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

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                ----------------

                                    FORM 10-Q

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

                  For the quarterly period ended June 30, 2007
                                       or

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

                        For the transition period from to

                         Commission file number 0-26395

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

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

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

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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12b-2 of the Act.
   Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |X|

Indicate by check mark whether the Registrant is a shell company as defined by
Rule 12b-2 of the act.
Yes [ ]  No [X]

The number of outstanding shares of the Registrant's Common Stock, par value
$0.001 per share, on August 1, 2007 was 1,939,572 shares.

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

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


                                                                           Page
PART I     FINANCIAL INFORMATION                                          Number

ITEM 1:    Condensed Consolidated Financial Statements

           Condensed Consolidated Balance Sheets as of June 30, 2007
           (unaudited) and March 31, 2007....................................  3

           Condensed Consolidated Statements of Operations for the
           three months ended June 30, 2007 and 2006 (unaudited) ............  4

           Condensed Consolidated Statements of Cash Flows for the
           three months ended June 30, 2007 and 2006 (unaudited) ............  5

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

ITEM 2:    Management's Discussion and Analysis of Financial Condition
           and Results of Operations......................................... 13

ITEM 3:    Quantitative and Qualitative Disclosures About Market Risk........ 19

ITEM 4:    Controls and Procedures........................................... 19

PART II    OTHER INFORMATION

ITEM 1:    Legal Proceedings................................................. 20

ITEM 1a:   Risk Factors...................................................... 20

ITEM 2.    Unregistered Sales of Equity Securities and Use of Proceeds....... 29

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

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

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

ITEM 6:    Exhibits.......................................................... 29

           Signatures........................................................ 30


                                       2
<PAGE>

<TABLE>
<S>     <C>
----------------------------------------------------------------------------------------
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)

                                                                 June 30,      March 31,
                                                                   2007          2007
                                                                ----------    ----------
Assets                                                          (Unaudited)

    Current assets:
       Cash and cash equivalents                                $      347    $      829
       Accounts receivable, net                                      1,429         1,007
       Prepaid expenses and other current assets                        77            53
                                                                ----------    ----------
       Total current assets                                          1,853         1,889
    Property and equipment, net                                        124           115
    Prepaid advertising rights                                       2,623         3,267
    Goodwill, net                                                      200           200
    Other assets                                                       104           134
                                                                ----------    ----------
       Total assets                                             $    4,904    $    5,605
                                                                ==========    ==========
Liabilities and stockholders' equity
    Current liabilities:
       Short-term borrowing                                     $      300   $         -
       Accounts payable and accrued liabilities                        709           762
       Deferred revenue                                                790           792
                                                                ----------    ----------
       Total current liabilities                                     1,799         1,554
    Long-term liabilities
       Other long-term liabilities                                      75            85
                                                                ----------    ----------
       Total liabilities                                             1,874         1,639
                                                                ----------    ----------

Stockholders' equity:
    Preferred stock, $0.001 par value, 5,000,000 shares
       authorized, 9,183 shares issued and outstanding at
       June 30, 2007 and March 31, 2007 (liquidation
       value of $22,542 at June 30, 2007)                                -             -
    Common stock, $0.001 par value, 30,000,000 shares
       authorized, 1,939,572 shares issued and outstanding
       at June 30, 2007 and March 31, 2007                               2             2
    Additional paid-in-capital                                      96,848        96,788
    Accumulated deficit                                            (93,820)      (92,824)
                                                                ----------    ----------
       Total stockholders' equity                                    3,030         3,966
                                                                ----------    ----------
       Total liabilities and stockholders' equity               $    4,904    $    5,605
                                                                ==========    ==========

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


                                            3
</TABLE>
<PAGE>

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

                                                         Three Months Ended
                                                              June 30,
                                                        --------------------
                                                          2007        2006
                                                        --------    --------

Net revenues                                            $  1,974    $  1,545
                                                        --------    --------

Operating expenses:
     Production and content                                1,320       1,268
     Sales and marketing                                   1,076         334
     Information technology support                          176         180
     General and administrative                              398         291
                                                        --------    --------
         Total operating expenses                          2,970       2,073
                                                        --------    --------

Loss from operations                                        (996)       (528)

Other income, net                                              -           3
                                                        --------    --------
Net loss                                                $   (996)   $   (525)
                                                        ========    ========

Basic and diluted net loss per share                    $  (0.51)   $  (0.42)

Weighted average shares used in computing basic
     and diluted net loss per share                        1,940       1,238


                                       4
<PAGE>

<TABLE>
<S>     <C>
                                          SALON MEDIA GROUP, INC.
                              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                               (in thousands)
                                                (Unaudited)

                                                                                     Three Months Ended
                                                                                           June 30,
                                                                                   ------------------------
                                                                                      2007          2006
                                                                                   ----------    ----------
Cash flows from operating activities:
   Net loss                                                                        $     (996)   $     (525)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                         24            20
     Share-based compensation                                                              60            48
     Amortization of prepaid advertising rights                                           644            45
     Changes in assets and liabilities:
        Accounts receivable                                                              (422)         (286)
        Prepaid expenses, other current assets and other assets                             6            17
        Accounts payable, accrued liabilities and other long-term liabilities             (63)            6
        Deferred revenue                                                                   (2)          (74)
                                                                                   ----------    ----------
           Net cash used in operating activities                                         (749)         (749)
                                                                                   ----------    ----------

Cash flows from investing activities:
   Purchase of property and equipment                                                     (33)          (12)
                                                                                   ----------    ----------
           Net cash used by investing activities                                          (33)          (12)
                                                                                   ----------    ----------

Cash flows from financing activities:
   Proceeds from exercise of common stock warrants and options                              -           701
   Proceeds from short-term borrowing                                                     300             -
                                                                                   ----------    ----------
           Net cash provided by financing activities                                      300           701
                                                                                   ----------    ----------

Net decrease in cash and cash equivalents                                                (482)          (60)

Cash and cash equivalents at beginning of period                                          829           441
                                                                                   ----------    ----------

Cash and cash equivalents at end of period                                         $      347    $      381
                                                                                   ==========    ==========

Supplemental schedule of non-cash investing and financing activities:               $       -     $       -


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


                                                     5
</TABLE>
<PAGE>

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

1.   The Company and Significant Accounting Policies

The Company:

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

Basis of Presentation:

     These interim condensed consolidated financial statements are unaudited and
have been prepared on the same basis as the annual financial statements and, in
the opinion of management, reflect all adjustments, which include only normal
recurring adjustments necessary to present fairly Salon's consolidated financial
position, consolidated results of operations and consolidated cash flows for the
periods presented. The condensed consolidated balance sheet data as of March 31,
2007 is derived from and should be read in conjunction with the audited
financial statements, which are included in Salon's Annual Report on Form 10-K
filed with the Securities and Exchange Commission. Pursuant to the rules of the
Securities and Exchange Commission, these financial statements do not include
all disclosures required by generally accepted accounting principles. The
results for the three months ended June 30, 2007 are not necessarily indicative
of the expected results for any other interim period or for the fiscal year
ending March 31, 2008.

     These consolidated financial statements contemplate the realization of
assets and the satisfaction of liabilities in the normal course of business.
Salon has incurred losses and negative cash flows from operations since
inception and has an accumulated deficit at June 30, 2007 of $93,820. In
addition, Salon expects to incur a net loss from operations for its year ending
March 31, 2008. Because of past losses, and a history of negative cash flows
from operations, Salon's independent registered public accounting firm for the
years ended March 31, 2005, March 31, 2006 and March 31, 2007 have included a
paragraph in its reports indicating substantial doubt as to Salon's ability to
continue as a going concern.

     Based on cash projections for the remainder of the fiscal year ending March
31, 2008, Salon estimates it will require an additional $0.4 million cash inflow
to meet operating needs. Salon expects to borrow an additional $0.4 million from
Deutsche Bank Securities (see Note 3 "Borrowing Agreement") to meet this need.
If planned revenues are less than expected, or if planned expenses are more than
expected, the cash shortfall may be higher, which will result in a commensurate
increase in amounts borrowed. Salon expects that it will be able to repay an
anticipated total $0.7 million outstanding under the borrowing agreement by
March 31, 2008. Salon forecasts that it will incur a cash shortage of
approximately $0.3 million between March 31, 2008 and June 30, 2008. As Salon
and its Chairman have a current understanding that no borrowings will be made
under the agreement after May 2008, Salon will likely seek the consent of
Deutsche Bank Securities, Inc. and Salon's Chairman to permit borrowings under
the agreement after May 2008. There is no certainty that Salon will be able to
continue the borrowing agreement after May 2008.


                                       6
<PAGE>

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

Concentration of Credit Risk

     No customer accounted for more than 10% of total revenue for the
three-month periods ended June 30, 2007 and June 30, 2006. One customer
accounted for 11% of the total accounts receivable as of June 30, 2007. No
customer accounted for more than 10% of the total accounts receivable as of June
30, 2006.

Stock-Based Compensation

     Salon accounts for stock-based expenses pursuant to the provisions of
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment, or SFAS 123R, which requires that all share-based payments, including
grants of employee stock options, be recognized as an expense in the statement
of operations based on their grant date fair values and vesting periods, which
is 4 years.

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

                                   Three Months Ended June 30,
                                   ---------------------------
                                       2007          2006
                                   ---------------------------
Risk-free interest rates              5.00%     4.94% - 4.97%
Expected term (in years)                4             4
Expected volatility                    116%      126% - 129%
Dividend yield                          0%            0%

     The expected term of the options of four years represents the estimated
period of time until exercise and is based on historical experience of similar
awards, including the contractual terms, vesting schedules and expectations of
future employee behavior. The expected stock price volatility is based on
historical volatility of Salon's stock. The risk-free interest rate is based on
the implied yield available on U.S. Treasury securities with a term equivalent
to the service period of the stock options, or four years. Salon has not paid
dividends in the past.

     Stock-based compensation expense recognized under SFAS 123R for the three
months ended June 30, 2007 and 2006 was $60 and $48, respectively. As of June
30, 2007, the aggregate stock compensation remaining to be amortized to expenses
was $851. Salon expects this stock compensation balance to be amortized as
follows: $204 during the remainder of fiscal 2008; $272 during fiscal 2009; $264
during fiscal 2010; $106 during fiscal 2011; and $5 during fiscal 2012. The
expected amortization reflects only outstanding stock awards as of June 30,
2007.

Recent Accounting Pronouncements

     In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109" (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements in accordance with FASB Statement No.
109, "Accounting for Income Taxes," and prescribes a recognition threshold and


                                       7
<PAGE>

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

measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The adoption of FIN 48 as of
April 1, 2007 did not impact Salon's results of operations, financial position,
or cash flows.

     In September 2006, the FASB issued Statement of Financial Accounting
Standard No. 157, "Fair Value Measurements," (SFAS 157). SFAS 157 addresses how
companies should measure fair value when they are required to use a fair value
measure for recognition or disclosure purposes under generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS 157 is effective for fiscal years beginning after November 15, 2007. The
adoption of SFAS 157 as of April 1, 2007 did not impact Salon's results of
operations, financial position, or cash flows.

     In February 2007, the FASB issued Statement of Financial Accounting
Standard No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities - Including an Amendment to FASB Statement No. 115," (SFAS 159).
Under SFAS 159 entities will be permitted to measure financial instruments and
certain other assets and liabilities at fair value on an
instrument-by-instrument basis (the fair value option). SFAS 159 is effective
for fiscal years beginning after December 15, 2007 and allows for early
adoption. Salon plans on adopting SFAS 159 in April 2008 and believes that the
adoption of SFAS 159 will not impact Salon's results of operations, financial
position, or cash flows.

2.   Goodwill Amortization and Intangible Assets

     In accordance with FASB No. 142, "Goodwill and Other Intangible Assets"
(SFAS No. 142), goodwill amortization was discontinued as of March 31, 2002. The
carrying value of goodwill at June 30, 2007 and March 31, 2006 was $200 and has
been found not to be impaired.

3.   Borrowing Agreement

     In May 2007, Salon finalized a borrowing agreement with Deutsche Bank
Securities, Inc. that allows Salon to borrow up to $1,000 at a rate of prime
less 0.25%. The agreement is guaranteed in its entirety by Salon's Chairman.
Salon borrowed $300 from the credit agreement on June 28, 2007 and anticipates
borrowing an additional $400 by December 2007. Salon expects to repay all
amounts borrowed by March 31, 2008. Salon and its Chairman have a current
understanding that no borrowings will be made under the agreement after May
2008. As Salon forecasts that it will require additional working capital after
such time, it will likely seek the consent of Deutsche Bank Securities, Inc. and
Salon's Chairman to permit borrowings under the agreement after May 2008.

4.   Stock-Based Compensation

     Salon has adopted certain equity incentive plans as described in Note 7,
"Employee Stock Option Plan," of the notes to consolidated financial statements
in Salon's Annual Report on Form 10-K for the fiscal year ended March 31, 2007.


                                       8
<PAGE>

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

     The following table summarizes activity under Salon's plans for the three
months ended June 30, 2007:

                                                      Weighted
                                     Outstanding       Average      Aggregate
                                        Stock         Exercise      Intrinsic
                                       Options          Price         Value
                                    -------------    -----------   -----------
Balance as of April 1, 2007             2,205,000       $4.67
Options granted under all plans           171,000       $1.36
Exercised                                       -           -
Cancelled                                (103,000)      $4.48
                                    -------------
Outstanding at June 30, 2007            2,273,000       $4.43          $125
                                    =============
Exercisable at June 30, 2007            1,398,000       $6.09             -
Expected to vest                          774,000       $2.02           $94

     The weighted average fair value per share of the stock option awards in the
three months ended June 30, 2007 and 2006 was $1.06 and $2.61, respectively. The
weighted average fair value of options vested during the three months ended June
30, 2007 was $2.64 per share. No options were exercised during the period ended
June 30, 2007.

5.   Net Loss Per Share

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

<TABLE>
<S>     <C>
                                                                               Three Months Ended
                                                                                    June 30,
                                                                           ----------------------------
                                                                               2007            2006
                                                                           ------------    ------------
Numerator:
  Net loss                                                                 $       (996)   $       (525)
                                                                           ============    ============

Denominator:
  Weighted average shares used in computing
     basic and diluted net loss per share                                     1,940,000       1,238,000
                                                                           ============    ============

  Basic and diluted net loss per share                                     $      (0.51)   $      (0.42)
                                                                           ============    ============
  Antidilutive securities including options, warrants and convertible
    preferred stock not included in net loss per share calculation           11,914,000      11,520,000
</TABLE>


                                       9
<PAGE>

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

6.   Warrants

     During the three months ended June 30, 2007, two warrants to purchase a
total of 22,161 shares of common stock with an exercise price of $2.695 per
share expired. Of the two warrants, one for 20,129 shares was issued to Salon's
Chairman. The warrants had been issued in conjunction with the issuance of
Series D-1 preferred stock. The following are the remaining outstanding warrants
as of June 30, 2007:

<TABLE>
<S>     <C>
                                            Warrant        Exercise        Grant       Expiration
Warrant Holder                              Shares           Price         Date           Date
--------------------------------------   ------------    ------------   -----------   ------------
John Warnock                                  17,018          $2.485      09/30/04       09/30/07
Michael Doyle                                  5,000          $7.200      02/09/06       02/09/08
Dotcom Ventures                                1,568         $10.400      09/01/98       09/01/08
Adobe Systems, Inc.                            7,058         $10.400      09/23/98       09/23/08
Nancy and Timothy Armstrong                   20,225         $10.352      12/21/05       12/21/08
The Hambrecht 1980 Revocable Trust             9,097          $3.148      07/27/06       07/27/09
John Warnock                                   6,040          $3.148      07/27/06       07/27/09
John Warnock                                   3,056          $3.148      07/27/06       07/27/09
The Hambrecht 1980 Revocable Trust            17,599          $2.275      09/21/06       09/21/09
John Warnock                                  17,494          $2.275      09/21/06       09/21/09
Silicon Valley Bank                            2,214          $0.862      10/17/02       10/17/09
John Warnock                                   8,244          $1.495      12/18/06       12/18/09
John Warnock                                  24,536          $1.495      12/18/06       12/18/09
                                         ------------
                                             139,149
                                         ============
</TABLE>

7.   Preferred Stock

     The conversion rate and common equivalent shares of Salon's preferred stock
is as follows as of June 30, 2007:

<TABLE>
<S>     <C>
                                                            Per share
                                                  -----------------------------       Common
                                    Shares          Purchase       Conversion       Equivalent
Preferred Stock                   Outstanding        Price            Rate            Shares
------------------------------   --------------   -------------   -------------    --------------
Series A                                    683         $4,000           1.968       1,388,185
Series B                                    125         $4,000           1.589         314,680
Series C                                  6,582           $800           0.800       6,582,000
Series D-1                                  417         $1,200           1.842         271,682
Series D-2                                  417         $1,200           2.168         230,769
Series D-3
   Issued on 12/21/05                       209         $1,200           1.842         136,168
   Issued on 07/27/06                       208         $1,200           2.431         102,677
Series D-4
   Issued on 07/27/06                        42         $1,200           2.431          20,732
   Issued on 09/21/06                       333         $1,200           1.694         235,852
   Issued on 12/18/06                        42         $1,200           0.917          54,961
Series D-5                                  125         $1,200           0.917         163,576
                                 --------------                                    -----------
Total                                     9,183                                      9,501,282
                                 ==============                                    ===========
</TABLE>


                                       10
<PAGE>

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

     The Series A, B, C and D preferred stock conversion rate is subject to a
downward adjustment anti-dilution provision under certain circumstances related
to subsequent Salon stock issuances.

     Warrants outstanding as of June 30, 2007 that have been issued to holders
of Series D preferred stock are as follows:

                                          Exercise         Warrant
                                           Price           Shares
                                        -----------     ------------
Series D-2                                  $2.485           17,018
Series D-3
   Issued on 12/21/05                      $10.352           20,225
   Issued on 07/27/06                       $3.148           15,137
Series D-4
   Issued on 07/27/06                       $3.148            3,056
   Issued on 09/21/06                       $2.275           35,093
   Issued on 12/18/06                       $1.495            8,244
Series D-5                                  $1.495           24,536
                                                        ------------
                                                            123,309
                                                        ============

     The exercise price of warrants issued in conjunction with the issuance of
Series D are subject to a downward adjustment anti-dilution provision under
certain circumstances related to subsequent Salon warrant issuances.

     The Purchase Agreement, as amended, and the Certificate of Designation of
Preferences and Rights of the Series D preferred stock allows for the sale and
issuance of an additional 292 shares of Series D preferred stock. Salon has
issued 1,793 shares of Series D preferred stock to date.

     The holders of the Series D preferred stock are entitled to dividends of
5.0%, as and if declared by the Board of Directors. In event of a liquidation,
the holders of Series D preferred stock and the holders of the Series C
preferred stock rank in parity, and are entitled to receive, prior and in
preference to any distribution of any assets or property of Salon to the holders
of common stock, and the holders of Series A and B preferred stock, and in the
case of the Series D preferred stock, an amount per share equal to $1,200 plus
an amount equal to all declared but unpaid dividends, and in the case of the
Series C preferred stock, $1,600 per share, plus an amount equal to all declared
but unpaid dividends, based on an annual rate of 8%. If the assets and funds
available for distribution are insufficient to permit the payment to the holders
of Series C and D preferred stock of their full preferential amounts, then the
entire assets and funds of Salon legally available for distribution to
stockholders will be distributed among the holders of Series C and D preferred
stock ratably in proportion to the full preferential amounts which they are
entitled to receive. After an initial distribution to the holders of Series C
and D preferred stock, the holders of the Series A and B preferred stock, who
rank in parity, are entitled to receive, prior and in preference to any
distribution of any assets or property of Salon to the holders of common stock,
an amount per share equal to $8,000 plus an amount equal to all declared but
unpaid dividends, based on an


                                       11
<PAGE>

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

annual rate of 8%. If, after the initial distribution to holders of Series C and
D preferred stock, the remaining assets and funds available for distribution are
insufficient to permit the payment to the holders of Series A and B preferred
stock of the full preferential amounts, then the entire remaining assets and
funds of Salon legally available for distribution to stockholders will be
distributed among the holders of Series A and B preferred stock ratably in
proportion to the full preferential amounts which they are entitled to receive.
As of June 30, 2007, no dividend has been declared to the holders of preferred
stock.

     If, after initial preferential liquidation payments to the holders of
Series A, B, C and D preferred stock, any assets remain available for
distribution, such assets are to be distributed ratably among the holders of
common stock and preferred stock, based on the shares of common stock then held
by them and issuable upon conversion of the shares of preferred stock then held
by them, until aggregate distributions per share reach $12,000 for the holders
of Series A and B preferred stock, $2,400 for the holders of Series C Preferred
Stock and $3,600 for the holders of Series D preferred stock. Salon has
currently outstanding 683 shares of Series A preferred stock, 125 shares of
Series B preferred stock, 6,582 shares of Series C preferred stock and 1,793
shares of Series D preferred stock.

     If, after payment has been made to the holders of common stock and holders
of preferred stock mentioned above, any assets remain available for
distribution, such assets are to be distributed ratably among the holders of
common stock and the holders of Series C preferred stock, based on the number of
shares of common stock then held by them and issuable upon conversion of the
Series C preferred stock then held by them. Based on available information,
Salon estimates that the holders of Series C preferred stock account for
approximately 87% of this group of shareholders.

     The holders of preferred stock are entitled to vote together with the
holders of Salon's common stock as though part of that class, and are entitled
to vote on all matters and to that number of votes equal to the largest number
of whole shares of common stock into which the shares of preferred stock could
be converted. Preferred stockholders as a group own approximately 92% of the
outstanding shares of common stock and common stock issuable upon conversion of
the shares of preferred stock, all with voting rights.

     The aggregate liquidation preferences of all preferred stockholders as of
June 30, 2007 were $19,147 excluding the effect of undeclared dividends, and
$22,542 including the effect of undeclared dividends.

     Neither the Series A, B, C or D preferred stock, the associated warrants,
nor the underlying shares of common stock have been registered for sale under
the Securities Act of 1933, as amended, and may not be offered or sold in the
United States absent registration under such act or an applicable exemption from
registration requirements.


                                       12
<PAGE>

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

     This section and other parts of this Form 10-Q contain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act)
that involve risks and uncertainties, including, but not limited to, statements
regarding our strategy, plans, objectives, expectations, forecasts, 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 publishing pioneer. Salon's award-winning journalism
combines 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 located at
www.salon.com, also hosts two online communities, Table Talk and The Well, and
hosts some user blogs. In 2005, the site automated its "Letters to the Editor"
feature so that readers can post their own comments to stories directly. During
the year ended March 31, 2007, Salon added a daily blog by the independent
blogger Glenn Greenwald, a weekly column by founding member Gary Kamiya, a
weekly food feature "Eat and Drink," brought back culture writer Camille Paglia
to do a monthly column, Literary Guide to the World, and a daily blog by
Editor-in-Chief Joan Walsh. In its editorial product Salon balances two crucial
missions: (1) providing original and provocative content on topics that the
mainstream media overlook, and (2) filtering through the media chatter and
clutter to help readers find the stories that matter.

     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 filed with the Securities and Exchange Commission.
Matters of interest therein include, but are not limited to, Salon's disclosure
of critical accounting policies.

Sources of Revenue

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

     Salon also derives a significant portion of its revenues from its Salon
Premium subscription program. Prior to March 2007, subscriptions to Salon
Premium were generally $35 for one year with no


                                       13
<PAGE>

ads, and during March 2007, the rate was increased to $45. Salon Premium revenue
is recognized ratably over the period that services are provided. This source of
revenue has been decreasing since Salon's quarter ended December 31, 2004 when
paid subscriptions peaked at approximately 89,100, decreased to approximately
47,200 as of March 31, 2007 and to approximately 44,000 as of June 30, 2007.
Salon expects this downward trend to continue, as it is placing greater emphasis
on its advertising sales to generate revenue.

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

Expenses

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

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

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

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

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

     Salon has incurred significant net losses and negative cash flows from
operations since its inception. As of June 30, 2007, Salon had an accumulated
deficit of $93.8 million. These losses have been funded primarily through the
issuance of common stock from Salon's initial public offering in June 1999,
issuance of preferred stock, and from the issuance of convertible notes payable.

     Burr, Pilger & Mayer LLP, Salon's independent accountants for the years
ended March 31, 2007, March 31, 2006 and March 31, 2005 have included a
paragraph in their report indicating that substantial doubt exists as to Salon's
ability to continue as a going concern because of Salon's recurring operating
losses, negative cash flow and accumulated deficit.


                                       14
<PAGE>

Critical Accounting Policies

     The preparation of financial statements in conformity with generally
accepted accounting principles requires Salon to utilize accounting policies and
make estimates and assumptions that affect our reported amounts. Salon's
significant accounting policies are described in Note 2 to the consolidated
financial statements of Salon's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission. Salon believes accounting policies and
estimates related to revenue recognition, prepaid advertising rights and
share-based compensation are the most critical to Salon's financial statements.
Future results may differ from current estimates if different assumptions or
conditions were to prevail.

Revenue Recognition

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

     Advertising revenues, derived from the sale of promotional space on its
Website, comprised 70%, 57% and 54% of Salon's revenues, respectively for the
years ended March 31, 2007, 2006 and 2005. Advertising revenues comprised 72%
and 57% of Salon's revenues, respectively, for the three months ended June 30,
2007 and June 30, 2006. The duration of the advertisements are generally short
term, usually less than ninety days. Revenues derived from such arrangements are
recognized during the period the advertising space is provided. Salon's
obligations typically include a guaranteed minimum number of impressions, a set
number of Site Pass advertisement viewed, or a set number of days that a Site
Pass advertisement will run. To the extent minimum guaranteed amounts are not
achieved, Salon defers recognition of the corresponding revenue until the
remaining guaranteed amounts are provided, if mutually agreeable to an
advertiser. If these "make good" impressions are not agreeable to an advertiser,
no further revenue is recognized.

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

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

Prepaid Advertising Rights

     In January 2000, Salon sold 1,125,000 shares of common stock to Rainbow
Media Holdings ("Rainbow") and received $11.8 million of advertising credits
that were to be utilized by December 31, 2009. As the per share price of Salon's
common stock declined from the time the agreement was made and the date the
agreement was finalized and signed, the advertising credits were valued for
financial reporting purposes at $8.1 million. As of June 30, 2007, Salon has
$3.8 million advertising credits resulting from the transaction, valued at $2.6
million for financial reporting purposes. Of the $3.8 million of advertising
credits, approximately $2.5 million remain with Rainbow and approximately $1.3
million are with NBC. Salon believes that it should be able to utilize all the
credits with NBC before they expire on December 31, 2009, but may not be able to
fully utilize the credits that are the obligation of Rainbow.


                                       15
<PAGE>

Salon is currently exploring ways of fully utilizing the Rainbow credits before
they expire and may not be successful in this endeavor. Salon expects to recover
the full value of all the advertising credits through usage or settlement in
cash, per the terms of the agreement, but there can be no absolute assurance as
to any potential cash settlement.

Accounting for Share-Based Compensation

     Salon accounts for share-based compensation under SFAS 123R and recognizes
the fair value of stock awards on a straight-line basis over the requisite
service period of the award, which is the vesting term of four years.

     Salon recognized stock-based expense of $60,000 and $48,000 during the
three months ended June 30, 2007 and June 30, 2006, respectively. As of June 30,
2007, Salon had an aggregate of $851,000 of stock compensation remaining to be
amortized to expense over the remaining requisite service period of the
underlying awards. Salon currently expects this stock compensation balance to be
amortized as follows: $204,000 during the remainder of fiscal 2008; $272,000
during fiscal 2009; $264,000 during fiscal 2010; $106,000 during fiscal 2011;
and $5,000 during fiscal 2012. The expected amortization reflects only
outstanding stock awards as of June 30, 2007. Salon expects to continue to issue
share-based awards to our employees in future periods.

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


Results of Operations for the Three Months Ended June 30, 2007 Compared To the
Three Months Ended June 30, 2006

Net revenues:

     Net revenues increased 28% to $2.0 million for the three months ended June
30, 2007 from $1.5 million for the three months ended June 30, 2006. The revenue
of $2.0 million for the first quarter of fiscal year 2008 represents a record
first quarter for Salon, surpassing the former record of $1.7 million recorded
for the first quarter of fiscal year 2005.

     Advertising revenues increased to $1.4 million for the three months ended
June 30, 2007 from $0.9 million for the three months ended June 30, 2006, an
increase of 61%. The increase in advertising revenues reflects Salon securing
more orders at a larger value than last year, reflecting a greater number of
advertisers willing to advertise on Salon' Website. Salon has consequently been
increasing its sales staff to capitalize on this trend. A significant factor
contributing to advertisers' willingness to advertise on Salon's Website is
Salon's increasing number of monthly unique Website visitors. The number of
monthly unique Website visitors for the three months ended June 30, 2007
averaged 4.1 million, an increase of 44% from the same time period a year ago.
In addition, during the month of March 2007, Salon attracted 4.4 million monthly
unique readers, a company record. Increasing the number of unique Website
visitors is critical to Salon, as they facilitate the generation of ad
impressions sold to advertisers.


                                       16
<PAGE>

     Salon Premium subscription revenues decreased to $351,000 for the three
months ended June 30, 2007 from $433,000 for the three months ended June 30,
2006. The decrease reflects Salon's shift in emphasis to its more lucrative
advertising business from its subscription business. Salon expects this decrease
to continue as the number of paid subscriptions has declined from approximately
47,200 as of March 31, 2007 to approximately 44,000 as of June 30, 2007.

     Revenues from all other sources were $0.2 million for the three months
ended June 30, 2007 and for the three months ended June 30, 2006. Approximately
half of this revenue was derived from The Well, an on-line discussion forum.

Production and content:

     Production and content expenses were $1.3 million for the three months
ended June 30, 2007 and for the three months ended June 30, 2006, with no
material change in expense categories within the two time periods.

Sales and marketing:

     Sales and marketing expenses were $1.1 million for the three months ended
June 30, 2007 compared to $0.3 million for the three months ended June 30, 2006.
The increase primarily reflects utilizing $0.6 million of advertising credits
this year compared to only $45,000 last year as Salon was testing the
effectiveness of using the ad credits for Web based advertisements on NBC
on-line properties. In addition, the results for the three months ended June 30,
2007 included an additional $0.1 million of compensation costs compared to the
prior year, reflecting an increase in sales staff.

Information technology support:

     Information technology support expenses were $0.2 million for the three
months ended June 30, 2007 and for the three months ended June 30, 2006, with no
material change in expense categories within the two time periods.

General and administrative:

     General and administrative expenses were $0.4 million for the three months
ended June 30, 2007 compared to $0.3 million for the three months ended June 30.
2006, an increase of $0.1 million. The 37% increase primarily reflects
additional payroll and recruiting costs.

Liquidity and capital resources:

     As of June 30, 2007, Salon had $0.3 million in cash that reflected
receiving $0.3 million from a short term borrowing agreement.

     Net cash used in operations was $0.7 million for the three months ended
June 30, 2007 and for the three months ended June 30, 2006. The principal use of
cash during the three months ended June 30, 2007 was to fund the $1.0 million
net loss for the period and the $0.4 million increase in accounts receivable,
offset by $0.7 million of non-cash charges. The principal use of cash during the
three months ended June 30, 2006 was to fund the $0.5 million net loss for the
period and the $0.3 million increase in accounts receivable, offset by $0.1
million of non-cash charges. The accounts receivable, net as of June 30, 2007 of
$1.4 million, representing primarily advertising sales during the quarter, is
expected to be


                                       17
<PAGE>

received within the next four months. No material account receivable balance is
delinquent as of this filing.

     Net cash used in investing activities was an immaterial amount during the
three months ended June 30, 2007 and for the three months ended June 30, 2006.

     The net cash from financing activities of $0.3 million for the three months
ended June 30, 2007 reflected the amounts received under a borrowing agreement
with Deutsche Bank Securities during the period. The net cash from financing
activities of $0.7 million for the three months ended June 30, 2006 reflected
amounts received from the exercise of warrants.

     Based on cash projections for the remainder of the fiscal year ending March
31, 2008, Salon estimates it will require an additional $0.4 million cash inflow
to meet operating needs. Salon expects to borrow an additional $0.4 million from
it borrowing agreement with Deutsche Bank Securities to meet this need. If
planned revenues are less than expected, or if planned expenses are more than
expected, the cash shortfall may be higher, which will result in a commensurate
increase in amounts borrowed. Salon expects that it will be able to repay the
anticipated total $0.7 million outstanding under the borrowing agreement by
March 31, 2008. Salon forecasts that between March 31, 2008 and June 30, 2008 it
will incur a cash shortage of approximately $0.3 million. As Salon and its
Chairman have a current understanding that no borrowings will be made under the
agreement after May 2008, Salon will likely seek the consent of Deutsche Bank
Securities, Inc. and Salon's Chairman to permit borrowings under the agreement
after May 2008. There is no certainty that Salon will be able to continue the
borrowing agreement after May 2008.

Recent Accounting Pronouncements

     In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109" (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements in accordance with FASB Statement No.
109, "Accounting for Income Taxes," and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The adoption of FIN 48 as of
April 1, 2007 did not impact Salon's results of operations, financial position,
or cash flows.

     In September 2006, the FASB issued Statement of Financial Accounting
Standard No. 157, "Fair Value Measurements," (SFAS 157). SFAS 157 addresses how
companies should measure fair value when they are required to use a fair value
measure for recognition or disclosure purposes under generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS 157 is effective for fiscal years beginning after November 15, 2007. The
adoption of SFAS 157 as of April 1, 2007 did not impact Salon's results of
operations, financial position, or cash flows.

     In February 2007, the FASB issued Statement of Financial Accounting
Standard No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities - Including an Amendment to FASB Statement No. 115," (SFAS 159).
Under SFAS 159 entities will be permitted to measure financial instruments and
certain other assets and liabilities at fair value on an
instrument-by-instrument basis (the fair value option). SFAS 159 is effective
for fiscal years beginning after December 15, 2007 and allows for early
adoption. Salon plans on adopting SFAS 159 in April 2008 and believes that the
adoption of SFAS 159 will not impact Salon's results of operations, financial
position, or cash flows.


                                       18
<PAGE>

Off-Balance-Sheet Arrangements

     Salon has no off-balance-sheet arrangements.

Contractual Obligations

     As of June 30, 2007, Salon has no outstanding capital leases and does not
anticipate entering into similar debt instruments during its year ending March
31, 2008. The following summarizes Salon's contractual obligations as of June
30, 2007, and the effect these contractual obligations are expected to have on
Salon's liquidity and cash flows in future periods (in thousands):

                                         Payments Due By Period
                       ---------------------------------------------------------
                                         1 Year                       More than
                           Total         or Less     1 - 3 Years       3 Years
                       ------------   ------------   ------------   ------------
Operating leases       $        664   $        453   $        211   $          -
Short-term borrowings           300            300              -              -
                       ------------   ------------   ------------   ------------
     Total             $        964   $        753   $        211   $          -
                       ============   ============   ============   ============


Item 3.  Quantitative and Qualitative 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. In May 2007, Salon entered into a credit agreement with Deutsche
Bank Securities, Inc. that allows Salon to borrow up to $1.0 million at a rate
of prime less 0.25% which will subject Salon to interest rate risk. Salon feels
that the risk of a rate change is immaterial as Salon contemplates having a
maximum of only $0.7 million of debt outstanding during its fiscal year ending
March 31, 2008. As of June 30, 2007, Salon has $0.3 million outstanding under
this agreement and estimates this to increase to $0.7 million, with repayment
anticipated to occur by March 31, 2008. 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, with the participation of our Chief Executive Officer and
our 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 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.


                                       19
<PAGE>

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

Item 1.  Legal Proceedings.

     Not applicable.

Item 1a.  Risk Factors.


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

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

Salon's projected cash flows may not meet expectations

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

     If Salon forecasts or experiences periods of limited, or diminishing cash
resources, Salon may need to issue additional securities. In June 2007, Salon
received a $0.3 million loan based on an agreement with a financial institution
that is guaranteed by Salon's Chairman. There is no guarantee that Salon will be
able to issue additional securities in future periods to meet cash needs, or
that its Chairman will continue to guarantee a credit agreement. Salon's ability
to continue as a going concern may be adversely affected if it is unable to
raise additional cash from these sources.

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

     The Certificate of Designation and Preferences and Rights of the Series D
Preferred Stock stipulates that the Series D conversion price will be equal to
70% of the average closing sales price of Salon's common stock for the thirty
days prior to the date Salon provides notice to purchasers of its intent to sell
additional shares of Series D preferred stock. Such a discount, and the time lag
between the date of the notice and the date a transaction is consummated, may
trigger a non-cash preferred deemed dividend charge. The sale of preferred stock
on December 21, 2005 resulted in a non-cash preferred deemed dividend charge of
$0.2 million. The sale of preferred stock on July 27, 2006, September 21, 2006
and December 18, 2006, resulted in non-cash preferred deemed dividend charges of
a total of $0.3 million. Salon cannot predict to what extent it may incur future
preferred deemed dividend charges, if any, from the remaining 292 unissued
shares of Series D preferred stock if they were to be issued.


                                       20
<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, Chairman of the
Board of Salon, and William Hambrecht. William Hambrecht is the father of
Salon's President and Chief Executive Officer. During the year ended March 31,
2007, these related parties invested $0.9 million in Salon. In May 2007, John
Warnock guaranteed an agreement between Salon and Deutsche Bank Securities, Inc.
that will allow Salon to borrow up to $1.0 million at an interest rate of prime
less 0.25%.

     Curtailment of cash investments and borrowing guarantees 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 may make business decisions with which non-principal
stockholders disagree and may affect the value of their investment

     Based on information available to Salon, the holders of Salon's Series A,
B, C and D preferred stock collectively own approximately 92% of all voting
securities. These stockholders therefore own a controlling interest in Salon. Of
this amount, approximately 69% is held by former Directors and related parties,
of which approximately 19% is controlled directly or indirectly by William
Hambrecht and approximately 42% by Chairman and Director John Warnock.
Therefore, related parties by themselves own a controlling interest in Salon.

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

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

     Salon's preferred stockholders can convert their 9,183 shares of preferred
stock to approximately 9.5 million shares of common stock at any time. As
Salon's common stock is normally thinly traded, if these stockholders were to
convert their shares of preferred stock to common stock and sell the resulting
shares, the per share price of Salon's common stock may be adversely affected.
For example, effective July 31, 2006, a Series A preferred stockholder converted
62 shares of Series A preferred stock to 124,536 shares of common stock, and
shortly thereafter converted a warrant to 7,840 shares of common stock, for a
total of 132,376 shares of common stock. Between July 31, 2006 and October 30,
2006, the shareholder sold approximately 84,460 of these shares, and during the
same period of time, Salon's common stock dropped from $3.20 to $1.80 per share.

Salon may not be able to receive the full value of its advertising credits

     As of June 30, 2007, Salon has $3.8 million of advertising credits for
which it has valued at $2.6 million that expire on December 31, 2009. Of the
$3.8 million, approximately $2.5 million are the obligation of Rainbow Media
Holdings ("Rainbow") and approximately $1.3 million are the obligation of NBC.
Salon feels that it should be able fully utilize the credits with NBC before
they expire and may not be able to fully utilize the credits that are the
obligation of Rainbow. Salon is currently exploring ways of fully utilizing the
Rainbow credits before they expire and may not be successful in this endeavor.
Salon


                                       21
<PAGE>

expects to recover the full value of all the advertising credits through usage
or settlement in cash, per the terms of the agreement, but there can be no
absolute assurance as to any potential cash settlement.

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

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

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

     Salon's Series A, B, C and D preferred stockholders have liquidation
preferences over common stockholders of the first approximately $22.5 million in
potential sales proceeds as of June 30, 2007, which includes the effect of
undeclared dividends of $3.4 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 $22.5 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 $22.5 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, 2008 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, 2005, March 31, 2006, and March 31, 2007,
included a "going-concern" audit opinion on the consolidated financial
statements for those years. The audit opinions report substantial doubt about
Salon's ability to continue as a going concern, citing issues such as the
history of losses and absence of current profitability. As a result of the
"going-concern" opinions, Salon's stock price and investment prospects have been
and will continue to be adversely affected, thus limiting financing choices and
raising concerns about the realization of value on assets and operations.

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

     Salon has been relying on the revenues and cash generated from Salon
Premium subscriptions since its implementation in April 2002. Salon Premium
subscriptions grew from nothing to a high of approximately 89,100 as of December
31, 2004. However, since the high experienced in December 31, 2004,
subscriptions have been declining to approximately 47,200 as of March 31, 2007
and to


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<PAGE>

approximately 44,000 as of June 30, 2007. Salon forecasts that these memberships
will continue to decline to approximately 36,000 as of March 31, 2008. If the
decline were to be in excess of anticipated amounts, Salon's operations and
available cash could be adversely affected.

Salon is dependant on advertising sales for much of its revenues, and its
inability to maintain or increase advertising revenues could 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 auto start Site Pass or other
          rich media advertisements;

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

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

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

     o    successfully sell and market its network to advertisers;

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

     o    increase awareness of the Salon brand;

     o    improve the technology for serving advertising on its Website;

     o    handle temporary high volume traffic spikes to its Website;

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

     o    attract and retain key sales personnel.

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

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


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<PAGE>

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

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

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

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

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

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

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

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

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

     o    the economic and business cycle;

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

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

     o    the amount and timing of operating costs.

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

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

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


                                       24
<PAGE>

business with Salon. These efforts may be a material impediment to Salon's
ability to grow and maintain advertising revenue.

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 takes steps to protect its proprietary rights,
these steps may not be adequate to prevent the infringement or misappropriation
of its content, which could severely harm its business. Salon also licenses
content from various freelance providers and other third-party content
providers. While Salon attempts to ensure that such content may be freely
licensed to it, other parties may assert claims of infringement against it
relating to such content.

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

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

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

     Salon is constantly upgrading its technology to manage its Website and its
Salon Premium program. In addition, it is creating technology for new products
that Salon hopes to launch during the fiscal year. If these systems do not work
as intended, or if Salon is unable to continue to develop these systems to keep
up with the rapid evolution of technology for content delivery and subscription
management, its Website or subscription management systems may not operate
properly, which could harm Salon's business. Additionally, software product
design, development and enhancement involve creativity, expense and the use of
new development tools and learning processes. Delays in software development
processes are common, as are project failures, and either factor could harm
Salon's business. Moreover, complex software products such as its online
publishing and subscription management systems


                                       25
<PAGE>

frequently contain undetected errors or shortcomings, and may fail to perform or
scale as expected. Although Salon has tested and will continue to test its
systems, errors or deficiencies may be found in these systems that may adversely
impact its business.

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

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

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

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

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 Salon's
security measures could misappropriate proprietary information, including
customer credit card information, or cause interruptions in the operation of its
Website.

     Salon may be required to expend significant capital and other resources to
protect against the threat of security breaches or to alleviate problems caused
by these breaches. Protection may not be available at a reasonable price or at
all.


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<PAGE>

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

     Salon's software to manage its subscription business was developed
internally to interface with the software provided by a third party. The third
party's software provides a gateway to authenticate credit card transactions.
Even though Salon's system to manage its Salon Premium program is Payment Card
Industry (PCI) compliant, if this system 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 a facility in San Francisco, California that
has been extensively retrofitted to withstand a major earthquake. Fire, floods,
earthquakes, power loss, telecommunications failures, break-ins, supplier
failure to meet commitments, and similar events could damage these systems and
cause interruptions in its services. Computer viruses, electronic break-ins or
other similar disruptive problems could cause users to stop visiting Salon's
Website and could cause advertisers to terminate any agreements with Salon. In
addition, Salon could lose advertising revenues during these interruptions and
user satisfaction could be negatively impacted if the service is slow or
unavailable. If any of these circumstances occurred, Salon's business could be
harmed. Salon's insurance policies may not adequately compensate it for losses
that may occur due to any failures of or interruptions in its systems. Salon
does not presently have a formal disaster recovery plan.

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

Privacy concerns could impair Salon's business

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


                                       27
<PAGE>

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 in which the
          stockholder acquired 15% or more of the corporation's assets;

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

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

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

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

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

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

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

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

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


                                       28
<PAGE>

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

         Not applicable.

Item 3.  Defaults Upon Senior Securities.

         Not applicable.

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

         Not applicable.

Item 5.  Other Information.

         Not applicable.

Item 6.  Exhibits

(a)      Exhibits.

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

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

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

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


                                       29
<PAGE>

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:  August 10, 2007                   /s/ Elizabeth Hambrecht
                                          -------------------------------------
                                          Elizabeth Hambrecht
                                          President and Chief Executive Officer


Dated:  August 10, 2007                   /s/ Conrad Lowry
                                          -------------------------------------
                                          Conrad Lowry
                                          Chief Financial Officer and Secretary



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