ventures
that are not favorably perceived by users, Salon may not be successful in
promoting and maintaining the Salon brand. Any change in the focus of its
operations creates a risk of diluting its brand, confusing consumers and
decreasing the value of our user base to advertisers. If Salon is unable to
maintain or grow the Salon brand, its business could be severely harmed.

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

     Salon's success significantly depends on key personnel. In addition,
because Salon's users must perceive the content of Salon's Website as having
been created by credible and notable sources, Salon's success also depends on
the name recognition and reputation of its editorial staff. Due to Salon's
history of losses, Salon may experience difficulty in hiring and retaining
highly skilled employees with appropriate qualifications. Salon may be unable to
retain its current key employees or attract, integrate or retain other qualified
employees in the future. If Salon does not succeed in attracting new personnel
or retaining and motivating its current personnel, its business could be harmed.

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

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

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

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

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

     Salon has developed a proprietary online publishing system and has
developed software to manage its Salon Premium subscription service. If these
systems do not work as intended, or if Salon is unable to continue to develop
these systems to keep up with the rapid evolution of technology for content
delivery and subscription management, its Website or subscription management
systems may not operate properly, which could harm Salon's business.
Additionally, software product design, development and enhancement involve
creativity, expense and the use of new development tools and learning processes.
Delays in software development processes are common, as are project failures,
and either factor could


                                       22
<PAGE>

harm Salon's business. Moreover, complex software products like its online
publishing and subscription management systems frequently contain undetected
errors or shortcomings, and may fail to perform or scale as expected. Although
Salon has tested and will continue to test its systems, errors or deficiencies
may be found in these systems that may impact its business adversely.

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

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

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

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

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

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

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

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

     As a publisher and distributor of content over the Internet, including
user-generated content, links to third party Websites that may be accessible
through Salon.com, or content that includes links or references to a third
party's Website, Salon faces potential liability for defamation, negligence,
copyright, patent or trademark infringement and other claims based on the
nature, content or ownership of the


                                       23
<PAGE>

material that is published on or distributed from its Website. These types of
claims have been brought, sometimes successfully, against online services,
Websites and print publications in the past. Other claims may be based on errors
or false or misleading information provided on linked Websites, including
information deemed to constitute professional advice such as legal, medical,
financial or investment advice. Other claims may be based on links to sexually
explicit Websites. Although Salon carries general liability and media insurance,
its insurance may not be adequate to indemnify Salon for all liabilities
imposed. Any liability that is not covered by its insurance or is in excess of
its insurance coverage could severely harm its financial condition and business.
Implementing measures to reduce its exposure to these forms of liability may
require Salon to spend substantial resources and limit the attractiveness of
Salon's service to users.

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

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

     Salon may be required to expend significant capital and other resources to
protect against the threat of security breaches or to alleviate problems caused
by these breaches. 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.

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

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

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

     Substantially all of Salon's communications hardware and computer hardware
operations for its Website are in facilities in San Francisco, California. Fire,
floods, earthquakes, power loss, telecommunications failures, break-ins,
supplier failure to meet commitments, and similar events could damage these
systems and cause interruptions in its services. Computer viruses, electronic
break-ins or other similar disruptive problems could cause users to stop
visiting Salon's Website and could cause advertisers to terminate any agreements
with Salon. In addition, Salon could lose advertising revenues during these
interruptions and user satisfaction could be negatively impacted if the service
is slow or unavailable. If any of these circumstances occurred, Salon's business
could be harmed. Salon's insurance policies may not adequately compensate it for
any losses that may occur due to any failures of or interruptions in our
systems. Salon does not presently have a formal disaster recovery plan.


                                       24
<PAGE>

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

Privacy concerns could impair Salon's business

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

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

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

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

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

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

     o    after the transaction where the stockholder acquired 15% or more of
          the corporation's assets, the stockholder owned at least 85% of the
          corporation's outstanding voting stock, excluding shares


                                       25
<PAGE>

          owned by directors, officers and employee stock plans in which
          employee participants do not have the right to determine
          confidentially whether shares held under the plan will be tendered in
          a tender or exchange offer; or

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

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

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

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

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

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

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

     In addition, employment agreements with active executive officers, though
currently not in effect, may provide for the payment of severance and
acceleration of options in the event of termination of these executive officers
following a change of control of Salon. These provisions in offer letters could
have the effect of discouraging potential takeover attempts.


Item 3.  Qualitative and Quantitative Disclosure About Market Risk

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


Item 4.  Controls and Procedures

Evaluation of Our Disclosure Controls and Internal Controls

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


                                       26
<PAGE>

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

Changes in internal controls over financial reporting

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


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

Item 1.  Legal Proceedings.

         Not applicable.

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

         During the three months ended September 30, 2005, warrants to acquire
98,530 shares of common stock with an exercise price of $0.09 per share were
exercised by two investors for which Salon received $8,848 in cash. The funds
received will be used for working capital and other general corporate purposes.
The investors included Robert McKay, a Director of Salon, who received 58,423
shares of common stock and The Sarah & William Hambrecht Foundation, of which
Elizabeth Hambrecht, Salon's President and Chief Executive Officer is a trustee,
who received 40,107 shares of common stock.

         During the three months ended September 30, 2005, warrants for 13,369
shares of common stock were converted to 7,050 shares of common stock by one
investor for which Salon did not receive any consideration. The exercise price
per share of the shares converted were $0.09 for 13,369 shares.

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

Item 3.  Default upon senior securities.

         Not applicable.

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

         Not applicable.

Item 5.  Other Information.

         Not applicable.


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<PAGE>

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

(a)      Exhibits.

99.5(1)  Press Release dated August 10, 2005

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

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

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

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

(1)  Incorporated by reference to the exhibit filed with the Registrant's
     Current Report on Form 8-K filed on August 10, 2005.


Signatures

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


                                   SALON MEDIA GROUP, INC.


Dated:  11/14/05                   /s/ Elizabeth Hambrecht
                                   ----------------------------------------
                                   Elizabeth Hambrecht
                                   President and Chief Executive Officer


Dated:  11/14/05                   /s/ Conrad Lowry
                                   ----------------------------------------
                                   Conrad Lowry
                                   Chief Financial Officer and Secretary


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