**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-K**





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


**For
      the fiscal year ended March 31, 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
                of Incorporation)**
            **(IRS
                Employer Identification
                No.)**





**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 if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes [  ] No [X]





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes [  ] No [X]





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 if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendments to
      this Form 10-K. [  ]





Indicate
      by check mark whether the registrant is an accelerated filer as defined in
      Rule 12b-2 of the Act.


Large
      Accelerated Filer o Accelerated Filer o Non-Accelerated
      Filer þ





Indicate
      by check mark whether the registrant is a shell company (as defined by Exchange
      Act Rule 12b-2).Yes [  ] No [X]





The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant was approximately $1,655,000 based on the closing sale price of
      the
      registrant’s common stock on September 30, 2006, which was the last business day
      of the registrant’s most recently completed second fiscal quarter. Shares of
      common stock held by each then current executive officer and director and by
      each person who is known by the registrant to own 5% or more of the outstanding
      common stock have been excluded from this computation in that such persons
      may
      be deemed to have been affiliates of Salon. This determination of affiliate
      status is not a conclusive determination for other purposes.





The
      number of outstanding shares of the Registrant's Common Stock, par value $0.001
      per share, on June 11, 2007 was 1,939,572 shares.
















**FORM
      10-K**


**SALON
      MEDIA GROUP, INC.**


**INDEX**





**Page****PART
                  I**
              
              **Number**ITEM
                  1.
              Business
              4ITEM
                  1A.
              Risk
                  Factors
              13ITEM
                  1B.
              Unresolved
                  Staff Comments
              23ITEM
                  2.
              Properties
              23ITEM
                  3.
              Legal
                  Proceedings
              23ITEM
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              23**PART
                  II**ITEM
                  5.
              Market
                  for Registrant’s Common Equity and Related Stockholder
                  Matters
              24ITEM
                  6.
              Selected
                  Consolidated Financial Data
              27ITEM
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              29ITEM
                  7A.
              Quantitative
                  and Qualitative Disclosures about Market Risk
              38ITEM
                  8.
              Financial
                  Statements and Supplementary Data
              39ITEM
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosures
              66ITEM
                  9A.
              Controls
                  and Procedures
              66ITEM
                  9B.
              Other
                  Information
              66**PART
                  III**ITEM
                  10.
              Directors
                  and Executive Officers of the Registrant
              67ITEM
                  11.
              Executive
                  Compensation
              71ITEM
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              80ITEM
                  13.
              Certain
                  Relationships and Related Transactions
              87ITEM
                  14.
              Principal
                  Accountant Fees and Services
              89
  
 
 **FORM
          10-K**
 **SALON
          MEDIA GROUP, INC.**
 **INDEX
          - (continued)**
  **PART
                  IV**ITEM
                  15.
              Exhibits,
                  Financial Statement Schedules and Reports on Form 8-K
              90SIGNATURES
              99




3


**PART
      I**




This
      report contains
      “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
      (the “Exchange Act”) that
      involve risks and uncertainties, including but not limited to statements
      regarding our strategy, plans, objectives, expectations, intentions, financial
      performance, cash-flow breakeven timing, financing, economic conditions,
      Internet advertising market performance, subscription service plans, non-web
      opportunities and revenue sources. Although
      Salon Media Group, Inc. (Salon) believes its plans, intentions and expectations
      reflected in such forward-looking statements are reasonable, it can give no
      assurance that such plans, intentions or expectations will be achieved. 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 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 Condition and Results
      of
      Operations" and "Factors That May Affect Salon’s Future Results and Market Price
      of Stock." In this report, the words “anticipates,” “believes,” “expects,”
“estimates,” “intends,” “future,” and similar expressions identify
      forward-looking statements. Readers are cautioned not to place undue reliance
      on
      these forward-looking statements, which speak only as of the date
      hereof.





**ITEM
      1. Business**




**Overview**





Salon
      was
      originally incorporated in July 1995 in the State of California and
      reincorporated in Delaware in June 1999. On June 22, 1999, Salon had its initial
      public offering, with its common stock quoted on the NASDAQ National Market
      under the symbol SALN. Effective May 16, 2001, Salon adopted the name Salon
      Media Group, Inc. Due to Salon’s inability to meet the continued listing
      requirements of the NASDAQ Market, on November 21, 2002, Salon’s common stock
      began trading in the OTC (Over-The-Counter) Bulletin Board marketplace under
      the
      symbol SALN.OB. Pursuant to the authority granted to the Board of Directors
      (the
“Board”) by the stockholders of Salon at its Annual Meeting of Stockholders held
      on October 20, 2005, on November 14, 2006 the Board approved a reverse stock
      split of Salon’s authorized and outstanding shares of common stock at a ratio of
      20:1. The reverse stock split was effective November 15, 2006, the date Salon’s
      Certificate of Amendment of Restated Certificate of Incorporation was filed
      with
      the Delaware Secretary of State and Salon’s stock trading symbol was changed to
      SLNM.OB from SALN.OB.





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 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.




4





The
      main
      entry and navigation point to Salon's ten **** primary
      subject-specific sections is Salon's home page at www.salon.com. Built around
      ten daily features - War Room, Audiofile, the Blog Report, King Kaufman’s Sports
      Daily, Since you Asked, Broadsheet, How the World Works, Video Dog and daily
      blogs by Glenn Greenwald and Joan Walsh, Salon provides a constantly updated
      array of news, features, interviews, columnists and blogs, including the
      following:





News
                & Politics
            Salon
                News & Politics features breaking stories, investigative journalism
                and commentary, as well as interviews with newsmakers, politicians
                and
                pundits. News features Salon’s War Room, a daily politics blog by
                political writer Tim Grieve.Opinion
            Opinion
                features provocative commentary on timely issues, including daily
                blogs by
                Glenn Greenwald and Joan Walsh, and weekly columns by Gary Kamiya,
                Sidney
                Blumenthal, Joe Conason and Garrison Keillor. It also features the
                Blog
                Report, an opinionated guide to the blogosphere, and a monthly column
                by
                Camille Paglia.Technology
                & Business
            Technology
                & Business provides smart, opinionated coverage of Internet news and
                digital culture from today's best technology writers, along with
                in-depth
                features about the business world and the economy. It features Patrick
                Smith's regular Ask the Pilot column and Andrew Leonard’s How the World
                Works blog, and since March 31, 2007, added Machinist by Farhad
                Manjoo.Arts
                & Entertainment
            Arts
                & Entertainment stages music and television reviews and interviews.
                The section includes frequent television features, and Audiofile,
                a daily
                music download column. In 2006 the Website added Video Dog, a video
                blog
                comprised of user generated video clips, as well as regular podcasts.
                Anchored by television critic Heather Havrilesky.Movie
                Page
            Launched
                in May 2007, Salon’s Movie Page spotlights film reviews, especially
                critics’ picks, and provides readers an ability to check movie show times,
                buy tickets or rent DVDs. Features film critics Andrew O’Hehir and
                Stephanie Zacharek.Life
            Life
                features articles by thought-provoking writers about family life,
                motherhood and women's lives and issues, as well as the women’s news
                digest Broadsheet. Cary Tennis' popular advice column, Since You
                Asked,
                appears daily.Books
            Books
                includes ahead-of-the-curve daily book reviews and interviews with
                today's
                most interesting writers. Nationally renowned critics Laura Miller
                and
                Andrew O’Hehir anchor this site. During the year ended March 31, 2007,
                Salon launched the Literary Guide to the World which features books
                by
                geographical destinations.Comics
            The
                Comics section features the works of comic luminaries Tom Tomorrow,
                Ruben
                Bolling, Carol Lay and Keith Knight.Sports
            King
                Kaufman’s Sports Daily provides sports news and commentary with an
                edge.




5


Salon
      has
      two online communities, The Well and Table Talk, which allow users to discuss
      Salon content and interact with other users. The Well is a subscription
      member-only discussion community in which members use their real names to post
      and only members can view the postings had approximately 2,700 paying
      subscribers as of May 31, 2007. Table Talk is available to all Internet
      users.




Salon
      believes that its original, award-winning content allows Salon to attract and
      retain users who are more affluent, better educated and more likely to make
      online purchases than typical Internet users. Salon believes its user profile
      makes its Website a valuable media property for advertisers and retailers who
      are allocating marketing resources to target consumers online. According to
      the
      Spring 2007 results from @Plan, an independent syndicated research firm, Salon’s
      user base has the following characteristics: (a) 60% are between the ages of
      25
      and 49, with an overall mean average of 45; (b) an average household income
      of
      $87,700; (c) 76% have earned a college degree; (d) 49% have professional or
      managerial positions; and (e) 85% are online every day.




**Revenue
      Sources**




No
      customer accounted for over 10% of either total revenue or advertising revenue
      for the years ended March 31, 2007, March 31, 2006, or March 31, 2005, which
      were as follows (in thousands):




**Year
                Ended March 31,****2007**
            
            **2006**
            
            **2005****Amount**
            
            **%**
            
            **Amount**
            
            **%**
            
            **Amount**
            
            **%**Advertising
            
            $
            5,409
            
            
            70%
            
            $
            3,685
            
            
            57%
            
            $
            3,567
            
            
            54%Salon
                Premium
            
            
            1,546
            
            
            20%
            
            
            2,036
            
            
            31%
            
            
            2,207
            
            
            33%All
                Other
            
            
            793
            
            
            10%
            
            
            795
            
            
            12%
            
            
            854
            
            
            13%Total
            
            $
            7,748
            
            
            100%
            
            $
            6,516
            
            
            100%
            
            $
            6,628
            
            
            100%





Salon
      has
      generated Internet advertising revenues since its inception. To offset the
      precipitous drop in advertising revenues experienced in 2000 from the downturn
      in the economy, the company launched Salon Premium, a subscription service,
      in
      April 2001. Since that time, the market for Internet advertising has improved;
      according to the Interactive Adverting Bureau, from $9.6 billion in 2004 to
      $12.5 billion in 2005, and an estimated $16.8 billion in 2006. The market for
      Internet advertising is expected to continue to grow to over $80 billion by
      2011
      according to a report by Piper Jaffray & Co. Central to Salon’s strategy is
      to capitalize on the expected continued upsurge in Internet
      advertising.





An
      important factor in increasing advertising revenues in future periods, including
      Salon’s peak third quarter ending December 31, is attracting more unique
      visitors to Salon’s Website. Attracting more unique Website visitors is
      important to Salon as they generate page views, and each page view becomes
      a
      potential platform for serving advertisements. Ultimately, Salon charges
      advertisers for a set number of ad impressions viewed by a Website visitor.
      Due
      to various factors, including concerted efforts to make Salon’s content more
      accessible to readers by automatically launching its Site Pass advertisement,
      formatting content to maximize the potential for Salon’s content to show up in
      search engine results, and marketing campaigns with a select few Websites,
      the
      average number of unique monthly Website visitors for the year ended March
      31,
      2007 increased 43% to 3.3 million from the year ended March 31, 2006, and
      attained a record high of 4.4 million in March 2007. Aiding the continued growth
      in unique visitors to Salon’s Website is the general migration of readers to the
      Internet from print newspapers. The table in the following page reflects unique
      monthly visitors to Salon’s Website.





6







Salon
      has
      evaluated the balance between its subscription and advertising businesses and
      has shifted emphasis toward advertising. Until recently, a Website visitor
      was
      given a choice of: (1) becoming a Salon Premium subscriber to avoid having
      to
      view advertisements on future visits to Salon’s Website or (2) viewing an
      advertisement to gain access to all of Salon’s content. This strategy has been
      found to impede access to Salon’s Website and its ability to generate
      advertising impressions. During the quarter ended December 31, 2006, Salon
      changed its Site Pass model to automatically serve advertisements, enabling
      a
      Website visitor to gain more seamless access to Salon’s content. This change has
      produced an increase in the number of ad impressions that Salon can serve and
      improved Salon’s potential to generate an even greater amount of advertising
      revenues, offsetting a drop in Salon Premium subscriptions that traditionally
      were solicited from the Site Pass and the relatively smaller amount of revenue
      they generate.





Most
      advertising campaigns are of short duration, generally less than ninety days.
      Salon’s obligations may include a guaranteed minimum number of impressions, or
      views by Website visitors of an advertisement, a set number of “Site Pass”
advertisements viewed by Website visitors or a set number of days that a Site
      Pass advertisement is to run. To the extent the minimum guaranteed amounts
      are
      not achieved, Salon defers recognition of the corresponding revenue until the
      remaining guaranteed amounts are provided, if mutually agreeable with an
      advertiser. If these “make good” amounts are not agreeable with an advertiser,
      no further revenue is recognized.





Generally,
      subscriptions to Salon Premium with no advertisement were $35 for an annual
      subscription through March 2007 and $45 thereafter. Benefits of Salon Premium
      include unrestricted access to Salon’s content with no banners, pop-ups or site
      pass advertisements, free magazine subscriptions, free access to the Table
      Talk
      on-line discussion forum, and the ability to download content in text or PDF
      format.





Salon
      Premium revenue is recognized ratably over the period that services are
      provided. For the year ended March 31, 2007, Salon received $1.5 million in
      cash
      and recognized $1.5 million of revenue for this service primarily from
      approximately 44,200 paid new and renewed one year subscriptions and from
      approximately 5,000 monthly subscriptions. For the year ended March 31, 2006,
      Salon received




7


$1.8
      million in cash and recognized $2.0 million of revenue for this service
      primarily from approximately 58,700 paid new and renewed one year subscriptions
      and from approximately 3,900 monthly subscriptions. For the year ended March
      31,
      2005, Salon received $2.3 million in cash and recognized $2.2 million of revenue
      for this service primarily from approximately 79,100 paid new and renewed one
      year subscriptions and from approximately 5,000 monthly
      subscriptions.




Due
      to
      reader interest in Salon’s political coverage during the 2004 presidential
      campaign, which created opportunities to promote membership drives, either
      singly or in conjunction with third parties, Salon reached a peak of
      approximately 89,100 paid subscribers in December 2004. Since that time, paid
      subscriptions have continued to decline, to approximately 65,500 as of March
      31,
      2006 and declined further to approximately 47,200 as of March 31, 2007. The
      drop
      is expected to continue during the next year as Salon emphasizes advertising
      revenue over Salon Premium revenues as previously mentioned.




The
      other
      sources of revenue are primarily from The Well, an on-line discussion forum.
      Revenue is recognized ratably over the subscription period. The revenues
      recognized was $0.4 million for the year ended March 31, 2007 and $0.5 million
      each for the years ended March 31, 2006 and March 31, 2005. Salon generates
      nominal revenue from the licensing of content that previously appeared in Salon
      and for providing links to a third party’s Website. The third party’s Website
      offers personals/dating services.





**Sales
      and Marketing**




Salon
      has
      sales offices in New York City and San Francisco with ten active advertising
      sales employees as of March 31, 2007, of which five actively solicit orders.
      As
      of March 31, 2007, Salon has two employees associated with Salon Premium
      membership activities.




Salon
      incurred advertising expenses of $0.4 million, $0.3 million and $0.5 million
      for
      the years ended March 31, 2007, 2006, and 2005, respectively. These advertising
      expenses primarily represent non-cash expenses from the utilization of
      advertising credits which Salon acquired in January 2000 from the sale of common
      stock to Rainbow Media Holdings (“Rainbow”). During the year ended March 31,
      2003, Rainbow transferred a portion of its obligation to provide Salon with
      advertising credits to NBC’s Bravo channel, while still retaining a portion of
      the overall obligation. The transfer occurred due to the sale by Cablevision,
      which owns Rainbow Media Holdings, of its Bravo channel to NBC. As of March
      31,
      2007, Salon has $4.8 million in advertising credits, of which approximately
      $2.9
      million remain with Rainbow and approximately $1.9 million are with NBC, all
      of
      which will expire in December 2009. Since their acquisition, Salon has used
      the
      advertising credits for television advertisements which were determined to
      be
      ineffective in driving traffic to its Website. As a result, during the last
      quarter of its year ended March 31, 2007, Salon began using its NBC credits
      for
      banner type ads on NBC’s Websites, and contemplates using its remaining NBC
      credits in a similar fashion. Salon intends to utilize the NBC credits on a
      pro-rata basis during the remaining term of the agreement; however, it may
      test
      running ad units on a greater than pro-rata basis in the quarter ending June
      30,
      2007 to determine the effectiveness of greater volume of online ads. This
      greater than pro-rata usage is unlikely to continue after this
      test.




Salon
      has
      determined that running banner ads on Rainbow’s on-line properties will be
      ineffective in driving traffic to Salon’s Website. Salon has therefore been
      exploring utilization of this portion of the credits toward other marketing
      and
      promotional efforts 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 here
      can be no absolute assurance as to any potential cash settlement.




8


**Competition**




Salon
      competes for advertising revenues with numerous Websites, with the 50 largest
      companies attracting an estimated 94% of all the advertising dollars according
      to a study by PricewaterhouseCoopers LLC and sponsored by the Interactive
      Advertising Bureau. These companies have Websites that include major portals
      such as Yahoo, major search engines such as Google and major online media
      publications such as CNN.com.




Salon
      competes with many Websites for subscribers. However, most other Websites charge
      subscribers for access to: (1) archived stories, such as the Washington Post;
      (2) financial news, such as The Wall Street on-line edition; or (3) product
      reviews, such as Consumer Reports. Salon feels that individuals subscribe to
      its
      Salon Premium service primarily to support Salon.




**Salon’s
      Strategy**




*Continued
      focus on growing Salon’s audience*





Increasing
      unique visitors to Salon’s Website and the resulting page views that serve as a
      platform for advertising impressions is key to Salon’s revenue growth. In
      addition to the revenue generated from advertising, an increase in unique
      visitors could increase revenue from subscriptions as each new visitor to
      Salon’s Website is a potential new subscriber to Salon Premium. As a result,
      audience growth will continue to be a primary business goal for Salon in
      FY08.





Salon’s
      strategy to grow its audience combines both editorial and business planning.
      In
      terms of editorial planning, Salon has continued to add new writers, and enhance
      or create new content areas for its readers. Highlights in FY07 included adding
      acclaimed politics blogger Glenn Greenwald, monthly columnist Camille Paglia,
      launching a Food & Wine section called “Eat & Drink”, as well as a daily
      blog authored by Editor-in-Chief, Joan Walsh. For FY08, we have planned the
      following editorial launches:




·
            Primary
                Sources: Launched in May 2007, it presents original source materials
                that
                Salon’s reporters have come across in their research - reports released
                by
                Congress, and non-governmental organizations, and transcripts of
                Congressional testimony and press
                briefings.




·
            Movies
                Review: Launched in May 2007, Salon's Movie Page spotlights film
                reviews,
                especially Salon’s critics' picks, and lets readers check movie show
                times, buy tickets or rent DVDs from third party
                providers.




·
            Machinist
                - Inside tech: Gizmos, people and big ideas. Launched in June 2007,
                this
                daily blog/ weekly column reviews products, looks into the mysteries
                of
                innovation and progress, and explores the offbeat corners of tech
                culture
                online.




·
            Politics
                2008: Expected to be launched during the summer of 2007, Salon will
                collect growing coverage of Democratic and Republican presidential
                candidates - including articles, blog posts and videos - in one convenient
                location and provide readers with other election-related features.




·
            Expanded
                video content: Anticipated to be launched during calendar year 2007
                in
                partnership with a television company, a series of television news
                updates
                highlighting Salon stories and video blogging entries by Salon writers
                are
                to be shown on both the television channel and Salon’s Website. A second
                partnership with a web video producer, launched in May 2007, allows
                Salon
                to access its video library, while it also produces video clips around
                Salon writers who have speaking or other public
                engagements.




9




·
            OpenSalon:
                Salon plans to develop a new service for its users allowing them
                to post
                user profiles; contribute blogs and other content; and collecting
                all
                their contributions to Salon, including Letters to the Editor, in
                one
                place.





In
      terms
      of business planning, Salon’s strategies to continue to grow its audience
      encompasses partnership formation to deliver Salon’s content to a broader
      audience, a search engine optimization plan, and an integrated marketing plan
      that includes mostly online advertising. In the last several years Salon has
      not
      allocated, and does not currently contemplate in its next fiscal year allocating
      any significant cash resources towards such efforts; however, Salon has formed
      and continues to form partnerships and alliances to deliver Salon’s
      award-winning, unique, and compelling content to a broader audience. Strategies
      to grow Salon’s audience include:





·
            Structuring content
                to take advantage of search engine optimization (SEO). In December
                2006,
                Salon initiated a relationship with a SEO agency to assess and apply
                techniques to make its content more available to search engines.
                In
                February 2007, Salon began implementing industry best practices,
                such as
                on-page optimization and a search friendly architecture to maximize
                the
                number of times that Salon’s content is included in search results, and
                will continue to apply search engine optimization through the remainder
                of
                the calendar year.





·
            Continuing
                to implement a no Site-Pass required “Blogger Outreach” marketing program
                with key and influential bloggers to encourage more linkages from
                their
                Websites back to Salon’s Website. The rollout of this program began in
                February 2006, and has contributed a significant number of new readers
                to
                Salon’s Website since then.





·
            Reinvigorating
                its marketing efforts that began in February 2007, with a coordinated
                advertising campaign that exchanges unsold Salon ad inventory, or
                utilizes
                Salon’s advertising credits with NBC, for print and online advertising
                space for a Salon awareness campaign. As part of this effort, Salon
                has or
                will run advertisements in print magazines, such as the Christian
                Science
                Monitor and the New Republic and, online on CNET, Nerve.com, iVillage,
                Bravotv and NBCsports.com, among others. As part of its online advertising
                campaign, Salon is using a “content widget,” which is a series of ad
                banners that display current Salon headlines. When clicked, these
                banners
                will direct users to recently published articles on Salon. Initial
                widgets
                will distribute Salon news headlines, but later versions will promote
                headlines from a single Salon section or
                contributor.




·
            Continuing
                to take advantage of new distribution technology. In FY07, Salon
                implemented an RSS strategy, enabling the availability of many segments
                of
                its content through an RSS content feed. Using RSS, Salon’s content
                summaries are sent, or fed, directly to end users. Also, during the
                year,
                it added social networking buttons, building on the success of its
                “MyYahoo” button, such as “Digg It” and “Del.ioui.us” widgets to the site.
                During FY08, Salon will continue to look for new distribution technology,
                and has recently experimented with making Salon headlines available
                on
                Twitter and others.





·
            Initiating
                content distribution programs. Salon is looking to syndicate its
                content
                to other Websites with audiences with distinct demographics, such
                as
                college portals and affinity sites. Also, Salon has forged several
                agreements to syndicate articles to mobile devices, including smart
                phones
                and other mobile readers.





10


*Focus
      on advertising revenue opportunity while Premium subscriber base
      declines*





Salon
      generates revenue from advertising on its Website
      as well as through subscribers who pay to read its content without ads. However,
      as Salon increased its number of readers to its Website, Salon has determined
      that if its advertising sales team can sell most of its inventory, it will
      be
      more profitable for Salon to drive its readers to its advertising supported
      Website rather than to a subscription, without-ads Website. Salon recognizes
      that its subscription model will continue to be preferred by a minority of
      its
      readers, and will therefore continue the subscription program, with emphasis
      on
“Premium with ads” as a means of increasing potential ad impressions.
      Additionally, Salon will continue efforts to increase the average value per
      subscriber by bundling third-party services with subscriptions, and intends
      to
      offer other products and services to current subscribers.




Salon
      increased emphasis on advertising revenues during FY07 and will continue to
      do
      so in FY08. In FY08, Salon plans to increase the size of its sales team, focus
      on broadening its advertiser base to include luxury items, apparel, home
      furnishings and packaged goods, and intends to expand into other advertising
      categories as well.




*Develop
      Web 2.0 site and additional interactive functionality to increase reader
      participation*





As
      previously mentioned, Salon has plans to build out a user generated site, to
      be
      called OpenSalon. This site will be an extension to Salon’s highly popular
“Letters to the Editor” function, which allows readers to react to a story and
      begin a conversation with both the writer and the audience who is reading the
      story. This site will be rolled out during the course of FY08.





Salon
      also plans to engage readers with Web 2.0 tools that enhance their experience
      on
      the main Salon Website. As an example, one social media application under
      development is the Sphere “widget,” a configurable pop-up feature activated by
      links embedded in articles on Salon.com. These widgets will contain links to
      related stories on Salon and on other sites. Sphere widgets contain ad inventory
      that Salon’s sales team will bundle with other advertising opportunities. This
      feature is not expected to generate significant revenue, but is likely to drive
      additional page views to archived content, increase the average time spent
      on
      our Website and streamline the editorial process by obviating the need to
      hand-select related stories.





Overall,
      social media applications will be more organically integrated into Salon’s
      content. A “share this article” link will expose users to a variety of
      single-click tools that permit content to be shared, tagged and distributed
      outside Salon’s domain.





*Develop
      content partnerships*





Salon
      believes it needs fresh content and new ideas to continue to attract readers
      to
      its Website. To this end, Salon has made efforts to initiate partnerships to
      create content particularly in areas where Salon does not have facilities or
      experience, such as video content. Additionally, Salon has made efforts to
      identify bloggers who might have a strong affinity with its readers, and who
      might be interested in moving their sites to Salon in order to gain a greater
      reach of readership, and to gain infrastructure support.





*New
      Channels of Content Distribution*





To
      meet
      the growing demand for mobile content, Salon has revamped its presence on
      AvantGo, the largest mobile content platform. Salon’s new AvantGo presence will
      be featured on the top level of the service’s Technology channel, one of its
      most popular feeds. Even though increased mobile usage is




11


expected
      to generate minimal additional revenue, this channel is primarily an opportunity
      for Salon to extend its presence beyond a Web browser.





**Infrastructure
      and Operations**




Salon
      has
      created a flexible publishing structure that enables it to develop its content
      while responding quickly to news events and take advantage of the ease of
      distribution provided by the Internet. Salon content is deployed on its
      proprietary software platform and captured in a database for reuse in Web and
      other formats. In the last year, the content on Salon’s Website has been
      structured to facilitate being found by search engines, a key driver in
      increasing traffic to Salon’s Website. During the last two years, Salon has
      improved the look and feel of its Website to increase appeal to its audience
      and
      contemplates continued changes to its Website.





Salon’s
      Website is supported by a variety of servers using the Solaris and Linux
      operating systems. Salon’s top technical priority is the fast delivery of pages
      to its users. Salon’s systems are designed to handle traffic growth by balancing
      the amount of traffic among multiple servers. Salon relies on server redundancy
      to help achieve its goal of 24 hours, seven-days-a-week Website availability.
      Regular automated backups protect the integrity of Salon’s data. Salon servers
      are maintained at a third-party facility in San Francisco, in a building capable
      of withstanding a major earthquake. The third-party facility provides continuous
      monitoring of the servers.





Software
      to maintain and manage Salon Premium was created in-house and upgraded in 2003
      and again during the year ended March 31, 2007.





**Proprietary
      Rights**




Salon’s
      success and ability to compete is dependent in part on the goodwill associated
      with its trademarks, trade names, service marks and other proprietary rights
      and
      on its ability to use U.S. laws to protect its intellectual property, including
      its original content, content provided by third parties, and content provided
      by
      columnists. Salon has a registered trademark on its name and is securing a
      registered trademark on its logo.





Salon
      owns the Internet address *www.salon.com* .
      Because *www.salon.com* is the
      address of the main home page to Salon’s Website and incorporates Salon’s
      company name, it is a vital part of Salon’s intellectual property assets. Salon
      does not have a registered trademark on the address, and therefore it may be
      difficult for Salon to prevent a third party from infringing its intellectual
      property rights to the address.





**Employees**




As
      of
      March 31, 2007, Salon has 64 full-time employees. Salon believes its employee
      relations are good. No employees of Salon are represented by a labor union
      or
      are subject to a collective bargaining agreement. Salon’s future success is
      highly dependent on the ability to attract, hire, retain and motivate qualified
      personnel.


12


**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. There is no guarantee that Salon
      will be able to issue additional securities in future periods to meet cash
      needs
      and, if it is unable to raise additional cash, Salon’s ability to continue as a
      going concern may be adversely affected.





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





The
      Certificate of Designation and Preferences and Rights of the Series D Preferred
      Stock stipulates that the Series D conversion price will be equal to 70% of
      the
      average closing sales price of Salon’s common stock for the thirty days prior to
      the date Salon provides notice to purchasers of its intent to sell additional
      shares of Series D preferred stock. Such a discount, and the time lag between
      the date of the notice and the date a transaction is consummated, may trigger
      a
      non-cash preferred deemed dividend charge. 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.





**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.




13


**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 70% is held by former Directors and related parties,
      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. 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
      March 31, 2007, Salon has $4.8 million of advertising credits for which it
      has
      valued at $3.3 million that expire on December 31, 2009. Of the $4.8 million,
      approximately $2.9 million are the obligation of Rainbow Media Holdings
      (“Rainbow”) and approximately $1.9 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
      expects to recover the full value of all the advertising credits through usage
      or settlement in cash, per the terms of the agreement, but here 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




14


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 $22.3 million in potential sales
      proceeds as of March 31, 2007, which includes the effect of undeclared dividends
      of $3.2 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 $22.3 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 $22.3 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 may continue to decline, adversely
      affecting revenues and available cash**





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




15




**Salon
      has depended 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:




·
            successfully
                sell and market its Website auto start Site Pass or other rich media
                advertisements;




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




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




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




·
            successfully
                sell and market its network to
                advertisers;




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




·
            increase
                awareness of the Salon brand;




·
            improve
                the technology for serving advertising on its
                Website;




·
            handle
                temporary high volume traffic spikes to its
                Website;




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




·
            attract
                and retain key sales personnel.





**Legislative
      action and potential new accounting pronouncements are likely to cause its
      general and administrative expenses and other operating expenses to increase**




To
      comply
      with the Sarbanes-Oxley Act of 2002 and proposed accounting changes by the
      Securities and Exchange Commission, Salon may be required to hire additional
      personnel and utilize additional outside legal, accounting and advisory
      services, all of which will cause its general and administrative costs to
      increase.





**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




16




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.




**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:




·
            Salon’s
                ability to attract and retain advertisers and
                subscribers;




·
            Salon’s
                ability to attract and retain a large number of
                users;




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




·
            the
                timing and uncertainty of Salon’s advertising sales
                cycles;




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




·
            the
                economic and business cycle;




·
            Salon’s
                ability to attract, integrate and retain qualified
                personnel;




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




·
            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.


17




**The
      controversial content of Salon’s Website may limit its revenues**




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




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




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




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




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





18


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, and during the last year redesigned its Website homepage. In addition,
      it is creating technology for new products that Salon hopes to launch during
      its
      next 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 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




19


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.





**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.





20


**Privacy
      concerns could impair Salon’s business**




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





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





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




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




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




·
            the
                Board of Directors approved the transaction in which the stockholder
                acquired 15% or more of the corporation’s
                assets;





·
            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





·
            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.




21


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:




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





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




22


**ITEM
      1B. Unresolved Staff Comments**




None.




**ITEM
      2. Properties**




Salon
      leases 8,623 square feet of office space at 101 Spear Street, San Francisco,
      California. Approximately two years remain on the lease, which terminates in
      February 2009.




Salon
      leases nominal office space at 41 East 11 th Street,
      11 th Floor,
      New York, NY and at 3417 1⁄2 M Street NW, Washington, DC. The lease for the New
      York office terminates on May 31, 2008. Salon also leases minimal space to
      host
      its servers with the lease expiring in September 2007.




Salon
      believes that its existing properties are in good condition and are suitable
      for
      the conduct of its business.




**ITEM
      3. Legal Proceedings**




Salon
      is
      not a party to any pending legal proceedings that it believes will materially
      affect its financial condition or results of operations.




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




No
      matters were submitted to a vote of security holders during the fourth quarter
      of the fiscal year ended March 31, 2007.




23


**PART
      II**




**ITEM
      5. Market for Registrant’s Common Equity and Related Stockholder
      Matters**




On
      June
      22, 1999, Salon had its initial public offering, with its common stock quoted
      on
      the NASDAQ National Market under the symbol SALN. Due to Salon’s inability to
      meet the continued listing requirements of the NASDAQ Market, on November 21,
      2002 Salon’s common stock instead began trading in the OTC (Over-The-Counter)
      Bulletin Board marketplace under the symbol SALN.OB. Pursuant to the authority
      granted to the Board of Directors (the “Board”) by the stockholders of Salon at
      its Annual Meeting of Stockholders held on October 20, 2005, on November 14,
      2006 the Board approved a reverse stock split of Salon’s authorized and
      outstanding shares of common stock at a ratio of 20:1. The reverse stock split
      was effective November 15, 2006, the date Salon’s Certificate of Amendment of
      Restated Certificate of Incorporation was filed with the Delaware Secretary
      of
      State and Salon’s stock trading symbol was changed to SLNM.OB from SALN.OB. In
      the reverse stock split, each 20 outstanding shares common stock (“old common
      stock”) was automatically reduced into one share of new common stock. Holders of
      fractional interest in old common stock following the reverse stock split
      received cash in lieu of any fractional shares upon presentation for exchange
      of
      the old common stock.





Information
      with respect to the quarterly high and low sales prices for Salon’s common stock
      for its fiscal years 2007 and 2006, based on sales transactions reported by
      the
      OTC (Over-The-Counter) Bulletin Board and revised pursuant to the 20:1 reverse
      stock split, is provided below:




**Fiscal
                Year Ended**
            
            **Fiscal
                Year Ended****March
                31, 2007**
            
            **March
                31, 2006****For
                the quarter ended**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low**June
                30
            
            5.80
            
            3.20
            
            6.00
            
            3.00September
                30
            
            3.60
            
            1.40
            
            4.00
            
            2.60December
                31
            
            2.55
            
            0.90
            
            10.20
            
            2.20March
                31
            
            2.45
            
            1.20
            
            11.00
            
            3.60




There
      were 172 holders of record of Salon common stock as of June 11, 2007. This
      number was derived from Salon’s stockholder records, and does not include
      beneficial owners of Salon’s voting common stock whose shares are held in the
      names of various dealers, clearing agencies, banks, brokers, and other
      fiduciaries. The closing price of Salon’s common stock on June 11, 2007 was
      $1.40 per share.




Salon
      has
      never declared or paid any cash dividends on its capital stock and does not
      expect to pay any cash dividends in the foreseeable future.




Salon
      has
      never repurchased any of its equity securities.


24


**Equity
      Compensation Plan Information**




The
      following table provides information about Salon’s common stock that may be
      issued upon the exercise of options, warrants and rights under all of Salon’s
      existing equity compensation plans as of March 31, 2007, including the
      Salon Internet, Inc. 1995 Stock Option Plan, the Salon Media Group, Inc. 2004
      Stock Plan, the Salon Media Group, Inc. Non-Plan Stock Agreement and the 1999
      Employee Stock Purchase Plan.




**Plan
                category**
            **Number
                of securities to**
            **Weighted-average**
            **Number
                of securities****be
                issued upon exercise**
            **exercise
                price of**
            **remaining
                available for****of
                outstanding options,**
            **outstanding
                options,**
            **future
                issuance under****warrants
                and rights**
            **warrants
                and rights**
            **equity
                compensation****plans,
                excluding****securities
                reflected in****column
                (a)****(a)**
            **(b)**
            **(c)**Equity
                compensation plans
            2,080,040
            $4.80
            312,239approved
                by securityholdersEquity
                compensation plans
            125,000
            $2.61
            Nonenot
                approved by securityholdersTotal
            2,205,040
            N/A
            312,239







**Equity
      Compensation Plans Not Approved by Security Holders**





In
      February 2005, Salon entered into a Non-Plan Stock Agreement with its then
      Chairman, pursuant to which Salon granted such person non-qualified options
      to
      purchase 50,000 shares of common stock at an exercise price of $2.80 per share.
      Such option grant did not receive stockholder approval. 50% of the shares
      subject to the option vested on the date of grant and 50% of the shares subject
      to the option vested in February 2006.




In
      June
      2006, Salon entered into a Non-Plan Stock Agreement with its Senior Vice
      President - Publisher, pursuant to which Salon granted such person non-qualified
      options to purchase 50,000 shares of common stock at an exercise price of $3.20
      per share. Such option grant did not receive stockholder approval. 25% of the
      shares subject to the option vest after one year and 1/48 th vest per
      month thereafter. In December 2006, Salon entered into another Non-Plan Stock
      Agreement with its Senior Vice President - Publisher, pursuant to which Salon
      granted such person non-qualified options to purchase 25,000 shares of common
      stock at an exercise price of $1.05 per share. Such option grant did not receive
      stockholder approval. 25% of the shares subject to the option vest after one
      year and 1/48 th vest per
      month thereafter.


25


**Stock
      Performance Graph**




The
      line
      graph below compares the total stockholder return of Salon’s common stock with
      the cumulative total return of the NASDAQ Composite Index, a new peer group
      and
      an old peer group, for the five years ended March 31, 2007. The graph and table
      assume that $100 was invested on March 31, 2002 (the last day of trading for
      the
      fiscal year ended March 31, 2002) in each of Salon’s common stock, the NASDAQ
      Composite Index, the new peer group and the old peer group, and that all
      dividends were reinvested.









Companies
                  in the New Self-Determined Peer Group:
              Companies
                  in Old Self-Determined Peer Group:CNET
                  Networks, Inc.
              CNET
                  Networks, Inc.Planetout,
                  Inc.
              Planetout,
                  Inc.Thestreet.com
                  Inc.
              Thestreet.com
                  Inc.Audible
                  Inc.
              iVillage,
                  Inc.Answers
                  Corporation
              Realnetworks,
                  Inc.Quepasa
                  Corporation
              Valueclick,
                  Inc.Tucows
                  Inc.
              Yahoo,
                  Inc.





26


**ITEM
      6. Selected Consolidated Financial Data**




Dollar
                amounts in thousands, except per shareYear
                Ended March 31,
            
            2007
            
            2006
            
            2005
            
            2004
            
            2003Net
                revenues
            
            $
            7,748
            
            $
            6,516
            
            $
            6,628
            
            $
            4,499
            
            $
            4,003Net
                loss (1)
            
            $
            1,566
            
            $
            1,122
            
            $
            518
            
            $
            6,046
            
            $
            5,597Net
                loss attributable to commonstockholders
                (2)
            
            $
            1,861
            
            $
            1,349
            
            $
            358
            
            $
            6,982
            
            $
            5,678Basic
                and diluted net loss per shareattributable
                to commonstockholders
                (3)
            
            $
            1.10
            
            $
            1.67
            
            $
            0.50
            
            $
            9.90
            
            $
            8.15Weighted
                average common sharesoutstanding
                used in computingper
                share amounts (thousands)(3)
            
            
            1,692
            
            
            809
            
            
            720
            
            
            705
            
            
            697Cash
                and cash equivalents
            
            $
            829
            
            $
            441
            
            $
            686
            
            $
            696
            
            $
            162Prepaid
                advertising rights
            
            $
            3,267
            
            $
            3,718
            
            $
            3,970
            
            $
            4,430
            
            $
            5,480Total
                assets
            
            $
            5,605
            
            $
            5,304
            
            $
            6,069
            
            $
            6,270
            
            $
            7,590Capital
                leases - long-term portion
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            18Total
                long-term liabilities (4)
            
            $
            85
            
            $
            120
            
            $
            82
            
            $
            2,621
            
            $
            569




(1)  The
      net
      loss for the year ended March 31, 2003 includes write-down of long-lived assets
      of $345 related to certain leasehold improvements.





(2)  The
      net
      loss attributable to common stockholders for the year ended March 31, 2007
      includes a preferred deemed dividend charge of $295 from the issuance of Series
      D preferred stock. The charge represents the difference between the offering
      price of Salon’s Series D preferred stock and the fair value of Salon’s common
      stock into which the preferred stock was convertible on the date of the
      transaction and the value of the warrants issued in the transaction. The net
      loss attributable to common stockholders for the year ended March 31, 2006
      includes a preferred deemed dividend charge of $227 from the issuance of Series
      D preferred stock. The charge represents the difference between the offering
      price of Salon’s Series D preferred stock and the fair value of Salon’s common
      stock into which the preferred stock was convertible on the date of the
      transaction and the value of the warrants issued in the transaction. The net
      loss attributable to common stockholders for the fiscal year ended March 31,
      2005 includes a net preferred deemed dividend benefit of $160 derived from
      a
      benefit of $470 from a decrease in value of warrants previously issued to
      preferred stockholders and a charge of $310 from the issuance of Series D-1
      and
      D-2 preferred stock during the year. The charge represents the difference
      between the offering price of Salon’s Series D preferred stock and the fair
      value of Salon’s common stock into which the preferred stock was convertible on
      the date of the transaction and the value of the warrants issued in the
      transaction. The net loss attributable to common stockholders for the fiscal
      year ended March 31, 2004 includes a preferred deemed dividend of $936 that
      included $361 resulting from the difference between the offering price of
      Salon’s Series C preferred stock and warrants sold in February 2004 and the
      deemed fair value of




27


Salon’s
      common stock on the date of the transaction and $575 from the change in value
      during the year ended March 31, 2004 of warrants issued to preferred
      stockholders.





(3)  The
      share
      and per share results for the years other than March 31, 2007 reflect a reverse
      stock split effective as of November 15, 2006. In the reverse stock split,
      each
      20 outstanding shares common stock (“old common stock”) was automatically
      reduced into one share of new common stock.





(4)  From
      July
      2003 through November 2004, Salon has had an insufficient number of authorized
      shares to satisfy all obligations under convertible instruments, warrant
      agreements and options. As a consequence, the value of warrants issued was
      classified as a long-term liability, with the fair value re-measured at each
      balance sheet period. The March 31, 2004 balance of $2,621 shown under long-term
      liabilities on the balance sheet represents such value and $354 was the value
      of
      the warrants as of March 31, 2003. In November 2004, Salon amended its
      Certificate of Incorporation, increasing the number of authorized shares from
      50,000,000 to 600,000,000, thereby relieving the requirement for Salon to record
      the value of warrants as a long-term liability.




28


**ITEM
      7.** **** **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**





**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 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.





**Sources
      of Revenue**




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





Salon
      also derives a significant portion of its revenues from its Salon Premium
      subscription program. Prior to March 2007, subscriptions to Salon Premium were
      generally $35 for one year with no 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 and decreased to approximately 47,200 as of March 31,
      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




29


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 March 31, 2007, Salon had an accumulated deficit of
      $92.8 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.





Salon
      has
      not recorded a provision for federal or state income taxes since inception
      due
      to recurring operating losses. At March 31, 2007 Salon had net operating loss
      carryforwards of $65.7 million for federal income tax purposes that begin to
      expire in March 2016, and $33.1 million for California income tax purposes.
      As
      Salon has been incurring tax losses, $1.3 million of California net operation
      loss carryforwards expired as of March 31, 2007, and if Salon were to incur
      a
      tax loss for the year ending March 31, 2008, an additional $3.3 million
      operating loss carryforward will expire. Utilization of Salon’s net operating
      loss carryforwards may be subject to a substantial annual limitation due to
      ownership change limitations provided by the Internal Revenue Code and similar
      California State provisions. Such an annual limitation could result in the
      expiration of the net operating loss carryforwards before utilization. A
      valuation allowance has been established and, accordingly, no benefit has been
      recognized for such operating losses and other deferred tax assets. The net
      valuation allowance increased $0.4 million during the year ended March 31,
      2007
      to $25.5 million. Salon believes that, based on a number of factors, the
      availability of objective evidence creates sufficient uncertainty regarding
      the
      realization of the deferred tax assets such that a full valuation allowance
      has
      been recorded. These factors include Salon’s history of net losses since
      inception and expected near-term future losses.





**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. Salon believes accounting policies and estimates related to revenue
      recognition and prepaid advertising rights are the most critical to Salon’s
      financial statements. Future results may differ from current estimates if
      different assumptions or conditions were to prevail.


30


*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. 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.
      Non Salon Premium subscribers can gain access to Salon’s content after viewing
      some form of advertisement.




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




*Prepaid
      Advertising Rights*





In
      January 2000, Salon sold 1,125,000 shares of common stock to Rainbow Media
      Holdings (“Rainbow”) and received $11.8 million of advertising credits that were
      to be utilized by December 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 March 31, 2007, Salon has $4.8 million
      advertising credits resulting from the transaction, valued at $3.3 million
      for
      financial reporting purposes. Of the $4.8 million of advertising credits,
      approximately $2.9 million remain with Rainbow and approximately $1.9 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. 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 here can be no absolute assurance as to any potential
      cash
      settlement.





**Goodwill**





Salon
      has
      $0.2 million of goodwill remaining from a purchase in March 1999. This asset
      is
      tested for impairment at least annually and has been found not to be
      impaired.


31


**Results
      of Operations**




**Fiscal
      Years Ended March 31, 2007 and 2006**





*Net
      Revenues*





Salon’s
      net revenue increased 19% to $7.7 million in the year ended March 31, 2007
      from
      $6.5 million in the year ended March 31, 2006.





Advertising
      revenues increased 47% to $5.4 million for the year ended March 31, 2007 from
      $3.7 million for the year ended March 31, 2006. The increase in advertising
      sales reflects an industry wide trend of corporations earmarking more funds
      for
      Internet advertising.





Salon
      Premium subscription revenues decreased by 24% to $1.5 million for the year
      ended March 31, 2007 from $2.0 million for the year ended March 31, 2006. The
      drop in Salon Premium revenues recognized for the year ended March 31, 2007
      compared to the year ended March 31, 2006 is attributable to a substantial
      reduction in the number of new subscribers. Salon acquired approximately 44,200
      paid one-year subscriptions for the year ended March 31, 2007 compared to
      approximately 58,700 for the year ended March 31, 2006. As a result, the number
      of paid subscribers decreased from approximately 65,500 at March 31, 2006 to
      approximately 47,200 at March 31, 2007. As of June 1, 2007, Salon had
      approximately 44,900 paid subscribers.





An
      important factor in increasing advertising revenues in future periods, including
      Salon’s peak third quarter ending December 31, is attracting more unique
      visitors to Salon’s Website. Attracting more unique Website visitors is
      important to Salon as they generate page views, and each page view becomes
      a
      potential platform for serving advertisements. Ultimately, Salon charges
      advertisers based on a set number of impressions viewed by a Website visitor.
      Due to various factors, including concerted efforts to make Salon’s content more
      accessible to readers by auto launching the site pass, a better optimized
      Website to facilitate appearance in search engine results, and marketing
      campaigns with select Websites, the average number of unique monthly Website
      visitors for the year ended March 31, 2007 increased 43% to 3.3 million from
      the
      year ended March 31, 2006, and attained a record high of 4.4 million in March
      2007. Aiding the continued growth in unique visitors to Salon’s Website is the
      migration of readers to the Internet from print newspapers.





Salon
      has
      evaluated the balance between its subscription and advertising businesses and
      has shifted emphasis toward advertising. Until recently, a Website visitor
      was
      given a choice of: (1) becoming a Salon Premium subscriber to avoid having
      to
      view advertisements on Salon’s Website or (2) viewing an advertisement to gain
      access to all of Salon’s content. This strategy was found to impede access to
      Salon’s Website and its ability to generate advertising impressions. During the
      quarter ended December 31, 2006, Salon changed its Site Pass model to
      automatically serve advertisements, enabling a Website visitor to gain a more
      seamless access to Salon’s content. This change has produced an increase in the
      number of ad impressions that Salon can serve and improved Salon’s potential to
      generate an even greater amount of advertising revenues, offsetting a drop
      in
      Salon Premium subscriptions that traditionally were solicited from the Site
      Pass
      and the relatively small revenue they generate.





All
      other
      sources of revenue were $0.8 million each for the years ended March 31, 2007
      and
      March 31, 2006. Approximately half of this revenue was derived from the Well,
      an
      online discussion forum.


32


*Production
      and Content*




Production
      and content expenses during the year ended March 31, 2007 were $5.2 million
      versus $4.5 million for the year ended March 31, 2006, an increase of $0.7
      million. The 16% increase primarily reflects an increase in staff and benefit
      costs.





*Sales
      and Marketing Expenses*





Sales
      and
      marketing expenses during the year ended March 31, 2007 were $2.0 million versus
      $1.5 million for the year ended March 31, 2006, an increase of $0.5 million.
      The
      31% increase primarily reflects utilizing an additional $0.2 million advertising
      credits this year compared to last year and a $0.2 million increase in
      commission expenses.





*Information
      Technology Support Expenses*




Information
      technology support expenses during the year ended March 31, 2007 were $0.8
      million versus $0.7 million for the year ended March 31, 2006, an increase
      of
      $0.1 million. The 22% increase primarily reflects the temporary retention of
      contractors to augment Salon’s salaried staff.





*General
      and Administrative Expenses*




General
      and administrative expenses during the year ended March 31, 2007 were $1.3
      million versus $1.0 million for the year ended March 31, 2006, an increase
      of
      $0.3 million. The 33% increase is primarily attributable to hiring a Publisher
      in June 2006 with no comparable position in the prior year period and a raise
      awarded an officer in October 2005.





*Preferred
      Deemed Dividend*





Salon
      sold 208 shares of Series D-3 preferred stock and 42 shares of Series D-4
      preferred stock on July 27, 2006, 333 shares of Series D-4 preferred on
      September 21, 2006, and 42 shares of Series D-4 preferred stock and 125 shares
      of Series D-5 preferred stock on December 18, 2006. All the shares sold are
      convertible to common stock at an effective price less than the fair market
      value of Salon’s common stock on the commitment date of the respective
      transaction. Salon valued the beneficial conversion feature of these shares
      of
      preferred stock at $0.3 million. As the shares of preferred stock sold were
      immediately convertible, Salon recorded a total of $0.3 million non-cash
      preferred deemed dividend for the year ended March 31, 2007, representing the
      value of the beneficial conversion feature of the shares issued.





During
      the year ended March 31, 2006, Salon sold 209 shares of Series D-3 preferred
      stock that were convertible to common stock at an effective price less than
      the
      fair market value of Salon’s common stock on the commitment date. Salon valued
      the beneficial conversion feature of the preferred stock sold at $0.2 million.
      As the shares of preferred stock were immediately convertible, for its year
      ended March 31, 2006, Salon recorded a $0.2 million non-cash preferred deemed
      dividend, representing the value of the beneficial conversion feature of the
      shares issued.


33


**Fiscal
      Years Ended March 31, 2006 and 2005**





*Net
      Revenues*





Salon’s
      net revenue decreased 2% to $6.5 million in the year ended March 31, 2006 from
      $6.6 million in the year ended March 31, 2005.





Advertising
      revenues increased 3% to $3.7 million for the year ended March 31, 2006 from
      $3.6 million for the year ended March 31, 2005. The increase in advertising
      sales reflected an industry wide trend of corporations earmarking more funds
      for
      Internet advertising.





Salon
      Premium subscription revenues decreased by 8% to $2.0 million for the year
      ended
      March 31, 2006 from $2.2 million for the year ended March 31, 2005. The drop
      in
      Salon Premium revenues recognized for the year ended March 31, 2006 compared
      to
      the year ended March 31, 2005 is attributable to a substantial reduction in
      the
      number of new subscribers. Paid one year subscriptions were approximately 58,700
      for the year ended March 31, 2006 compared to approximately 79,100 for the
      year
      ended March 31, 2005. The larger number of paid one year subscribers during
      the
      year ended March 31, 2005 was primarily attributable to capitalizing on reader
      interest in Salon’s political coverage during the 2004 election year, with no
      comparable event taking place in 2006. Paid one month subscriptions declined
      to
      approximately 3,900 for the year ended March 31, 2006 compared to approximately
      5,000 for the year ended March 31, 2005. As a result of these factors, the
      number of paid subscribers decreased from approximately 84,500 at March 31,
      2005
      to approximately 65,500 at March 31, 2006.





All
      other
      sources of revenue were $0.8 million for the year ended March 31, 2006 and
      the
      year ended March 31, 2005. Approximately $0.5 million of this revenue was
      derived from the Well, an online discussion forum.





*Production
      and Content*




Production
      and content expenses during the year ended March 31, 2006 were $4.5 million
      versus $4.4 million for the year ended March 31, 2005, an increase of $0.1
      million. The nominal 1% increase primarily reflects recognizing $0.1 million
      of
      stock compensation expense this year and none last year, $0.1 million of
      additional salary related costs from an increase in staff, offset by a $0.1
      million reduction in ad serving costs.





*Sales
      and Marketing Expenses*




Sales
      and
      marketing expenses during the year ended March 31, 2006 were $1.5 million versus
      $1.9 million for the year ended March 31, 2005, a decrease of $0.4 million.
      The
      20% decrease primarily reflects utilizing $0.2 million fewer advertising credits
      this year compared to last year, salary related costs declining by $0.1 million
      as the amounts of commissions earned were less than last year and a business
      development position was unfilled for most of the year. In addition, the results
      for the year ended March 31, 2005 included a $0.1 million charge related to
      the
      issuance of a warrant to purchase common stock that was granted as part of
      a
      separation agreement.





*Information
      Technology Support Expenses*




Information
      technology support expenses during the year ended March 31, 2006 were $0.7
      million versus $0.6 million for the year ended March 31, 2005, an increase
      of
      $0.1 million. The 10%




34


increase
      was primarily attributable to hiring technical consultants and the value of
      a
      warrant issued as part of a severance agreement.





*General
      and Administrative Expenses*




General
      and administrative expenses the year ended March 31, 2006 were $1.0 million
      versus $0.8 million for the year ended March 31, 2005, an increase of $0.2
      million. The 26% increase primarily resulted from a $0.1 million increase in
      salary related costs attributable to raises awarded to two officers in February
      2005, an addition of one staff member and $0.1 million is attributable to a
      general increase in other corporate expenses.





*Interest
      and other income (expense)*





Interest
      and other income (expense) for the year ended March 31, 2006 was essentially
      nil
      compared to a benefit of $0.6 million for the year ended March 31,
      2005.





The
      results for the year ended March 31, 2005 included benefits of $0.4 million
      from
      a decrease in value of warrants previously issued to convertible note holders
      and approximately $0.2 million from monies received to finance editorial
      content. During the year ended March 31, 2005, Salon amended its Certificate
      of
      Incorporation, increasing the number of authorized shares from 50,000,000 to
      600,000,000, thereby relieving the requirement for Salon to record charges
      or
      benefits in future periods relating to the value of warrants.





*Preferred
      Deemed Dividend*





During
      the year ended March 31, 2006, Salon sold 209 shares of Series D-3 preferred
      stock that were convertible to common stock at an effective price less than
      the
      fair market value of Salon’s common stock on the commitment date. Salon valued
      the beneficial conversion feature of the preferred stock sold at $0.2 million.
      As the shares of preferred stock were immediately convertible, for its year
      ended March 31, 2006, Salon recorded a $0.2 million non-cash preferred deemed
      dividend, representing the value of the beneficial conversion feature of the
      shares issued.





The
      non-cash preferred deemed dividend benefit of $0.2 million for the year ended
      March 31, 2005 includes a benefit of $0.5 million from a decrease in value
      of
      warrants previously issued to preferred stockholders and a charge of $0.3
      million from the issuance of Series D preferred stock during the year. During
      the year ended March 31, 2005, Salon sold 417 shares of Series D-1 and 417
      shares of Series D-2 preferred stock at an effective price less than the fair
      market value of Salon’s common stock on the commitment dates. Salon valued the
      beneficial conversion feature of the preferred stock sold at $0.3 million.
      As
      the shares of preferred stock were all immediately convertible, for its year
      ended March 31, 2005, Salon recorded a $0.3 million non-cash preferred deemed
      dividend, representing the value of the beneficial conversion feature of the
      shares issued.





**Liquidity
      and Capital Resources**





Net
      cash
      used in operations was $1.2 million for the year ended March 31, 2007, $0.6
      million for the year ended March 31, 2006, and $0.8 million for the year ended
      March 31, 2005. The principal use of cash during the year ended March 31, 2007
      was to fund the $1.6 million net loss and reflects accounts receivable
      increasing by $0.5 million, less $0.8 million of non-cash charges. The principal
      use of cash during the year ended March 31, 2006 was to fund the $1.1 million
      net loss, less $0.5 million of non-cash charges, and a $0.2 million decrease
      in
      deferred revenue, all offset by a reduction of $0.2 million of




35


accounts
      receivable, prepaid expenses and other current assets and other assets. The
      principal use of cash during the year ended March 31, 2005 was to fund the
      $0.5
      million net loss, less non-cash charges of $0.5 million, a $0.3 million increase
      in accounts receivable and the $0.3 million decrease in accounts
      payable.





Net
      cash
      used in investing activities was immaterial for the years ended March 31, 2007
      and March 31, 2006. Net cash used in investing activities was $0.2 million
      for
      the year ended March 31, 2005 to fund the acquisition of computer equipment,
      and
      for leasehold improvements.





For
      the
      year ended March 31, 2007, net cash provided from financing activities was
      $1.7
      million, which includes $0.8 million from the exercise of warrants and $0.9
      million from the issuance of 750 shares of preferred stock. For the year ended
      March 31, 2006, net cash provided from financing activities was $0.4 million
      from the issuance of Series D preferred stock, and the exercise of common stock
      options and warrants. For the year ended March 31, 2005, net cash from financing
      activities was $1.0 million primarily from the issuance of Series D preferred
      stock.





Salon,
      as
      permitted under Delaware law and in accordance with its Bylaws, indemnifies
      its
      officers and directors for certain events or occurrences, subject to certain
      limits, while the officer is or was serving at Salon’s request in such capacity.
      The term of the indemnification period is for the officer's, or director's
      lifetime. The maximum amount of potential future indemnification is unlimited;
      however, Salon does have a Director and Officer Insurance Policy that limits
      Salon's exposure and enables Salon to recover a portion of any future amounts
      paid. As a result of the insurance policy coverage, Salon believes the fair
      value of these indemnification agreements is minimal.





As
      of
      March 31, 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 March 31, 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 PeriodTotal
            
            1
                Year or Less
            
            1
                -
                3 Years
            
            More
                than 3 YearsOperating
                leases
            
            $
            783
            
            $
            470
            
            $
            313
            
            $
            -Total
            
            $
            783
            
            $
            470
            
            $
            313
            
            $
            -





**Capital
      requirements**





Salon
      has
      a history of significant losses and expects to incur a net loss from operations
      for its year ending March 31, 2008. Because of past losses, an anticipated
      loss
      next year 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. During the last three years, Salon has relied on cash from the issuance
      of preferred stock and from the exercise of warrants to meet its cash
      requirements. Based on current cash projections for next year, including $8.1
      million of advertising revenues and $10.4 million of total revenues, Salon
      estimates it will require an additional $0.6 million cash inflow to meet
      operating needs. If planned revenues are less than expected, the cash shortfall
      may be higher.




Even
      though Salon received $0.8 million in cash this year from the exercise of
      warrants, it will likely not receive any cash from the exercise of warrants
      during the next year. In anticipation of the cash




36


shortfall,
      Salon completed an agreement in May 2007 with Deutsche Bank Securities, Inc.
      that enables Salon to borrow up to $1.0 million in cash. The cash shortfall
      is
      expected to commence in June 2007 and continue through August 2007. Salon
      projects that it should be able to repay the borrowed amounts between January
      2008 and February 2008 and have approximately $0.9 million of cash on hand
      as of
      March 31, 2008.





**Off-Balance
      Sheet Arrangements**





Salon
      has
      no off-balance sheet arrangements.





**Reverse
      Stock Split**





Pursuant
      to the authority granted to the Board of Directors (the “Board”) by the
      stockholders of Salon at its Annual Meeting of Stockholders held on October
      20,
      2005, the Board on November 14, 2006 approved a reverse stock split of Salon’s
      authorized and outstanding shares of common stock at a ratio of 20:1. The
      reverse stock split was effective November 15, 2006, the date Salon’s
      Certificate of Amendment of Restated Certificate of Incorporation was filed
      with
      the Delaware Secretary of State and Salon’s stock trading symbol was changed to
      SLNM.OB from SALN.OB.





**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. Salon does not currently
      believe adoption will have a material impact on its 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. Salon, who will
      adopt SFAS 157 as of April 1, 2007, does not currently believe adoption will
      have a material impact on its results of operations, financial position, or
      cash
      flows.





In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      No.
      158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R),” (SFAS 158).
      SFAS 158  improves
      financial reporting by requiring an employer to recognize the overfunded or
      underfunded status of a defined benefit postretirement plan (other than a
      multiemployer plan) as an asset or liability in its statement of financial
      position and to recognize changes in that funded status in the year in which
      the
      changes occur through comprehensive income of a business entity or changes
      in
      unrestricted net assets of a not-for-profit organization. SFAS 158 also improves
      financial reporting by requiring an employer to measure the funded status of
      a
      plan as of the date of its year-end statement of financial position, with
      limited exceptions. SFAS 158 is effective for fiscal years ending after December
      15, 2006. Salon does not currently believe adoption will have a material impact
      on its results of operations, financial position, or cash flows.





37


In
      September 2006, the Securities and Exchange Commission (SEC) issued Staff
      Accounting Bulletin No. 108 on Quantifying Financial Statement Misstatements
      (SAB 108). SAB 108 sets forth the SEC staff's views that registrants should
      quantify errors using both a balance sheet and an income statement approach,
      and
      evaluate whether either approach results in quantifying a misstatement that,
      when all relevant quantitative and qualitative factors are considered, is
      material. SAB108 is effective the first fiscal year ending after November 15,
      2006. Salon does not currently believe adoption will have a material impact
      on
      its 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, who will adopt SFAS 159 as of April
      1, 2007, does not believe its adoption of SFAS159 will have a material impact
      on
      its results of operations, financial position, or cash flows.





**ITEM
      7A. Quantitative and Qualitative Disclosures 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. Subsequent to March 31, 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 increase is minimal, and that interest rates
      will
      decline a marginal amount during the year ending March 31, 2008. If rates were
      to increase or decrease, the effect on Salon would be minor as Salon
      contemplates having a cumulative $0.5 million of debt outstanding starting
      in
      June 2007 through February 2008. As Salon conducts all of its business in the
      United States, Salon is not subject to foreign exchange risk.





38


**ITEM
      8. Consolidated Financial Statements and Supplementary
      Data**


PageReports
                  of Independent Registered Public Accounting Firm
              40Consolidated
                  Balance Sheets as of March 31, 2007 and 2006
              41Consolidated
                  Statements of Operations for the years ended March 31,
                  20072006,
                  and 2005
              42Consolidated
                  Statements of Stockholders’ Equity for the years ended March 31,
                  20072006,
                  and 2005
              43Consolidated
                  Statements of Cash Flows for the years ended March 31,
                  20072006,
                  and 2005
              44Notes
                  to Consolidated Financial Statements
              45Selected
                  Quarterly Financial Data (unaudited)
              65




39


**Report
      of independent registered public accounting firm**








To
      the
      Board of Directors and Stockholders


Salon
      Media Group, Inc.





We
      have
      audited the accompanying consolidated balance sheets of Salon Media Group,
      Inc.
      and its subsidiaries (the “Company”) as of March 31, 2007 and 2006 and the
      related consolidated statements of operations, stockholders’ equity, and cash
      flows for each of the three years in the period ended March 31, 2007. These
      consolidated financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. The Company
      is not required to have, nor have we been engaged to perform an audit of the
      Company’s internal control over financial reporting. Our audits included
      consideration of internal control over financial reporting as a basis for
      designing audit procedures that are appropriate in the circumstances, but not
      for the purpose of expressing an opinion on the effectiveness of the Company's
      internal control over financial reporting. Accordingly, we express no such
      opinion. An audit includes examining, on a test basis, evidence supporting
      the
      amounts and disclosures in the consolidated financial statements. An audit
      also
      includes assessing the accounting principles used and significant estimates
      made
      by management, as well as evaluating the overall financial statement
      presentation. We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Salon Media Group, Inc.
      and
      its subsidiaries as of March 31, 2007 and 2006, and the results of their
      operations and their cash flows for each of the of the three years in the period
      ended March 31, 2007 in conformity with accounting principles generally accepted
      in the United States of America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 2 to the
      consolidated financial statements, the Company has suffered recurring losses
      and
      negative cash flows from operations and has an accumulated deficit of $92.8
      million at March 31, 2007. These conditions raise substantial doubt about its
      ability to continue as a going concern. Management’s plans regarding those
      matters also are described in Note 2. The consolidated financial statements
      do
      not include any adjustments that might result from the outcome of this
      uncertainty.





As
      discussed in Note 2 to the consolidated financial statements, on April 1, 2006
      the Company changed its method of accounting for stock-based compensation as
      a
      result of adopting Statement of Financial Accounting Standard No. 123 (revised
      2004), “Share Based Payments” applying the modified prospective
      method.








/S/
      Burr,
      Pilger & Mayer LLP


San
      Francisco, California


June
      25,
      2007





40




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




**March
                31,****2007**
            
            **2006****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            829
            
            $
            441Accounts
                receivable, net
            
            
            1,007
            
            
            502Prepaid
                expenses and other current assets
            
            
            53
            
            
            184Total
                current assets
            
            
            1,889
            
            
            1,127Property
                and equipment, net
            
            
            115
            
            
            155Prepaid
                advertising rights
            
            
            3,267
            
            
            3,718Goodwill,
                net
            
            
            200
            
            
            200Other
                assets
            
            
            134
            
            
            104Total
                assets
            
            $
            5,605
            
            $
            5,304**Liabilities
                and stockholders’ equity**Current
                liabilities:Accounts
                payable and accrued liabilities
            
            $
            762
            
            $
            747Deferred
                revenue
            
            
            792
            
            
            820Total
                current liabilities
            
            
            1,554
            
            
            1,567Other
                long-term liabilities
            
            
            85
            
            
            120Total
                liabilities
            
            
            1,639
            
            
            1,687Commitments
                and Contingencies (Note 9)Stockholders’
                equity:Preferred
                stock, $0.001 par value, 5,000,000 shares authorized, 9,183
                sharesissued
                and outstanding at March 31, 2007 and 8,558 shares issued
                andoutstanding
                at March 31, 2006(aggregate
                liquidation preference of $22,344 at March 31, 2007 and$21,655
                at March 31, 2006)
            
            
            -
            
            
            -Common
                stock, $0.001 par value, 30,000,000 shares authorized,
                1,939,572shares
                issued and outstanding at March 31, 2007 and 956,387
                sharesissued
                and outstanding at March 31, 2006
            
            
            2
            
            
            1Additional
                paid-in capital
            
            
            96,788
            
            
            94,619Unearned
                compensation
            
            
            -
            
            
            (40
            )Accumulated
                deficit
            
            
            (92,824
            )
            
            (90,963
            )Total
                stockholders’ equity
            
            
            3,966
            
            
            3,617Total
                liabilities and stockholders’ equity
            
            $
            5,605
            
            $
            5,304




See
                accompanying notes to Consolidated Financial
                Statements





41





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




**Year
                Ended March 31,****2007**
            
            **2006**
            
            **2005**Net
                revenues
            
            $
            7,748
            
            $
            6,516
            
            $
            6,628Operating
                expenses:Production
                and content
            
            
            5,223
            
            
            4,505
            
            
            4,446Sales
                and marketing
            
            
            1,978
            
            
            1,515
            
            
            1,891Information
                technology support
            
            
            828
            
            
            676
            
            
            617General
                and administrative
            
            
            1,286
            
            
            964
            
            
            766Total
                operating expenses
            
            
            9,315
            
            
            7,660
            
            
            7,720Loss
                from operations
            
            
            (1,567
            )
            
            (1,144
            )
            
            (1,092
            )Interest
                and other income
            
            
            1
            
            
            22
            
            
            574Net
                loss
            
            
            (1,566
            )
            
            (1,122
            )
            
            (518
            )Preferred
                deemed dividend
            
            
            (295
            )
            
            (227
            )
            
            160Net
                loss attributable to common stockholders
            
            $
            (1,861
            )
            $
            (1,349
            )
            $
            (358
            )Basic
                and diluted net loss per share attributable tocommon
                stockholders
            
            $
            (1.10
            )
            $
            (1.67
            )
            $
            (0.50
            )Weighted
                average shares used in computing basicand
                diluted net loss per share attributableto
                common stockholders
            
            
            1,692
            
            
            809
            
            
            720




See
                accompanying notes to Consolidated Financial
                Statements





42


**SALON
      MEDIA GROUP, INC.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


(in
      thousands, except Preferred Stock Shares)




Additional
            
            
            
            
            
            TotalPreferredStock
            
            CommonStock
            
            Paid-In
            
            Unearned
            
            Accumulated
            
            Stockholders’Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Compensation
            
            Deficit
            
            Equity**Balance,
                March 31, 2004**
            
            
            7,552
            
            $
            -
            
            
            708
            
            $
            1
            
            $
            90,654
            
            $
            -
            
            $
            (89,256
            )
            $
            1,399Shares
                issued under employee stock plans
            
            
            -
            
            
            -
            
            
            20
            
            
            -
            
            
            55
            
            
            -
            
            
            -
            
            
            55Value
                of shares issued to settle amountsowed
                a trade payable
            
            
            -
            
            
            -
            
            
            21
            
            
            -
            
            
            42
            
            
            -
            
            
            -
            
            
            42Value
                of warrants issued
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            100
            
            
            -
            
            
            -
            
            
            100Series
                D convertible preferred stock andcommon
                stock warrants issued for cash
            
            
            834
            
            
            -
            
            
            -
            
            
            -
            
            
            1,207
            
            
            -
            
            
            (310
            )
            
            897Preferred
                deemed dividend from revaluationof
                warrants issued to preferred stock holders
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            470
            
            
            470Extinguishment
                of warrant liability
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,707
            
            
            -
            
            
            -
            
            
            1,707Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (518
            )
            
            (518
            )**Balance,
                March 31, 2005**
            
            
            8,386
            
            $
            -
            
            
            749
            
            $
            1
            
            $
            93,765
            
            $
            -
            
            $
            (89,614
            )
            $
            4,152Shares
                issued under employee stock plans
            
            
            -
            
            
            -
            
            
            26
            
            
            -
            
            
            73
            
            
            -
            
            
            -
            
            
            73Shares
                issued under warrant agreements
            
            
            -
            
            
            -
            
            
            144
            
            
            -
            
            
            65
            
            
            -
            
            
            -
            
            
            65Value
                of warrants issued
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            55
            
            
            -
            
            
            -
            
            
            55Preferred
                stock converted to common stock
            
            
            (37
            )
            
            -
            
            
            38
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Share-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            183
            
            
            (40
            )
            
            -
            
            
            143Series
                D convertible preferred stock andcommon
                stock warrants issued for cash
            
            
            209
            
            
            -
            
            
            -
            
            
            -
            
            
            251
            
            
            -
            
            
            -
            
            
            251Preferred
                deemed dividend on issuance ofSeries
                D Convertible preferred stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            227
            
            
            -
            
            
            (227
            )
            
            -Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,122
            )
            
            (1,122
            )**Balance,
                March 31, 2006**
            
            
            8,558
            
            $
            -
            
            
            957
            
            $
            1
            
            $
            94,619
            
            $
            (40
            )
            $
            (90,963
            )
            $
            3,617Shares
                issued under employee stock plans
            
            
            -
            
            
            -
            
            
            2
            
            
            -
            
            
            6
            
            
            -
            
            
            -
            
            
            6Shares
                issued under warrant agreements
            
            
            -
            
            
            -
            
            
            730
            
            
            1
            
            
            778
            
            
            -
            
            
            -
            
            
            779Preferred
                stock converted to common stock
            
            
            (125
            )
            
            -
            
            
            251
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Series
                D convertible preferred stock andcommon
                stock warrants issued for cash
            
            
            750
            
            
            -
            
            
            -
            
            
            -
            
            
            900
            
            
            -
            
            
            -
            
            
            900Preferred
                deemed dividend on issuance ofSeries
                D Convertible preferred stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            295
            
            
            -
            
            
            (295
            )
            
            -Share-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            190
            
            
            40
            
            
            -
            
            
            230Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,566
            )
            
            (1,566
            )**Balance,
                March 31, 2007**
            
            
            9,183
            
            $
            -
            
            
            1,940
            
            $
            2
            
            $
            96,788
            
            $
            -
            
            $
            (92,824
            )
            $
            3,966




See
      accompanying notes to Consolidated Financial Statements


43




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




**Year
                Ended March 31,****2007**
            
            **2006**
            
            **2005****Cash
                flows from operating activities:**Net
                loss
            
            $
            (1,566
            )
            $
            (1,122
            )
            $
            (518
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Share-based
                compensation
            
            
            230
            
            
            143
            
            
            -Warrant
                re-valuation
            
            
            -
            
            
            -
            
            
            (541
            )Depreciation
                and amortization
            
            
            89
            
            
            143
            
            
            495Allowance
                for (recovery of) doubtful accounts
            
            
            -
            
            
            (1
            )
            
            2Operating
                lease incentives
            
            
            -
            
            
            -
            
            
            65Gain
                on issuance of common stock for trade payable
            
            
            -
            
            
            -
            
            
            (25
            )Prepaid
                advertising rights usage
            
            
            451
            
            
            252
            
            
            460Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (505
            )
            
            122
            
            
            (319
            )Prepaid
                expenses, other current assets and other assets
            
            
            101
            
            
            111
            
            
            (130
            )Accounts
                payable, accrued liabilities and other long-term
                liabilities
            
            
            (21
            )
            
            (3
            )
            
            (254
            )Deferred
                revenue
            
            
            (28
            )
            
            (227
            )
            
            (60
            )Net
                cash used in operating activities
            
            
            (1,249
            )
            
            (582
            )
            
            (825
            )**Cash
                flows from investing activities:**Purchase
                of property and equipment
            
            
            (48
            )
            
            (52
            )
            
            (217
            )Net
                cash used in investing activities
            
            
            (48
            )
            
            (52
            )
            
            (217
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of preferred stock, net
            
            
            900
            
            
            251
            
            
            995Proceeds
                from issuance of common stock, net
            
            
            785
            
            
            138
            
            
            55Principal
                payments under capital leases
            
            
            -
            
            
            -
            
            
            (18
            )Net
                cash provided by financing activities
            
            
            1,685
            
            
            389
            
            
            1,032**Net
                increase (decrease) in cash and cash equivalents**
            
            
            388
            
            
            (245
            )
            
            (10
            )**Cash
                and cash equivalents at beginning of period**
            
            
            441
            
            
            686
            
            
            696**Cash
                and cash equivalents at end of period**
            
            $
            829
            
            $
            441
            
            $
            686**Amount
                paid for interest**
            
            $
            -
            
            $
            -
            
            $
            -**Amount
                paid for taxes**
            
            
            -
            
            
            -
            
            
            -**Supplemental
                schedule of non-cash investing and financing
                activities:**Issuance
                of warrants in connection with agreements
            
            $
            -
            
            $
            55
            
            $
            100Preferred
                deemed dividend
            
            
            295
            
            
            227
            
            
            (160
            )Issuance
                of common stock for trade payable
            
            
            -
            
            
            -
            
            
            42




See
                accompanying notes to Consolidated Financial
                Statements





44


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




**Note
      1.**  **The
      Company**




Salon
      Media Group, Inc (“Salon”) is an Internet media company that produces a content
      Website with ten subject-specific sections, which includes two online
      communities. The Website also allows for audio downloads and video clips. 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.




Pursuant
      to the authority granted to the Board of Directors (the “Board”) by the
      stockholders of Salon at its Annual Meeting of Stockholders held on October
      20,
      2005, the Board on November 14, 2006 approved a reverse stock split of Salon’s
      authorized and outstanding shares of common stock at a ratio of 20:1. The
      reverse stock split was effective November 15, 2006, the date Salon’s
      Certificate of Amendment of Restated Certificate of Incorporation was filed
      with
      the Delaware Secretary of State and Salon’s stock trading symbol was changed to
      SLNM.OB from SALN.OB. Accordingly all issued and outstanding shares and per
      share amounts in the accompanying consolidated financial statements have been
      retroactively restated to reflect the reverse stock split.




**Note
      2.**  **Summary
      of Significant Accounting Policies**




*Basis
      of presentation*




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 March 31, 2007 of $92,824. In addition, Salon expects
      to
      incur a net loss from operations for its year ending March 31, 2008. Because
      of
      past losses, an anticipated loss next year 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. During the last three years, Salon has relied
      on
      cash from the issuance of preferred stock and from the exercise of warrants
      to
      meet its cash requirements. Based on current cash projections for next year,
      including $8.1 million of advertising revenues and $10.4 million of total
      revenues, Salon estimates it will require an additional $0.6 million cash inflow
      to meet operating needs. If planned revenues are less than expected, the cash
      shortfall may be higher.




Even
      though Salon received $0.8 million in cash this year from the exercise of
      warrants, it will likely not receive any cash from the exercise of warrants
      during the next year. In anticipation of the cash shortfall, Salon completed
      an
      agreement in May 2007 with Deutsche Bank Securities, Inc. (see Note 3 “Borrowing
      Agreement”) that will enable Salon to borrow up to $1.0 million in cash. The
      cash shortfall is expected to commence in June 2007 and continue through August
      2007. Salon projects that it should be able to repay the borrowed amounts
      between January 2008 and February 2008 and have approximately $0.9 million
      of
      cash on hand as of March 31, 2008.





*Principles
      of consolidation*




The
      consolidated financial statements include the accounts of Salon and its wholly
      owned subsidiaries, which are not active. All material intercompany accounts
      and
      transactions have been eliminated in the consolidated financial
      statements.


45


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




*Segment
      and enterprise-wide reporting*




Salon
      discloses segment enterprise-wide information in accordance with Statement
      of
      Financial Accounting Standard (SFAS) No.131 “Disclosures about Segments of
      Enterprises and Related Information.” Based upon definitions contained within
      SFAS No. 131, management has determined that Salon operates in one segment.
      In
      addition, virtually all revenues are in North America, and all of the long-lived
      assets are located within the United States.




*Use
      of estimates*




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenue and expenses during the reporting period. Actual
      results could differ from those estimates.




*Accounts
      receivable*




Accounts
      receivable are stated net of doubtful accounts. Salon estimates the
      uncollectibility of the accounts receivable balance and maintains allowances
      for
      estimated losses. Salon analyzes accounts receivable, historical bad debts,
      receivable aging, customer credit-worthiness, and current economic trends when
      evaluating the adequacy of the allowance for doubtful accounts.




*Property
      and equipment*




Property
      and equipment are recorded at cost. Maintenance, repairs and minor renewals
      are
      expensed as incurred. Depreciation is provided on a straight-line basis over
      the
      useful lives of the asset, principally three years for computer hardware and
      software, and five years for furniture and office equipment. Depreciation of
      leasehold improvements is provided on a straight-line basis over the useful
      life
      of the asset or the term of the lease, whichever is shorter. When property
      and
      equipment is retired or otherwise disposed of, the cost and accumulated
      depreciation are relieved from the accounts and the net gain or loss is included
      in the determination of income.




*Prepaid
      advertising rights*




Prepaid
      advertising rights are carried at cost less accumulated amortization, with
      amortization commensurate to the usage of such rights, and expire on December
      31, 2009. In the event that the rights are not fully utilized prior to their
      expiration, Salon has the right to receive cash for the unused
      value.




*Goodwill*




Goodwill
      is not amortized, but instead is tested for impairment at least annually during
      the quarter ending March 31, or earlier as warranted by events or changes in
      circumstances.




*Impairment
      of long-lived assets*




Salon
      periodically evaluates the potential impairment of its long-lived assets
      whenever events or changes in circumstances indicate that the carrying amount
      of
      the asset may not be recoverable. At the




46


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




occurrence
      of an event or change in circumstances, Salon evaluates the potential impairment
      of an asset based on the estimated future undiscounted cash flows attributable
      to such assets. In the event impairment exists, Salon will measure the amount
      of
      such impairment based on the present value of the estimated future cash flows
      using a discount rate commensurate with the risks involved.




*Revenue
      recognition*




Salon’s
      revenues are primarily from the sale of advertising space on its Website and
      the
      sale of subscriptions to individuals. Salon recognizes revenue 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.





Advertisement
      sales agreements are generally short-term agreements, usually less than ninety
      days. Revenues derived from such arrangements are recognized during the period
      the advertising space is provided, as long as no significant obligations remain
      at the end of the period. Salon’s obligations may include a fixed number of days
      that a Salon Site Pass advertisement is run, the guarantee of a minimum number
      of times that an advertisement appears in a page viewed by a visitor to Salon’s
      Website, or a set number of Site Pass advertisements viewed by a Website
      visitor. To the extent the minimum guaranteed amounts are not delivered, Salon
      defers recognition of the corresponding revenue until the remaining guaranteed
      amounts are achieved, if mutually agreeable with an advertiser. If these “make
      good” impressions are not agreeable to an advertiser, no further revenue is
      recognized.





Revenue
      from Salon’s subscription services from Salon Premium and The Well are
      recognized ratably over the subscription period. Salon Premium subscriptions
      are
      generally for one month or one year periods. Well subscriptions are generally
      only for one month.





*Advertising
      costs*




Salon
      expenses advertising costs as they are incurred. Advertising expense was $448,
      $271, and $471, for the fiscal years ended March 31, 2007, 2006, and
      2005.





*Comprehensive
      loss*




Comprehensive
      loss is defined as the change in equity of a business enterprise during a period
      from non-owner sources. There were no differences between the net loss for
      the
      years ended March 31, 2007, 2006 and 2005 and comprehensive loss for those
      periods.





*Stock-based
      compensation*




On
      April
      1, 2006, Salon adopted the provisions of, and accounted for stock-based
      compensation in accordance with, the Financial Accounting Standards Board’s
      (FASB) Statement of Financial Accounting Standards No. 123 - revised 2004,
“Share Based Payment” (SFAS 123R), which replaced SFAS No. 123, “Accounting
      for Stock-Based Compensation” (SFAS 123) and supersedes Accounting Principals
      Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB
      25). Under the fair value provisions of this statement, stock-based compensation
      cost is measured at the grant date


47


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




based
      on
      the fair value of the award and is recognized as expense over the requisite
      service period, which is the vesting period. Salon uses the Black-Scholes
      option-pricing model to determine the fair-value of stock-based awards under
      SFAS 123R, consistent with that used for pro forma disclosures under SFAS 123.
      Prior to the adoption of SFAS 123R, Salon accounted for stock-based awards
      to
      employees using the intrinsic value method in accordance with APB No. 25 as
      allowed under SFAS 123. Under the intrinsic value method, no stock-based
      compensation expense had been recognized in Salon’s consolidated statement of
      operations, other than as related to non-employees, because the exercise price
      of its stock options granted to employees equaled the fair market value of
      the
      underlying stock at the date of grant. Salon recognizes compensation cost
      related to stock options granted prior to the adoption of SFAS 123R on an
      accelerated basis over the applicable vesting period using the methodology
      described in FASB Interpretation No. 28, “Accounting for Stock
      Appreciation Rights and Other Variable Stock Option or Award Plans” (FIN 28).
      Salon recognizes compensation cost related to options granted subsequent to
      the
      adoption of SFAS 123R on a straight-line basis over the applicable vesting
      period.





Salon
      utilized the modified prospective transition method, which requires that
      stock-based compensation expense be recorded for all new and unvested stock
      options and employee stock purchase plan shares that are ultimately expected
      to
      vest as the requisite service is rendered beginning on April 1, 2006, the
      first day of Salon’s 2007 fiscal year. The consolidated financial statements as
      of and for the year ended March 31, 2007 reflect the impact of SFAS 123R.
      In accordance with the modified prospective transition method, Salon’s
      consolidated financial statements for prior periods have not been restated
      to
      reflect, and do not include, the impact of SFAS 123R. Stock-based compensation
      expense recognized under SFAS 123R for the year ended March 31, 2007 was
      $230, which consisted solely of stock-based compensation expense related to
      stock options. See Note 7: “Employee Stock Option Plan” to the financial
      statements for additional information.





As
      of
      March 31, 2007, the aggregate stock compensation remaining to be amortized
      to expenses was $771. Salon expects this stock compensation balance to be
      amortized as follows: $234 during fiscal 2008; $239 during fiscal 2009; $226
      during fiscal 2010; and $72 during fiscal 2011. The expected amortization
      reflects only outstanding stock awards as of March 31, 2007.





No
      amounts were recorded relating to excess tax benefits from the exercise of
      stock-based compensation awards during the year ended March 31, 2007, and as
      a
      result there were no differences in net cash used in operating and financing
      activities due to the implementation of SFAS 123R.




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:




**Year
                Ended March 31,****2007**
            
            **2006**
            
            **2005**Risk-free
                interest rates
            
            4.47
                - 4.97%
            
            3.80
                - 4.30%
            
            3.40%Expected
                lives (in years)
            
            4
            
            4
            
            4Expected
                volatility
            
            107
                - 129 %
            
            120%
            
            120%Dividend
                yield
            
            0.0%
            
            0.0%
            
            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. For the year ended March 31, 2007, expected






48
 
 **SALON
          MEDIA GROUP, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(amounts
          in thousands, except share and per share data)**


stock
      price volatility is based on historical volatility of Salon’s stock. The
      risk-free interest rate is based on the implied yield available on U.S. Treasury
      securities with a term equivalent to the vesting period of the stock options,
      or
      four years. Salon has not paid dividends in the past.





The
      following table illustrates the effect on net loss and net loss per share if
      Salon had applied the fair value recognition provisions of SFAS 123 to
      stock-based employee compensation during the years ended March 31, 2006 and
      March 31, 2005 :




**Year
                Ended March 31,****2006**
            
            **2005**Net
                loss attributable to common stockholders:As
                reported
            
            $
            (1,349
            )
            $
            (358
            )Add
                back: share-based employee compensationexpense
                included in reported net loss
            
            
            -
            
            
            -Deduct:
                share-based employee compensationexpense
                determined under the fair value based method,net
                of related tax
            
            
            (2,321
            )
            
            (1,390
            )Pro
                forma net loss attributable to common stockholders
            
            $
            (3,670
            )
            $
            (1,748
            )Basis
                and diluted net loss per share attributable tocommon
                stockholders:As
                reported
            
            $
            (1.67
            )
            $
            (0.50
            )Pro
                forma
            
            $
            (4.54
            )
            $
            (2.43
            )





*Net
      loss per share*





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




**Year
                Ended March 31,****2007**
            
            **2006**
            
            **2005**Numerator:Net
                loss attributable to common stockholders
            
            $
            (1,861
            )
            $
            (1,349
            )
            $
            (358
            )Denominator:Weighted
                average shares used incomputing
                basic and diluted net loss pershare
                attributable to common stockholders
            
            
            1,692,000
            
            
            809,000
            
            
            720,000Basic
                and diluted net loss per share attributableto
                common stockholders
            
            $
            (1.10
            )
            $
            (1.67
            )
            $
            (0.50
            )Antidilutive
                securities including options,warrants
                and convertible preferred stocknot
                included in loss per share calculation
            
            
            11,868,000
            
            
            11,899,000
            
            
            11,600,000




49


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




*Financial
      instruments*




The
      carrying amounts of Salon’s financial instruments, including cash and cash
      equivalents, accounts receivable, and accounts payable, approximate fair value
      because of their short maturities. Fair value of capital lease obligations,
      if
      any, approximates carrying value since they bear interest at current market
      rates.





*Income
      taxes*




Salon
      recognizes deferred taxes by the asset and liability method of accounting for
      income taxes. Under the asset and liability method, deferred income taxes are
      recognized for differences between the financial statement and tax basis of
      assets and liabilities at enacted statutory tax rates in effect for the years
      in
      which the differences are expected to reverse. The effect on deferred taxes
      of a
      change in tax rates is recognized in income in the period that includes the
      enactment date. Valuation allowances are established when necessary to reduce
      deferred tax assets to the amounts expected to be realized.





*Concentrations
      of credit risk*





Financial
      instruments that potentially subject Salon to concentrations of credit risk
      consist principally of trade accounts receivable.  Salon
      performs ongoing credit evaluations of its customers, but  does
      not
      require collateral. Salon provides an allowance for credit losses that it
      periodically adjusts to reflect management’s expectations of future losses. No
      customer accounted for 10% or more of the total trade accounts receivable at
      March 31, 2007 and one customer accounted for 11% of total trade accounts
      receivable at March 31, 2006. No customer accounted for 10% or more of total
      revenue for the fiscal years ended March 31, 2007, 2006 and 2005
      respectively.





*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. Salon does not currently
      believe adoption will have a material impact on its 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. Salon, who will
      adopt SFAS 157 as of April 1, 2007, does not currently believe adoption will
      have a material impact on its results of operations, financial position, or
      cash
      flows.





50





**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      No.
      158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R),” (SFAS 158).
      SFAS 158  improves
      financial reporting by requiring an employer to recognize the overfunded or
      underfunded status of a defined benefit postretirement plan (other than a
      multiemployer plan) as an asset or liability in its statement of financial
      position and to recognize changes in that funded status in the year in which
      the
      changes occur through comprehensive income of a business entity or changes
      in
      unrestricted net assets of a not-for-profit organization. SFAS 158 also improves
      financial reporting by requiring an employer to measure the funded status of
      a
      plan as of the date of its year-end statement of financial position, with
      limited exceptions. SFAS 158 is effective for fiscal years ending after December
      15, 2006. Salon does not currently believe adoption will have a material impact
      on its results of operations, financial position, or cash flows.





In
      September 2006, the Securities and Exchange Commission (SEC) issued Staff
      Accounting Bulletin No. 108 on Quantifying Financial Statement Misstatements
      (SAB 108). SAB 108 sets forth the SEC staff's views that registrants should
      quantify errors using both a balance sheet and an income statement approach,
      and
      evaluate whether either approach results in quantifying a misstatement that,
      when all relevant quantitative and qualitative factors are considered, is
      material. SAB108 is effective the first fiscal year ending after November 15,
      2006. Salon does not currently believe adoption will have a material impact
      on
      its 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, who will adopt SFAS 159 as of April
      1, 2007, does not believe its adoption of SFAS159 will have a material impact
      on
      its results of operations, financial position, or cash flows.





**Note
      3. Borrowing Agreement**





In
      May
      2007, Salon finalized a borrowing agreement with Deutsche Bank Securities,
      Inc.
      that will allow 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. Even though the
      agreement does not stipulate a termination date, Salon expects the agreement
      to
      terminate within one year, unless mutually agreed by Deutsche Bank Securities,
      Inc., Salon and Salon’s Chairman. Salon contemplates drawing $600 from the
      credit agreement between May 2007 and August 2007, and repaying such amounts
      between January 2007 and February 2008.





**Note
      4. Goodwill**





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 March 31, 2007 and March 31, 2006 was $200 and has been
      found not to be impaired.





51


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




**Note
      5. Balance Sheet Components**




**Year
                Ended March 31,****2007**
            
            **2006**Accounts
                receivable, net:Accounts
                receivable
            
            $
            1,037
            
            $
            532Less:
                allowance for doubtful accounts
            
            
            (30
            )
            
            (30
            )$
            1,007
            
            $
            502Prepaid
                expenses and other current assetsReceivable
                from employees (1)
            
            $
            -
            
            $
            48Prepaid
                expenses
            
            
            53
            
            
            40Short
                term deposits
            
            
            -
            
            
            96$
            53
            
            $
            184Property
                and equipment, netComputer
                hardware and software
            
            $
            1,277
            
            $
            1,263Leasehold
                improvements
            
            
            67
            
            
            67Furniture
                and office equipment
            
            
            243
            
            
            2421,587
            
            
            1,572Less
                accumulated depreciation and amortization
            
            
            (1,472
            )
            
            (1,417
            )$
            115
            
            $
            155Other
                assetsLong-term
                deposits
            
            $
            134
            
            $
            104$
            134
            
            $
            104Accounts
                payable and accrued liabilitiesAccounts
                payable
            
            $
            269
            
            $
            253Salaries
                and wages payable
            
            
            321
            
            
            290Accrued
                services
            
            
            5
            
            
            88Reserve
                for claims
            
            
            98
            
            
            75Other
                accrued expenses
            
            
            69
            
            
            41$
            762
            
            $
            747




(1)
      Reflects loan outstanding to Salon’s former Chairman at an agreed 6.3% annual
      interest. During the year ended March 31, 2007, the loan was paid off in its
      entirety.





Depreciation
      expense for the years ended March 31, 2007, 2006 and 2005 was $89, $88, and
      $115
      respectively.





**Note
      6. 401(k) Savings Plan**





Salon’s
      401(k) Savings Plan (the “401(k) Plan”) is a defined contribution retirement
      plan intended to qualify under Sections 401(a) and 401(k) of the Internal
      Revenue Code. All full-time employees of Salon are eligible to participate
      in
      the 401(k) Plan pursuant to its terms. Participants may contribute from 1%
      to
      20% of compensation, subject to statutory limitations. Employer matching




52


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




contributions
      are discretionary based on a certain percentage of a participant’s contributions
      as determined by management of Salon. Salon has not made any discretionary
      contributions to the 401(k) Plan through March 31, 2007.





**Note
      7. Employee Stock Option Plan**




Salon
      has
      two stock option plans approved by shareholders. The Salon Internet, Inc. 1995
      Stock Option Plan (the 1995 Plan), which was terminated in November 2004, and
      the Salon Media Group, Inc. 2004 Stock Plan (the 2004 Plan) that was approved
      by
      Salon’s stockholders in November 2004. The 2004 Plan allows the issuance of
      incentive and nonstatutory options to employees and non-employees of Salon.
      In
      October 2005, Salon’s stockholders approved an amendment to the 2004 Plan to
      increase the maximum number of shares of common stock that may be issued under
      the plan by 800,000 to a total of 2,300,000.





Under
      the
      2004 Plan, incentive and nonqualified stock options may be granted to officers,
      employees, Directors and consultants of Salon. Options generally vest over
      periods of four years.  Options
      generally became exercisable as to 25% of the option shares one year from the
      date of grant and then ratably over the following 36 months (1/48 per month).
      However, in the case of 1,045,500 options granted on February 7, 2005 and
      382,050 options granted on May 16, 2005, half vested on the date of grant,
      and
      the remaining half vested on February 7, 2006. The exercise price of options
      is
      determined by the Board of Directors and is equal to the fair market value
      of
      the stock on the grant date. Generally, Salon’s options expire, if not
      exercised, ten years after the date of grant.





Salon
      has
      granted options pursuant to plans not approved by shareholders. These grants
      include an option to purchase 25,000 shares of common stock issued in December
      2006 and an option to purchase 50,000 shares of common stock issued in June
      2006, both granted to Salon’s Senior Vice President - Publisher, and an option
      to purchase 50,000 shares of common stock issued in February 2005 to Salon’s
      previous Chairman. At March 31, 2007 Salon had 312,000 shares of common stock
      authorized and available for grants under the 2004 Plan.





The
      following table summarizes activity under Salon’s plans for the year ended March
      31, 2007:





WeightedOutstanding
            
            Average
            
            AggregateStock
            
            Exercise
            
            IntrinsicOptions
            
            Price
            
            ValueBalance
                as of April 1, 2006
            1,595,000
            
            
            $6.00Options
                granted under all plans
            751,000
            
            
            $1.86Exercised
            (2,000)
            
            
            $2.80Cancelled
            (139,000)
            
            
            $4.70Outstanding
                at March 31, 2007
            2,205,000
            
            
            $4.67
            
            $144,000Exercisable
                at March 31, 2007
            1,418,000
            
            
            $6.15
            
            -Expected
                to vest
            646,000
            
            
            $2.17
            
            $104,000





53


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




The
      following table summarizes information about stock options outstanding at March
      31, 2007:





Options
                Outstanding
            
            Options
                ExercisableWeightedAverage
            
            Weighted
            
            
            
            WeightedNumber
                of
            
            Remaining
            
            Average
            
            Number
                of
            
            AverageRange
                of
            
            Shares
            
            Contractual
            
            Exercise
            
            Shares
            
            ExerciseExercise
                Prices
            
            Outstanding
            
            Life
                (Years)
            
            Price
            
            Exercisable
            
            Price$1.05
                - $1.30
            
            
            441,000
            
            
            9.7
            
            $
            1.07
            
            
            -
            
            $
            -$2.00
                - $2.80
            
            
            1,120,000
            
            
            7.8
            
            $
            2.77
            
            
            1,059,000
            
            $
            2.79$3.20
                - $4.00
            
            
            288,000
            
            
            8.9
            
            $
            3.27
            
            
            16,000
            
            $
            3.91$5.20
                - $7.40
            
            
            321,000
            
            
            7.9
            
            $
            5.45
            
            
            308,000
            
            $
            5.37$10.40
                - $10.40
            
            
            1,000
            
            
            1.6
            
            $
            10.40
            
            
            1,000
            
            $
            10.40$27.60
                - $40.00
            
            
            13,000
            
            
            3.4
            
            $
            37.59
            
            
            13,000
            
            $
            37.59$58.40
                - $72.50
            
            
            2,000
            
            
            2.1
            
            $
            59.11
            
            
            2,000
            
            $
            59.11$101.25
                - $105.00
            
            
            2,000
            
            
            2.6
            
            $
            104.38
            
            
            2,000
            
            $
            104.38$170.00
                - $201.20
            
            
            17,000
            
            
            2.4
            
            $
            193.45
            
            
            17,000
            
            $
            193.452,205,000
            
            
            8.2
            
            $
            4.67
            
            
            1,418,000
            
            $
            6.15




The
      weighted average fair value per share of the stock option awards in the year
      ended March 31, 2007, 2006 and 2005 was $1.48, $3.82 and $2.20,
      respectively. The weighted average fair value of options vested during the
      year
      ended March 31, 2007 was $2.98 per share.





The
      total
      intrinsic value of options exercised during the year ended March 31, 2007 for
      which Salon received $5 in cash was $2.





**Note
      8.**  **Employee
      Stock Purchase Plan**





The
      Salon.com, Inc. 1999 Employee Stock Purchase Plan (the “ESPP”) was established
      to provide substantially all employees whose customary employment is more than
      20 hours per week for more than five months in any calendar year, eligibility
      to
      purchase shares of its common stock through payroll deductions, up to 10% of
      eligible compensation. The purchase price of each share of stock to be acquired
      is established at the discretion of Salon’s Board of Directors, but in no event
      shall the price be set at the lesser of 85% of the fair market value of shares
      on either the first day or the last day of the designated payroll deduction
      period (the Offering Period), as chosen by the Board of Directors at its
      discretion, whichever is lower.





The
      ESPP
      operation was suspended on March 1, 2001.





**Note
      9. Commitments and Contingencies**





Salon
      has
      a non-cancelable operating lease agreement for its office space in San
      Francisco, CA that expires in February 2009, for its office in Washington,
      D.C.
      that expires in June 2009, and to host its




54


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




servers
      in San Francisco, CA that expires in September 2007. In addition, Salon’s
      operating lease for its office space in New York, NY that was to expire in
      May
      2007 was renewed to expire in May 2008. Rent expense under operating lease
      agreements was $470, $396, and $634 for the years ended March 31, 2007, 2006,
      and 2005 respectively.





Salon
      has
      no capital leases as of March 31, 2007. Total future minimum rental payments
      under non-cancelable operating leases in effect at March 31, 2007 are as
      follows:





**Operating****Year
                Ending March 31,**
            
            **Leases**2008
            
            
            $4702009
            
            
            3022010
            
            
            11Total
                lease payments
            
            
            $783





Salon,
      as
      permitted under Delaware law and in accordance with its Bylaws, indemnifies
      its
      officers and directors for certain events or occurrences, subject to certain
      limits, while the officer is or was serving at Salon’s request in such capacity.
      The term of the indemnification period is for the officer’s or director’s
      lifetime. The maximum amount of potential future indemnification is unlimited;
      however, Salon does have a Director and Officer Insurance Policy that limits
      Salon’s exposure and enables Salon to recover a portion of any future amounts
      paid. As a result of the insurance policy coverage, Salon believes the fair
      value of these indemnification agreements is minimal.





**Note
      10. Income Taxes**





Salon
      has
      not recorded a provision or benefit for federal or state income taxes for any
      period since inception due to incurring operating losses. At March 31, 2007,
      Salon has net operating loss carry-forwards of $65,724 and $33,111 for Federal
      and California purposes, respectively, available to reduce future taxable
      income, if any. During the year ended March 31, 2007, $1,297 of California
      net
      operating loss carry-forwards expired and additional $3,271 is due to expire
      as
      of March 31, 2008, with the balance expiring over time thereafter if not
      utilized beforehand. The federal net operating loss carry-forwards begin to
      expire on March 31, 2016 if not utilized beforehand.





At
      March
      31, 2007, Salon has research and development credit carry-forwards of $12 and
      $9
      for Federal and California income tax purposes, respectively. The research
      and
      development credit carry-forwards expire beginning in the year
      2011.





The
      Tax
      Reform Act of 1986 limits the use of net operating loss and tax credit
      carry-forwards in certain situations where changes occur in the stock ownership
      of a company. In the event Salon has incurred a change in ownership, utilization
      of the carry-forwards could be significantly restricted.


55


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




Temporary
      differences and other sources of deferred tax assets that give rise to
      significant portions of deferred tax assets and liabilities are as
      follows:





**March
                31,****2007**
            
            **2006**Net
                operating losses
            
            $
            24,278
            
            $
            23,719Other
            
            
            1,177
            
            
            1,309Total
                deferred tax assets
            
            
            25,455
            
            
            25,028Valuation
                allowance
            
            
            (25,455
            )
            
            (25,028
            )Net
                deferred tax asset
            
            $
            -
            
            $
            -





Due
      to
      the uncertainty of realizing the benefits attributable to the aforementioned
      deferred tax assets, Salon has provided a valuation allowance against the net
      deferred tax assets. The difference between Salon’s effective income tax rate
      and the federal statutory (34%) rate is as follows:




**Year
                Ended March 31,****2007**
            
            **2006**
            
            **2005**Statutory
                tax benefit
            
            $
            (633
            )
            $
            (735
            )
            $
            (122
            )State
                taxes, net of federal benefit
            
            
            (109
            )
            
            (126
            )
            
            (21
            )Permanent
                differences
            
            
            195
            
            
            493
            
            
            (244
            )Other
            
            
            120
            
            
            97
            
            
            (172
            )Total
            
            
            (427
            )
            
            (271
            )
            
            (559
            )Change
                in valuation allowance
            
            
            427
            
            
            271
            
            
            559$
            -
            
            $
            -
            
            $
            -





**Note
      1** **1.
      Preferred Stock**




On
      December 18, 2006 Salon issued 42 shares of Series D-4 preferred stock, 125
      shares of Series D-5 preferred stock, and warrants to purchase a total of 32,780
      shares of common stock for which it received $200 in cash from the Chairman
      of
      Salon. The warrants were issued at an exercise price of $1.495 per share,
      subject to adjustment. The financing was effected in accordance with Amendment
      No. 7 to the Securities Purchase Agreement dated as of December 18, 2006. All
      shares were sold at a price of $1,200 per share. The 42 shares of Series D-4
      preferred stock and 125 shares of Series D-5 preferred stock are convertible
      into, and have the voting rights of 218,537 shares of common stock, subject
      to
      adjustment.




On
      September 21, 2006 Salon issued 333 shares of Series D-4 preferred stock and
      warrants to purchase 701,872 shares of common stock for which it received $400
      in cash. The warrants were issued at an exercise price of $0.115 per share,
      subject to adjustment. The investors included the father of Salon’s CEO and
      President and the Chairman of Salon. The financing was effected in accordance
      with Amendment No. 6 to the Securities Purchase Agreement dated as of September
      21, 2006. All shares were sold at a price of $1,200 per share. The 333 shares
      of
      Series D-4 preferred stock were originally convertible into and had the voting
      rights of 4,679,156 shares of common stock, subject to adjustment. On November
      15, 2006, Salon effected a reverse stock split in the ratio of 20:1. The
      issuance of preferred




56


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




stock
      on
      December 18, 2006, triggered anti-dilution provisions of the securities issued
      on September 21, 2006. As a result, and after considering the effect of the
      reverse stock split, (1) the warrants to purchase 701,872 shares of common
      stock
      at an exercise price of $0.115 per share, were adjusted to warrants to purchase
      35,093 shares of common stock at an exercise price of $2.275 per share, and
      (2)
      the 333 shares of Series D-4 preferred stock are now convertible into, and
      have
      the voting rights of 235,852 shares of common stock.




On
      July
      27, 2006 Salon issued 208 shares of Series D-3 preferred stock, 42 shares of
      Series D-4 preferred stock and issued warrants to purchase 363,879 shares of
      common stock for which it received $300 in cash. The warrants were issued at
      an
      exercise price of $0.161 per share, subject to adjustment. The investors
      included the father of Salon’s CEO and President and the Chairman of Salon. The
      financing was effected in accordance with Amendment No. 5 to the Securities
      Purchase Agreement dated as of July 27, 2006. All shares were sold at a price
      of
      $1,200 per share. The 208 shares of Series D-3 preferred stock were originally
      convertible into, and had the voting rights of 2,018,322 shares of common stock.
      The 42 shares of Series D-4 preferred stock were originally convertible into,
      and had the voting rights of 407,546 shares of common stock, subject to
      adjustment. On November 15, 2006, Salon effected a reverse stock split in the
      ratio of 20:1. The subsequent issuances of preferred stock triggered
      anti-dilution provisions of the securities issued on July 27, 2006. As a result,
      and after considering the effect of the reverse stock split, (1) the warrants
      to
      purchase 363,879 shares of common stock at an exercise price of $0.161 per
      share, were adjusted to warrants to purchase 18,193 shares of common stock
      at an
      exercise price of $3.148 per share, (2) the 208 shares of Series D-3 preferred
      stock are now convertible into, and have the voting rights of 102,677 shares
      of
      common stock, and (3) the 42 shares of Series D-4 preferred stock are now
      convertible into, and have the voting rights of 20,732 shares of common
      stock




The
      Certificate of Designation of Preferences and Rights of the Series D preferred
      stock stipulates that the conversion price to common stock be equal to 70%
      of
      the average closing price of Salon’s common stock for the thirty days prior to
      the date Salon provides notice to purchasers regarding the sale of shares of
      Series D preferred stock. As a result, (1) the issuance of preferred stock
      on
      December 18, 2006 was at an effective common stock per share price of $0.917
      compared to a closing per share stock price on the date of the transaction
      of
      $1.30, (2) the issuance of preferred stock on September 21, 2006 was at an
      effective common stock per share price of $1.708 (as adjusted for the reverse
      stock split) compared to a closing per share stock price on the date of the
      transaction of $2.00 (as adjusted for the reverse stock split), and (3) the
      issuance of preferred stock on July 27, 2006 was at an effective common stock
      per share price of $2.473 (as adjusted for the reverse stock split) compared
      to
      a closing per share stock price on the date of the transaction of $2.80 (as
      adjusted for the reverse stock split). As the shares of preferred stock were
      in
      the money on the commitment dates, Salon therefore determined that the value
      of
      the beneficial conversion feature of the shares of preferred stock issued was
      $73 for the shares issued on July 27, 2006, $113 for the share issued on
      September 21, 2006 and $109 for the shares issued on December 18, 2006. As
      the
      shares of preferred stock were immediately convertible to shares of common
      stock, Salon recorded a preferred deemed dividend of $295 for the year ended
      March 31, 2007.




During
      the year ended March 31, 2005, Salon issued 417 shares of Series D-1 preferred
      stock and 417 shares of Series D-2 preferred stock and during the year ended
      March 31, 2006, issued 209 shares of Series D-3 preferred stock. All such shares
      issued were in the money on their respective commitment dates, and the
      non-detachable conversion feature was also effective on the commitment date.
      The
      value of the beneficial conversion feature was $310 for the shares issued during
      the year ended March 31, 2005 and $1,040 for the shares issued during the year
      ended March 31, 2006. As the proportional consideration




57


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




attributable
      to the shares issued during the year ended March 31, 2006 was $227 a limiting
      factor of $813 was applied, and the value of the beneficial conversion feature
      was therefore limited to $227 for the year ended March 31, 2006. As the
      proportional consideration attributable to the shares issued during the year
      ended March 31, 2005 was in excess of the value determined for the beneficial
      conversion feature, no such limiting factor was applicable that year. As a
      result, Salon recorded preferred deemed dividends, representing the value of
      the
      beneficial conversion feature, of $310 and $227 for the years ended March 31,
      2005 and March 31, 2006, respectively. The preferred deemed dividend charge
      of
      $310 in conjunction with a benefit of $470 from a change in value of warrants
      issued to preferred stockholders, for a net benefit of $160, is reflected in
      the
      results of operations for the year ended March 31, 2005.





The
      warrants issued have a three year life. In the event of a change in control
      within the exercise period, Salon will give the warrant holders thirty (30)
      days
      advance notice of the effective date of such transaction, and to the extent
      the
      warrants have not been exercised in full by the effective date of such
      transaction, the warrants will terminate. The exercise price of the warrants
      may
      be adjusted downward in the event of certain subsequent Salon stock
      issuances.




During
      the year ended March 31, 2007 and after considering the 20:1 reverse stock
      split
      of November 15, 2006, 62 shares of Series A preferred stock were converted
      to
      124,536 shares of common stock and 63 shares of Series A preferred stock were
      converted to 126,545 shares of common stock. During the year ended March 31,
      2006, one share of Series A preferred stock was converted to 2,008 shares of
      common stock and 36 shares of Series C preferred stock was converted to 36,000
      shares of common stock. Salon did not receive any cash proceeds from these
      transactions.





Following
      the above transactions and the 20:1 reverse stock split of November 15, 2006,
      the conversion rate and common equivalent shares of Salon’s preferred stock is
      as follows as of March 31, 2007:




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




58


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




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 March 31, 2007 that have been issued to holders of Series
      D
      preferred stock are as follows:





Exercise
            
            WarrantPrice
            
            SharesSeries
                D-1
            
            $2.695
            
            22,161Series
                D-2
            
            $2.485
            
            17,018Series
                D-3Issued
                on 12/21/05
            
            $10.352
            
            20,225Issued
                on 07/27/06
            
            $3.148
            
            15,137Series
                D-4Issued
                on 07/27/06
            
            $3.148
            
            3,056Issued
                on 09/21/06
            
            $2.275
            
            35,093Issued
                on 12/18/06
            
            $1.495
            
            8,244Series
                D-5
            
            $1.495
            
            24,536145,470





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


59


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




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 March 31, 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 hold approximately 89% 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 March
      31,
      2007 were $22,344 excluding the effect of undeclared dividends, and $21,655
      including the effect of undeclared dividends. The aggregate liquidation
      preferences of all preferred stockholders as of March 31, 2006 were $19,247
      excluding the effect of undeclared dividends, and $20,686 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.





**Note** **12.
      Warrants**




During
      the year ended March 31, 2007, warrants to acquire 603,642 shares of common
      stock were exercised for which Salon received $779 in cash that was used for
      working capital and other general


60


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




corporate
      purposes, as follows:





**Exercise****Issue**
              **Date**
            **Exercise**
              **Date**
            **Warrant
                Holder**
            **Warrant**
              **Shares**
            **Price
                per**
              **share**
            
            **Cash**
              **Received**08/09/01
            06/22/06
            Shea
                Ventures LLC
            50,000
            $2.188
            $
            10906/26/03
            06/22/06
            E&M
                RP Trust
            15,000
            $0.901
            
            1408/09/01
            07/31/06
            Stewart
                Carrell
            2,400
            $2.188
            
            508/09/01
            07/31/06
            Arthur
                Bruno
            1,200
            $2.188
            
            308/29/03
            08/29/06
            William
                E Mayer Holdings, Inc.
            6,000
            $0.690
            
            402/10/04
            02/05/07
            Shea
                Ventures LLC
            30,000
            $0.690
            
            21Total
                non-related parties
            104,600
            
            $
            15604/10/03
            04/05/06
            John
                Warnock
            15,000
            $0.834
            $
            1304/29/03
            04/05/06
            John
                Warnock
            15,000
            $0.901
            
            1408/09/01
            05/11/06
            Sarah
                & William Hambrecht Foundation
            30,000
            $2.188
            
            6606/12/03
            05/11/06
            The
                Hambrecht 1980 Revocable Trust
            7,500
            $0.901
            
            706/12/03
            05/11/06
            WR
                Hambrecht + Co LLC
            7,500
            $0.901
            
            707/10/03
            05/11/06
            HAMCO
                Capital Corporation
            7,500
            $0.834
            
            611/24/03
            05/11/06
            HAMCO
                Capital Corporation
            7,500
            $0.901
            
            702/10/04
            05/11/06
            The
                Hambrecht 1980 Revocable Trust
            15,000
            $0.690
            
            1006/04/04
            05/11/06
            HAMCO
                Capital Corporation
            4,064
            $2.748
            
            1106/04/04
            05/11/06
            The
                Hambrecht 1980 Revocable Trust
            14,129
            $2.748
            
            3902/02/05
            05/11/06
            HAMCO
                Capital Corporation
            1,718
            $3.220
            
            602/02/05
            05/11/06
            The
                Hambrecht 1980 Revocable Trust
            15,381
            $3.220
            
            5005/28/03
            05/12/06
            John
                Warnock
            45,000
            $0.901
            
            4107/10/03
            05/12/06
            John
                Warnock
            15,000
            $0.833
            
            1207/30/03
            05/12/06
            John
                Warnock
            15,000
            $0.690
            
            1008/29/03
            05/12/06
            John
                Warnock
            15,000
            $0.690
            
            1009/12/03
            05/12/06
            John
                Warnock
            15,000
            $0.901
            
            1309/29/03
            05/12/06
            John
                Warnock
            15,000
            $1.036
            
            1610/10/03
            05/12/06
            John
                Warnock
            15,000
            $0.901
            
            1310/30/03
            05/12/06
            John
                Warnock
            15,000
            $0.901
            
            1311/12/03
            05/12/06
            John
                Warnock
            15,000
            $0.969
            
            1511/24/03
            05/12/06
            John
                Warnock
            15,000
            $0.901
            
            1312/11/03
            05/12/06
            John
                Warnock
            15,000
            $0.901
            
            1312/30/03
            05/12/06
            John
                Warnock
            75,000
            $0.690
            
            5212/31/03
            05/12/06
            John
                Warnock
            15,000
            $0.690
            
            1008/09/01
            06/29/06
            John
                Warnock
            50,000
            $2.188
            
            10908/09/01
            08/08/06
            WR
                Hambrecht + Co LLC
            20,000
            $2.188
            
            4408/29/03
            08/29/06
            Eu
                Revocable Trust
            3,750
            $0.690
            
            3Total
                related parties
            499,042
            
            $
            623Total
                exercised
            603,642
            
            $
            779


The
      related parties include:


1.
            John
                Warnock, the Chairman and Director of
                Salon.


61


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




2.
            Salon’s
                CEO and President has an ownership interest in WR Hambrecht + Co.
                LLC. In
                addition, the Chairman and CEO of WR Hambrecht + Co LLC is the father
                of
                Salon’s CEO and President.


3.
            The
                Hambrecht 1980 Revocable Trust, a trust of the father of Salon’s CEO and
                President.


4.
            Sarah
                & William Hambrecht Foundation for which Salon’s CEO and President
                serves as a Director and has voting
                rights.


5.
            HAMCO
                Capital Corporation, in which Salon’s CEO and President, and her father,
                each has an ownership interest
                therein.


6.
            The
                Eu Revocable Trust is for the benefit of Salon’s CEO and
                President.





During
      the year ended March 31, 2007, warrants for 371,800 shares of common stock
      were
      converted to 126,462 shares of common stock for which Salon did not receive
      any
      consideration under the net exercise provisions of the warrants, as follows:





**Exercise****Issue**
              **Date**
            **Exercise**
              **Date**
            **Warrant
                Holder**
            **Warrant**
              **Shares**
            **Price
                per**
              **share**
            **Converted**
              **Shares**07/10/03
            06/05/06
            Octavia,
                LLC
            14,700
            $0.834
            11,09608/09/01
            07/31/06
            Alacrity
                Tertiare LLC
            10,000
            $2.188
            3,16108/09/01
            07/31/06
            Thomas
                Dittmer Declaration Trust
            24,800
            $2.188
            7,84008/09/01
            08/08/06
            Constellation
                Venture Offshore
            4,400
            $2.188
            1,39008/09/01
            08/08/06
            Constellation
                Venture
            20,800
            $2.188
            6,57509/13/01
            08/30/06
            Octavia,
                LLC
            24,800
            $2.188
            6,70909/13/01
            08/31/06
            HVS
                Boxers, LLC
            24,800
            $2.188
            6,70909/13/01
            09/05/06
            Wasserstein
                Adelson Ventures
            25,200
            $2.188
            6,81712/10/03
            12/06/06
            Wenner
                Media LLC
            130,000
            $0.901
            18,424Total
                non-related parties
            279,500
            
            68,72104/10/03
            04/04/06
            Ironstone
                Group, Inc
            15,000
            $0.834
            12,76604/29/03
            04/25/06
            Ironstone
                Group, Inc
            15,000
            $0.901
            12,18310/06/03
            05/11/06
            Ironstone
                Group, Inc
            15,000
            $1.036
            10,90910/30/03
            05/11/06
            Ironstone
                Group, Inc
            7,500
            $0.901
            5,72108/09/01
            08/09/06
            McKay
                Investment Group
            24,800
            $2.188
            7,84002/10/04
            02/07/07
            WR
                Hambrecht + Co Inc.
            15,000
            $0.690
            8,322Total
                related parties
            92,300
            
            57,741Total
                converted
            371,800
            
            126,462




The
      related parties include:


1.
            William
                Hambrecht, the father of Salon’s CEO and President, has an ownership
                interest in Ironstone Group,
                Inc.


62


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




2.
            Salon’s
                CEO and President has an ownership interest in WR Hambrecht + Co.
                Inc. In
                addition, the Chairman and CEO of WR Hambrecht + Co Inc. is the father
                of
                Salon’s CEO and President.


3.
            Robert
                McKay, a Director of Salon, is the managing partner of the McKay
                Investment Group.





The
      related parties in the prior table exclude Wenner Media LLC. Jann Wenner, the
      Chairman and President of Wenner Media LLC, served as a Director of Salon until
      February 2006.





During
      the year ended March 31, 2006, warrants to acquire 63,723 shares of common
      stock
      were exercised for which Salon received $65 in cash that was used for working
      capital and other general corporate purposes, as follows:





**Exercise****Issue**
              **Date**
            **Exercise**
              **Date**
            **Warrant
                Holder**
            **Warrant**
              **Shares**
            **Price
                per**
              **share**
            
            **Cash**
              **Received**07/24/02
            05/17/05
            Arthur
                Bruno
            80
            $1.796
            $
            -07/24/02
            05/17/05
            Brian
                Dougherty
            1,250
            $1.796
            
            212/18/02
            11/28/05
            Shea
                Ventures LLC
            15,000
            $0.901
            
            13Total
                non-related parties
            16,330
            
            $
            1507/24/02
            05/24/05
            John
                Warnock
            4,967
            $1.796
            $
            907/24/02
            07/20/05
            Elaine
                McKay Family Partnership
            2,921
            $1.796
            
            507/24/02
            07/22/05
            Sarah
                & William Hambrecht Foundation
            2,005
            $1.796
            
            301/26/03
            01/23/06
            John
                Warnock
            7,500
            $0.901
            
            703/18/03
            01/23/06
            John
                Warnock
            15,000
            $0.834
            
            1303/25/03
            01/23/06
            John
                Warnock
            15,000
            $0.834
            
            13Total
                related parties
            47,393
            
            $
            50Total
                exercised
            63,723
            
            $
            65





The
      related parties include:


1.
            John
                Warnock, the Chairman and Director of
                Salon.


2.
            Robert
                McKay, a Director of Salon, is the managing partner of the Elaine
                McKay
                Family Partnership.


3.
            Sarah
                & William Hambrecht Foundation for which Salon’s CEO and President
                serves as a Director and has voting
                rights.





63


**SALON
      MEDIA GROUP, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(amounts
      in thousands, except share and per share data)**




During
      the year ended March 31, 2006, warrants for 111,375 shares of common stock
      were
      converted to 80,179 shares of common stock for which Salon did not receive
      any
      consideration under the net exercise provisions of the warrants, as follows:


**Exercise****Issue**
              **Date**
            **Exercise**
              **Date**
            **Warrant****Holder**
            **Warrant**
              **Shares**
            **Price
                per**
              **share**
            **Converted**
              **Shares**07/24/02
            04/06/05
            Octavia,
                LLC
            1,671
            $1.796
            1,09308/09/01
            05/12/05
            Timken
                Living Trust
            10,000
            $2.188
            5,62307/24/02
            05/12/05
            Timken
                Living Trust
            668
            $1.796
            42807/24/02
            05/12/05
            J.
                F. Shea Inc.
            3,342
            $1.796
            2,14107/24/02
            06/06/05
            Richard
                Jeffrey
            26
            $1.796
            1407/24/02
            07/19/05
            Alicrity
                Management
            668
            $1.796
            35210/08/03
            10/07/05
            Michael
                O’Donnell
            50,000
            $1.000
            32,142Total
                non-related parties
            66,375
            
            41,79302/11/03
            02/07/06
            Ironstone
                Group, Inc
            15,000
            $0.901
            13,12203/12/03
            03/07/06
            Ironstone
                Group, Inc
            15,000
            $0.834
            12,76603/25/03
            03/20/06
            Ironstone
                Group, Inc
            15,000
            $0.834
            12,498Total
                related parties
            45,000
            
            38,386Total
                converted
            111,375
            
            80,179





William
      Hambrecht, the father of Salon’s CEO and President, has an ownership interest in
      Ironstone Group, Inc. The related party total excludes Michael O’Donnell who
      served as CEO and President of Salon until October 2005.





Following
      the above transactions, and after considering warrants issued in conjunction
      with the issuance of preferred stock (see Footnote No.11) and expired warrants,
      Salon has warrants to purchase 161,310 shares of common stock outstanding as
      of
      March 31, 2007, as follows:




Warrant
            
            Exercise
            
            Grant
            
            ExpirationWarrant
                Holder
            
            Shares
            
            Price
            
            Date
            
            DateJohn
                Warnock
            
            20,129
            
            $2.695
            
            06/04/04
            
            06/04/07William
                E Mayer Holdings, Inc.
            
            2,032
            
            $2.695
            
            06/04/04
            
            06/04/07John
                Warnock
            
            17,018
            
            $2.485
            
            09/30/04
            
            09/30/07Michael
                Doyle
            
            5,000
            
            $7.200
            
            02/09/06
            
            02/09/08Dotcom
                Ventures
            
            1,568
            
            $10.400
            
            09/01/98
            
            09/01/08Adobe
                Systems, Inc.
            
            7,058
            
            $10.400
            
            09/23/98
            
            09/23/08Nancy
                and Timothy Armstrong
            
            20,225
            
            $10.352
            
            12/21/05
            
            12/21/08The
                Hambrecht 1980 Revocable Trust
            
            9,097
            
            $3.148
            
            07/27/06
            
            07/27/09John
                Warnock
            
            6,040
            
            $3.148
            
            07/27/06
            
            07/27/09John
                Warnock
            
            3,056
            
            $3.148
            
            07/27/06
            
            07/27/09The
                Hambrecht 1980 Revocable Trust
            
            17,599
            
            $2.275
            
            09/21/06
            
            09/21/09John
                Warnock
            
            17,494
            
            $2.275
            
            09/21/06
            
            09/21/09Silicon
                Valley Bank
            
            2,214
            
            $0.862
            
            10/17/02
            
            10/17/09John
                Warnock
            
            8,244
            
            $1.495
            
            12/18/06
            
            12/18/09John
                Warnock
            
            24,536
            
            $1.495
            
            12/18/06
            
            12/18/09161,310


64




**Selected
                Quarterly Financial Data (unaudited)****(in
                thousands, except per share data)****First**
            
            **Second**
            
            **Third**
            
            **Fourth****Quarter**
            
            **Quarter**
            
            **Quarter**
            
            **Quarter****2007:**Net
                revenue
            
            $
            1,545
            
            $
            1,884
            
            $
            2,765
            
            $
            1,554Gross
                margin
            
            
            277
            
            
            594
            
            
            1,448
            
            
            206Net
                profit (loss) attributable to common stockholders
            
            
            (525
            )
            
            (535
            )
            
            197
            
            
            (998
            )Basic
                net profit (loss) per shareattributable
                to common stockholders
            
            
            (0.42
            )
            
            (0.01
            )
            
            0.10
            
            
            (0.52
            )Diluted
                net profit (loss) per shareattributable
                to common stockholders
            
            
            (0.42
            )
            
            (0.01
            )
            
            0.02
            
            
            (0.52
            )Shares
                used in per share calculationBasic
            
            
            1,238
            
            
            1,719
            
            
            1,888
            
            
            1,924Diluted
            
            
            1,238
            
            
            1,719
            
            
            11,243
            
            
            1,924**2006:**Net
                revenue
            
            $
            1,630
            
            $
            1,654
            
            $
            2,069
            
            $
            1,163Gross
                margin
            
            
            577
            
            
            614
            
            
            886
            
            
            (66
            )Net
                loss attributable tocommon
                stockholders
            
            
            (116
            )
            
            (160
            )
            
            (132
            )
            
            (941
            )Basic
                and diluted net loss per shareattributable
                to common stockholders
            
            
            (0.15
            )
            
            (0.21
            )
            
            (0.16
            )
            
            (1.04
            )Basic
                and diluted shares used in per share calculation
            
            
            757
            
            
            771
            
            
            806
            
            
            901




65


**ITEM
      9. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure** **s**





None.





**ITEM
      9A. Controls and Procedures**





**Evaluation
      of Our Disclosure Controls and Internal Controls**




Our
      management evaluated, with the participation of our Chief Executive Officer
      and
      our Chief Financial Officer, the effectiveness of the design and operation
      of
      our disclosure controls and procedures as of the end of the period covered
      by
      this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive
      Officer and Chief Financial Officer have concluded that, having addressed a
      material weakness related to the valuation of the beneficial conversion feature
      from the issuance of shares of preferred stock described below, 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 (i)
      recorded, processed, summarized and reported within the time periods specified
      in Securities and Exchange Commission rules and forms and (ii) is accumulated
      and communicated to our management, including our Chief Executive Officer and
      Chief Financial Officer, as appropriate to allow timely decisions regarding
      required disclosure.





**Changes
      in Internal Controls Over Financial Reporting**





In
      response to a material weakness identified in Salon’s Annual Report on Form
      10-K/A filed on October 31, 2006 related to the valuation of the beneficial
      conversion feature from the issuance of shares of preferred stock, Salon has
      implemented the following internal controls over financial
      reporting:





1.
            Added
                and delineated an additional layer to the preparation and review
                of
                similar transactions


2.
            Increased
                the level of training of its finance
                staff


3.
            Subscribed
                to a database of generally accepted accounting
                principles





**ITEM
      9B. Other Information**





None.


66


**PART
      III**





**ITEM
      10. Directors and Executive Officers of the Registrant**





Salon’s
      executive officers and directors as of March 31, 2007 are as
      follows:





Name
            
            Age
            
            PositionHarvey
                Gamm
            
            55
            
            Senior
                Vice President - SalesElizabeth
                Hambrecht(3)
            
            44
            
            Chief
                Executive Officer and President, DirectorConrad
                Lowry
            
            55
            
            Chief
                Financial Officer and SecretaryChristopher
                Neimeth
            
            37
            
            Senior
                Vice President - PublisherJoan
                Walsh
            
            48
            
            Editor-in-ChiefDeepak
                Desai(1,4,6)
            
            48
            
            DirectorRobert
                Ellis(2,4)
            
            71
            
            DirectorGeorge
                Hirsch(1,4)
            
            72
            
            DirectorRobert
                McKay(3)
            
            43
            
            DirectorJames
                Rosenfield(3,5)
            
            78
            
            DirectorDavid
                Talbot(2,7)
            
            55
            
            DirectorJohn
                Warnock(1,5,7)
            
            66
            
            Chairman
                of the Board, Director





(1)
            Class
                I director whose term expires at the 2008 Annual Meeting of
                Stockholders


(2)
            Class
                II director whose term expires at the 2009 Annual Meeting of
                Stockholders


(3)
            Class
                III director whose term expires at the next Annual Meeting of
                Stockholders


(4)
            Member
                of Audit Committee


(5)
            Member
                of Compensation Committee


(6)
            Audit
                Committee financial expert


(7)
            David
                Talbot served as Chairman of the Board until December 2006, where
                upon
                John Warnock was appointed Chairman of the
                Board





*Harvey
      Gamm* was
      appointed Senior Vice President - Sales in February 2007. Mr. Gamm, who joined
      Salon in June 2003 as its Eastern Regional Sales Manager, has held various
      sales
      positions with Salon, including Vice President of Sales since May 2006. From
      July 2001 to May 2003, he was President of Barter Consulting. From January
      1995
      to March 2001 he held various sales and management positions with Active Media,
      including its Vice President - Division Sales. Mr. Gamm holds a Bachelor of
      Arts
      degree in Economics from Queens College.





*Elizabeth
      Hambrecht* has
      served as Salon’s Chief Executive Officer since February 2005 and Salon’s
      President since October 2003. From May 2003 through February 2005 she also
      served as Salon’s Chief Financial Officer and Secretary. From 1999 to March
      2003, she was co-founder and Director of Asiacontent.com, an online media
      company focused on Asian markets. From 1997 to 2000 she was co-founder, Chief
      Financial Officer and Director of Boom.com, a Hong Kong-based online stock
      trading company. From 1992 to 1995 she was Executive Director at Goldman Sachs
      (Hong Kong) Ltd. From 1987 to 1992 she was Assistant Director at Barings
      Securities (Hong Kong) Ltd. Ms Hambrecht holds a Bachelor of Arts degree in
      History from Vassar College. She sits on the Board of Trustees of the San
      Francisco Friends School, and Northern California Public Broadcasting, a public
      broadcast company for Northern California.





67


*Joan
      Walsh* was
      appointed Editor-in-Chief in February 2005. From November 2004 through February
      2005, she held the position of Senior Vice President - Editorial Operations.
      From November 2003 to November 2004, she served as Vice President Co-Managing
      Editor. From October 1999 to November 2003, she served as Vice President of
      News. Ms. Walsh served as Salon’s News Editor from October 1998 to October 1999.
      Prior to joining Salon, Ms. Walsh was a freelance writer for approximately
      ten
      years and was a consultant to national and regional foundations including the
      Rockefeller Foundation, the Annie E Casey Foundation and the James Irvine
      Foundation. Ms. Walsh is currently a Board member of PolicyLink, a research
      and
      advocacy group. Ms. Walsh holds a Bachelor of Arts in History from the
      University of Wisconsin.





*Conrad
      Lowry* ,
      who had
      been serving as Controller since joining Salon in September 2000, was appointed
      Chief Financial Officer and Secretary in February 2005. Mr. Lowry served as
      Controller for Crescent Jewelers from November 1999 to September 2000. From
      1998
      to November 1999, he served as Controller for New York Transit, Inc. From 1997
      to 1998 he served as Controller for Ariat International, Inc. From 1989 to
      1997,
      he served as Assistant Controller - Finance and from 1987 to 1989, he served
      as
      a Senior Accountant for Fibreboard Corporation. From 1978 to 1987, he held
      various positions with Louisiana-Pacific Corporation including Accountant,
      Senior Accountant and Chief Accountant, a position he held for two years. Mr.
      Lowry holds Bachelor of Science degrees in Business Administration and Forestry
      from Humboldt State University.





*Christopher
      Neimeth* was
      appointed Senior Vice President - Publisher in June 2006. Prior to joining
      Salon, he served as President, IAC Partner Marketing from August 2004 through
      October 2005 of InterActive Corporation. From March 2001 through August 2004
      he
      served as Executive Vice President, National Sales of Ticketmaster, a wholly
      owned subsidiary of InterActive Corporation. From December 1999 through December
      2000 he served as President and Chief Executive Officer of Real Media, Inc.
      From
      September 1999 through November 1999 he served as Senior Vice President,
      Business Development and Strategic Planning and from September 1995 through
      September 1999 he served as Group Vice President of The New York Times Digital.
      Mr. Neimeth holds a Bachelor of Arts degree in Anthropology from Hamilton
      College.





*Deepak
      Desai* has
      served as a Director of Salon since September 2004.   He joined
      GlobalEnglish Corporation in June 2002 as its Chief Financial Officer and in
      December 2005 was appointed its President and Chief Executive Officer. 
From December 2001 to May 2002, Mr. Desai was the interim Chief Financial
      Officer for Pointcross, Inc., and from July 2001 to October 2001, he was the
      interim Co-Chief Executive Officer of Yesasia.com Ltd.  From August 1999 to
      June 2001, Mr. Desai was the Chief Financial Officer of Asiacontent.com
      Ltd.  From July 1987 to July 1999, Mr. Desai held various positions with
      Time Warner, Inc., including General Manager and Chief Financial Officer with
      Time Life Asia, Associate Business Manager, Financial Manager and Assistant
      Business Manager with Time Inc. and Senior Auditor with Time Warner Inc. 
Mr. Desai is a Certified Public Accountant, received a Bachelor of Commerce
      in
      Accounting from the University of Bombay, India and an M.B.A. with a Finance
      emphasis from the Wharton School of Business of the University of
      Pennsylvania.





*Robert
      Ellis* has
      served as a Director of Salon since August 2001. He is an advisor, investor,
      and
      director of Internet companies.  He currently
      serves on the board of VerticalResponse.com From 1997 through 1999, he was
      the
      publisher, board member and early investor of XOOM.com (XMCM) that was merged
      with the National
      Broadcasting Company, Inc.’s Internet
      properties. He formerly served as President of eNature.com, a nature content
      site on the web. In 1996, he founded and produced Bonjour Paris, a travel
      destination site in France featured on America Online. Prior to that, he founded
      and owned Compact Publishing, for which he developed the *Time
      Almanac* with
      Time Magazine. He formerly was a




68


correspondent
      for Time Magazine. Mr. Ellis holds an M.A. degree in History from the University
      of Chicago and a B. A. in Philosophy from Yale University.





*George
      Hirsch* has
      served as a Director of Salon since April 2003. Mr. Hirsch is the Chairman
      of
      the Board of the U.S. subsidiary of La Cucina Italiana magazine. From 1978
      to
      1987, he was the founding publisher and president of The Runner magazine at
      which time it was merged into Runner's World. From 1987 until his retirement
      in
      2004, he held various positions with Rodale, Inc., including Worldwide Publisher
      of Runner’s World, Publishing Director of Men’s Health, and Director of
      International Magazines. In 1973, he was founding publisher of New Times
      magazine and served as its President through 1979. In 1967, he was the founding
      publisher of New York magazine and served as its President through 1971. From
      1962 through 1967, he held various positions with Time Inc. Mr. Hirsch holds
      a
      Masters in Business Administration from the Harvard University and a B.A. in
      History from Princeton University. He is the Chairman of the Board of the New
      York City Marathon (New York Roadrunners.)





*Robert
      McKay* has
      served as a Director of Salon since August 2001. He has served as the President
      of the McKay Family Foundation since its inception in 1992, which supports
      community-based activist organizations working for long-term social and economic
      change. Mr. McKay is also the Managing Partner for the McKay Investment Group,
      which provides venture capital for early-stage technology and consumer product
      companies. He also serves as a Board member of Ms. Foundation for Women and
      Mother Jones. Mr. McKay received his B.A. degree in Political Science and
      Sociology from Occidental College, and his M.A. in Social and Public Policy
      from
      the University of California, Berkeley.





*James
      H. Rosenfield* has
      served as a Director of Salon since April 1998. Mr. Rosenfield has been the
      President of JHR & Associates, a media-consulting firm, since 1998.
      From 1994 to 1998, Mr. Rosenfield was Managing Director at the
      investment-banking firm of Veronis Suhler & Associates. From 1987 to
      1994, he was Chairman and Chief Executive Officer of John Blair Communications,
      Inc., a television sales and syndication company. From 1965 to 1985,
      Mr. Rosenfield held various executive positions at CBS Corporation, a
      television broadcasting and media company, including Executive Vice President
      of
      the Broadcast Group. Mr. Rosenfield holds a B.A. degree in English from
      Dartmouth College.




*David
      Talbot* founded
      Salon in 1995. He served as Chief Executive Officer from 1995 through April
      1999
      and again from October 2003 through February 2005. He was the Chairman of the
      Board from April 1999 through December 2006. He served as Editor-in-Chief from
      Salon’s incorporation in 1995 through February 2005. From 1990 to 1995,
      Mr. Talbot was the Sunday magazine editor and arts & features editor
      for the San Francisco Examiner newspaper.  Mr.
      Talbot is the author of the New York Times best-seller, "Brothers: The Hidden
      History of the Kennedy Years," recently published by Free Press/Simon &
Schuster. Mr. Talbot has written for numerous publications including Time,
      The New Yorker and Rolling Stone. In July 2007, Mr. Talbot will join Fenton
      Communications as a Senior Vice President. Mr. Talbot holds a Bachelor of
      Arts degree in Sociology from the University of California at Santa
      Cruz.





*John
      Warnock* has
      served as a Director of Salon since August 2001 and was appointed Chairman
      of
      the Board in December 2006. He was a founder of Adobe Systems and has been
      its
      Chairman of the Board since April 1989. Since September 1997, he has shared
      the
      position of Adobe Chairman of the Board with Charles M. Geschke. Dr. Warnock
      served as Chief Executive Officer of Adobe from 1982 through December 2000.
      Dr.
      Warnock received a Ph.D. in Electrical Engineering from the University of Utah.
      Mr. Warnock served as a Director for Knight Ridder, Inc., a publisher of news
      and information in digital and hard copy formats, until its sale in June
      2006.





69


**Code
      of Conduct**




Salon
      has
      adopted a Code of Conduct and Policy Regarding Reporting of Possible Violations
      (the “Code of Conduct”). The Code of Conduct can be found at Salon’s Website at www.salon.com under
      the caption “About Salon.”





**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section 16(a)
      of the Securities Exchange Act of 1934 requires the Company’s executive
      officers, directors and persons who beneficially own more than 10% of the
      Company’s Common Stock to file initial reports of ownership and reports of
      changes in ownership with the Securities and Exchange Commission (“SEC”). Such
      persons are required by SEC regulations to furnish the Company with copies
      of
      all Section 16(a) forms filed by such persons.




Based
      solely on Salon’s review of such forms furnished to us and written
      representations from certain reporting persons, we believe that all filing
      requirements applicable to our executive officers, directors and more than
      10%
      stockholders were complied with, except for a Form 4 for Robert McKay, a
      Director of Salon, for the August 9, 2006 cashless conversion of a warrant
      to
      common stock that was filed on August 14, 2006.





70


**ITEM
      11. Executive Compensation**




**Executive
      Compensation**




The
      following table shows, for the fiscal year ended March 31, 2007, the
      compensation of Salon’s (i) principal executive officer; (ii) principal
      financial officer; and (iii) the three most highly compensated executive
      officers other than our principal executive officer and principal financial
      officer who were serving as executive officers as of March 31, 2007,
      collectively the “Named Executive Officers”:




**SUMMARY
      COMPENSATION TABLE**




Non-EquityOption
            
            Incentive
                PlanName
                and Principal Position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Awards
                ($) (1)
            
            Compensation
                ($)
            
            Total
                ($)Elizabeth
                Hambrecht (4)
            
            2007
            
            170,000
            
            -
            
            1,700
            
            -
            
            171,700*President
                and Chief Executive Officer*Conrad
                Lowry (4)
            
            2007
            
            130,000
            
            -
            
            1,700
            
            -
            
            131,700*Chief
                Financial Officer and Secretary*Joan
                Walsh (4)
            
            2007
            
            170,000
            
            -
            
            11,900
            
            -
            
            181,900*Editor-in-Chief*Christopher
                Neimeth (2)
            
            2007
            
            169,487
            
            -
            
            137,085
            
            50,000
            
            356,572*Senior
                Vice President - Publisher*Harvey
                Gamm (3)
            
            2007
            
            116,667
            
            33,452
            
            530
            
            208,430
            
            359,079*Senior
                Vice President - Sales*





(1)
            The
                amounts shown are the compensation costs recognized by Salon in fiscal
                year 2007 for option awards, as determined pursuant to Statement
                of
                Financial Accounting Standards No. 123 (revised 2004),*Share-Based
                Payments*(“SFAS 123R”), excluding any estimates of future forfeitures. These
                compensation costs reflect option awards made in fiscal year 2007.
                For a
                discussion of the assumptions used to calculate the value of the
                option
                awards, see Note 2 of the Notes to the Consolidated Financial
                Statements.


(2)
            Mr.
                Neimeth began employment with Salon on June 6, 2006 at a base annual
                salary of $200,000. The amounts show under salary includes a signing
                bonus
                of $5,000 to cover legal costs. The non-equity incentive plan compensation
                amount reflects amount earned on attaining advertising revenue goals
                for
                the fiscal year and paid after conclusion of the fiscal
                year.


(3)
            Mr.
                Gamm was promoted to Senior Vice President - Sales on February 20,
                2007 at
                a base annual salary of $150,000. The amounts shown for Mr. Gamm
                reflect
                activity for the entire fiscal year. The non-equity incentive plan
                compensation amount reflects commissions paid from April 1, 2006
                through
                December 31, 2006. The $33,452 bonus was granted for his sales efforts
                between January 1, 2007 and March 31, 2007. At the discretion of
                Mr. Gamm,
                this amount has not been paid, but Salon expects such amount to be
                fully
                paid by December 31, 2007.


(4)
            Due
                to insufficient liquidity, no bonus or non-equity incentive plans
                were
                established for Ms. Hambrecht, Mr. Lowry and Ms.
                Walsh.





71




**Grants
      of Plan-Based Awards in Fiscal 2007**




The
      following table presents information on equity awards granted during the 2007
      fiscal year:





**GRANTS
      OF PLAN BASED AWARDS**




All
                OtherOption
                Awards:
            
            
            
            Grant
                DateNumber
                of
            
            Exercise
                or
            
            Fair
                ValueEstimated
                Future Payouts Under
            
            Securities
            
            Base
                Price
            
            of
                StockGrant
            
            Equity
                Incentive Plan Awards (3)
            
            Underlying
            
            of
                Option
            
            and
                OptionName
            
            Date
            
            Threshold
            
            Target
            
            Maximum
            
            Options
                (1)
            
            Awards
                (2)
            
            AwardsElizabeth
                Hambrecht
            
            12/7/2006
            
            
            
            
            
            
            
            
            25,000
            
            $1.05
            
            $20,400Conrad
                Lowry
            
            12/7/2006
            
            
            
            
            
            
            
            
            25,000
            
            $1.05
            
            $20,400Joan
                Walsh (4)
            
            12/7/2006
            
            
            
            
            
            
            
            
            175,000
            
            $1.05
            
            $142,800Christopher
                Neimeth (3)
            6/6/2006
            
            
            
            
            
            
            
            
            250,000
            
            $3.20
            
            $650,59012/7/2006
            
            
            
            
            
            
            
            
            25,000
            
            $1.05
            
            $20,400Harvey
                Gamm
            
            12/7/2006
            
            
            
            
            
            
            
            
            3,800
            
            $1.05
            
            $3,1013/22/2007
            
            
            
            
            
            
            
            
            20,000
            
            $1.30
            
            $19,240





(1)
            The
                option awarded to Mr. Neimeth on June 6, 2006 included 200,000 shares
                pursuant to the Salon Media Group, Inc. 2004 Stock Plan and 50,000
                shares
                pursuant to a plan not approved by Salon’s shareholders. The option
                awarded to Mr. Neimeth on December 7, 2006 was granted pursuant to
                a plan
                not approved by Salon’s shareholders. Of the awards granted Mr. Neimeth,
                118,750 shares are incentive stock options and 131,250 shares are
                non-qualified stock options. The options awarded the other Named
                Executives were incentive stock
                options.




(2)
            The
                exercise price per share of each option was equal to the fair market
                value
                of Salon’s common stock on the date of
                grant.




(3)
            Mr.
                Neimeth’s employment agreement stipulated that he would be eligible to
                receive 250,000 shares of restricted stock during his employment
                with
                Salon if mutually agreed goals were attained. These goals have yet
                to be
                determined, nor does Salon have an equity plan that allows for the
                granting of restricted stock. Salon contemplates soliciting approval
                of a
                plan to allow for granting of restricted stock no later than December
                31,
                2007.




(4)
            Ms.
                Walsh was awarded an option to purchase 175,000 shares of common
                stock.




**Profit
      Sharing Retirement Plan and 401(k) Savings Plan**




Salon
      has
      made no contributions to its profit sharing plan nor matched employee
      contributions to its 401(k) plan since its inception.


72


**Outstanding
      Equity Awards at Fiscal 2007 Year-End**




The
      following table sets forth the outstanding equity awards for each Named
      Executive Officer as of March 31, 2007. Up through March 31, 2007, Salon has
      not
      granted equity awards other than stock options to any Named Executive
      Officer.




**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR END**




Option
                AwardsEquity
                IncentiveNumber
                of
            
            Number
                of
            
            Plan
                Awards:Securities
            
            Securities
            
            Number
                ofUnderlying
            
            Underlying
            
            SecuritiesUnexercised
            
            Unexercised
            
            Underlying
            
            Option
            
            OptionOptions
            
            Options
            
            Unexercised
            
            Exercise
            
            ExpirationName
            
            Exercisable
            
            Unexercisable
            
            Unearned
                Options
            
            Price
                ($)
            
            DateElizabeth
                Hambrecht
            
            125,000
            
            
            
            
            
            
            2.80
            
            2/7/2015(1)
            25,000
            
            
            
            1.05
            
            12/7/2016Conrad
                Lowry
            
            625
            
            
            
            
            
            
            30.00
            
            9/27/2010500
            
            
            
            
            
            
            7.40
            
            3/22/2011400
            
            
            
            
            
            
            7.40
            
            3/22/2011500
            
            
            
            
            
            
            7.00
            
            5/3/20112,000
            
            
            
            
            
            
            2.80
            
            10/24/2011750
            
            
            
            
            
            
            2.40
            
            12/13/201175,000
            
            
            
            
            
            
            2.80
            
            2/7/2015(1)
            25,000
            
            
            
            1.05
            
            12/7/2016Joan
                Walsh
            
            500
            
            
            
            
            
            
            10.40
            
            9/24/20081,000
            
            
            
            
            
            
            170.00
            
            1/25/2010450
            
            
            
            
            
            
            40.00
            
            8/17/2010750
            
            
            
            
            
            
            27.60
            
            11/7/2010336
            
            
            
            
            
            
            7.40
            
            3/22/20111,000
            
            
            
            
            
            
            7.00
            
            5/3/20116,250
            
            
            
            
            
            
            2.80
            
            10/24/2011100,000
            
            
            
            
            
            
            2.80
            
            2/7/2015(1)
            175,000
            
            
            
            1.05
            
            12/7/2016Christopher
                Neimeth
            
            
            
            (2)
            200,000
            
            
            
            3.20
            
            6/6/2016(3)
            50,000
            
            
            
            3.20
            
            6/6/2016(1)
            25,000
            
            
            
            1.05
            
            12/7/2016Harvey
                Gamm
            
            20,000
            
            
            
            
            
            
            5.20
            
            5/16/2015(1)
            3,800
            
            
            
            1.05
            
            12/7/201620,000
            
            
            
            1.30
            
            3/22/2017






73


(1)
            Option
                vests 25% on December 7, 2007 and 1/48thper month thereafter provided the grantee continues to be employed
                by
                Salon.




(2)
            Option
                vests 25% on June 6, 2007 and 1/48thper month thereafter provided the grantee continues to be employed
                by
                Salon. In addition, (1) if Mr. Neimeth is terminated between March
                31,
                2007 and June 5, 2007, 50% of the shares subject to then outstanding
                options shall be fully vested and exercisable as of the date of his
                employment termination; (2) if Mr. Neimeth is terminated after June
                5,
                2007, 100% of his outstanding options shall be fully vested and
                exercisable as of the date of his employment termination; and (3)
                in the
                event of a change in control, all outstanding options become fully
                vested
                and exercisable. These options were granted pursuant to the Salon
                Media
                Group, Inc. 2004 Stock Plan.




(3)
            Option
                vests 25% on June 6, 2007 and 1/48thper month thereafter provided the grantee continues to be employed
                by
                Salon. In addition, (1) if Mr. Neimeth is terminated between March
                31,
                2007 and June 5, 2007, 50% of the shares subject to then outstanding
                options shall be fully vested and exercisable as of the date of his
                employment termination; (2) if Mr. Neimeth is terminated after June
                5,
                2007, 100% of his outstanding options shall be fully vested and
                exercisable as of the date of his employment termination; and (3)
                in the
                event of a change in control, all outstanding options become fully
                vested
                and exercisable. This option was granted pursuant to an option plan
                not
                approved by Salon’s stockholders and as such is a non-statutory stock
                option.





**Option
      Exercises during Fiscal Year 2007**




No
      Named
      Executive Officer exercised any option during fiscal year 2007.





**Pension
      Benefits**




None
      of
      Salon’s executive officers are covered by a pension plan or other similar
      benefit plan that provides for payments or other benefits at, following, or
      in
      conjunction with retirement.





**Nonqualified
      Deferred Compensation**




Salon
      does not have any nonqualified deferred compensation plan.





**Potential
      Payments Upon Termination or Change in Control**





Salon
      has
      not entered into employment agreements with its Named Executive Officers with
      the exception of Mr. Neimeth. However, Salon contemplates entering into
      employment agreements with Ms. Hambrecht, Ms. Walsh and Mr. Lowry by December
      31, 2007 that will incorporate provisions for termination with cause, without
      cause, and for change in ownership.





In
      the
      event Mr. Neimeth is terminated for a reason other than cause, he will be
      entitled to a severance payment of $200,000 and health care benefits of up
      to
      $31,520. If Mr. Neimeth is terminated between March 31, 2007 and June 5, 2007,
      50% of the shares subject to then outstanding options will be fully vested
      and
      exercisable; (2) if he is terminated after June 5, 2007, 100% of his outstanding
      options shall be fully vested and exercisable; and (3) in the event of a change
      in control, all outstanding options become fully vested and exercisable.





Mr.
      Neimeth’s compensation plan for fiscal year 2008 is based on attaining
      prescribed revenue goals. If Salon attains the lower threshold of its revenue
      goals, Mr. Neimeth will be entitled to approximately $163,000 and if Salon
      attains budgeted amounts, Mr. Neimeth will be entitled to approximately
      $200,000. In the event Mr. Neimeth is terminated for a reason other than cause,
      he will be entitled to receive an amount equal to the bonus earned through
      the
      date of termination.


74


**Compensation
      of Directors**




The
      following table details the total compensation by Salon’s non-employee directors
      for its 2007 fiscal year:




Fees
                Earnedor
                Paid in
            
            OptionName
            
            Cash
            
            Awards
                (3)
            
            TotalDeepak
                Desai
            
            -
            
            $239
            
            $239Robert
                Ellis
            
            -
            
            $239
            
            $239George
                Hirsch
            
            -
            
            $239
            
            $239Robert
                McKay
            
            -
            
            $239
            
            $239James
                Rosenfield
            
            -
            
            $239
            
            $239David
                Talbot (1)
            
            $95,000
            
            $239
            
            $95,239John
                Warnock (2)
            
            -
            
            $263
            
            $263





(1)
            Mr.
                Talbot, the founder of Salon, served as Chairman of Board until December
                2006, received fees for all of fiscal year 2007. The payment of fees
                to
                Mr. Talbot has been discontinued for fiscal year
                2008.


(2)
            Mr.
                Warnock, Salon’s largest shareholder, was appointed Chairman of the Board
                in December 2006.


(3)
            In
                December 2006, each director received an option to purchase 3,500
                shares
                of common stock. The grant date fair value of each stock option award
                was
                $2,856. The exercise price per share for the grants to all of the
                directors except Mr. Warnock was $1.05. As Mr. Warnock owns 10% or
                more of
                the voting securities of Salon, the exercise price per share of his
                grant
                was determined at 110% of market, or $1.16. The amounts shown are
                the
                compensation costs recognized by Salon in fiscal year 2007 for option
                awards, as determined pursuant to SFAS 123R, excluding any estimates
                of
                future forfeitures. These compensation costs reflect option awards
                made in
                fiscal year 2007. For a discussion of the assumptions used to calculate
                the value of the option awards, see Note 2 of Notes to the Consolidated
                Financial Statements.





**Compensation
      Committee Interlocks and Insider Participation**




None
      of
      Salon’s executive officers has served as a member of the compensation committee
      or board of directors of any other entity that has an executive officer serving
      as a member of Salon’s Board of Directors .




**Compensation
      Discussion and Analysis**




The
      Compensation Committee has responsibility for setting the overall compensation
      strategy for Salon
      and
      aligning it to Salon’s business goals. This includes determining the
      compensation of the Chief Executive Officer and other Named Executive Officers
      and ensuring that Salon’s compensation program is fair, reasonable and
      competitive. The Compensation Committee makes recommendations to the Board
      on
      equity compensation with the Board having ultimate authority in making equity
      grants.





*Objectives
      and Challenges of Salon’s Compensation Program*





Salon’s
      executive compensation program is designed to attract, retain and motivate
      outstanding executive officers capable of leading Salon to fulfill its business
      objectives, and to establish an appropriate link between executive compensation
      and achievement of Salon’s strategic and financial performance goals that
      include attaining profitability, generating sufficient cash to fund operations,
      and ultimately, enhancing shareholder value.





75


Due
      to
      insufficient cash, Salon has only been able to offer its Chief Executive Officer
      and President, its Editor-in-Chief and its Chief Financial Officer and Secretary
      a competitive base annual salary and has not been able to implement a non-equity
      incentive compensation plan, or award annual bonuses to these executives. As
      a
      consequence, Salon has had to rely on stock option awards in lieu of cash
      compensation for these officers. Cash constraints have hampered Salon in
      attracting new executives. Salon has therefore had to rely on offering
      substantial equity awards to entice prospective new executives to join Salon.
      Besides cash constraints, Salon faces challenges in hiring and retaining
      executives due to a relatively small pool of available executive talent in
      its
      industry. Salon has experienced difficulties in finding suitable executives
      to
      lead its sales and technology efforts, positions in high demand. As Salon’s
      brand recognition has increased, so has the demand for its trained
      talent.





*Role
      of Compensation Committee and Outside Consultants*





The
      Compensation Committee of the Board of Directors oversees and administers
      Salon’s executive compensation program in accordance with the Compensation
      Committee Charter. The Compensation Committee meets on an as-needed basis to:
      (1) adjust and review salaries; (2) award bonuses; (3) approve offers to
      prospective new executive officers; (4) recommend equity grants for executive
      officers to the Board of Directors; and (5) set non-equity incentive
      compensation plans for Salon’s Senior Vice President - Sales and for its Senior
      Vice President - Publisher. Subsequent to March 31, 2007, the Compensation
      Committee set fiscal year 2008 non-equity compensation plans for its Senior
      Vice
      President - Publisher and its Senior Vice President - Sales.





Due
      to
      budgetary constraints, Salon has not utilized the services of outside
      consultants. Once Salon’s operations generate sufficient cash to meet operating
      needs, the Compensation Committee will likely retain the services of outside
      consultants to review executive salaries for appropriateness and to formulate
      incentive plans for the Named Executive Officers.





*Elements
      of Compensation*





Salon
      provides its executive officers with a compensation package consisting of base
      salary, commissions for its sales executives, and benefit plan participation
      generally available to other employees. In setting total compensation, the
      Compensation Committee considers individual and company performance, as well
      as
      current and projected cash balances. In determining the compensation for an
      executive who has been with Salon for a substantial amount of time, the
      Compensation Committee will consider what it might cost to hire that executive’s
      replacement, the effect on attaining revenue goals, and the effect on the well
      being of Salon’s Website.





***Base
      Salary.*** Salaries
      for Salon’s executive officers are initially set based on negotiation with the
      individual executive officers at the time of recruitment and with reference
      to
      salaries for comparable positions in the industry for individuals of similar
      education and background. Salon also considers the individual’s experience,
      reputation in his or her industry and expected contributions to Salon. Base
      salary is continuously evaluated to ensure it is competitive and may be adjusted
      from time to time if Salon believes that it is no longer competitive, to match
      changes to an individual’s job performance or duties, or to retain an executive.
      Cost of living salary adjustments are also granted to executive officers. In
      each case, Salon takes into account the results achieved by the executive,
      his
      or her future potential, scope of responsibilities and experience, competitive
      salary practices, the potential impediment in reaching profitability if the
      executive were to leave Salon, and cash projections. Salon has not utilized
      benchmarks or compensation studies in determining salary levels, but may do
      so
      in the future.





76





***Bonuses
      and Non-Equity Incentive Plan Compensation.*** Each
      executive is eligible for a cash bonus. Due to limited cash, no bonuses have
      ever been granted in the past to Salon’s Chief Executive Officer and President,
      Chief Financial Officer and Secretary and Editor-in-Chief. As attaining revenue
      goals is paramount in reaching profitability, fiscal year 2008 non-equity
      incentive plans have been developed for Mr. Christopher Neimeth, Salon’s Senior
      Vice President - Publisher, and for Mr. Harvey Gamm, Salon’s Senior Vice
      President - Sales. The plans for these two individuals are based on attaining
      a
      minimum revenue targets, and if the minimum targets are attained, Mr. Neimeth
      will receive approximately $163,000 and Mr. Gamm will receive $167,000. If
      budgeted amounts are attained, each executive will be entitled to receive
      approximately $200,000. These amounts may be earned and paid to these executives
      on attaining fiscal quarter revenue targets.





At
      this
      time, Salon does not intend to formulate bonus and non-equity incentive plans
      for its Chief Executive Officer and President, its Chief Financial Officer
      and
      Secretary and its Editor-in-Chief due to uncertainty of its future cash
      position. In the event that future cash availability allows for the granting
      of
      bonuses to these individuals, the Compensation Committee will evaluate the
      performance of each of these individual in determining suitable bonus
      amounts.





All
      bonus
      plans and non-equity incentive plans are approved by Salon’s Compensation
      Committee upon consultation with the Chief Executive Officer.




***Stock
      Options*** ***.*** Salon
      grants stock options to newly hired executives at the next regularly scheduled
      meeting of the Board of Directors, and subsequently to align their interests
      with those of its stockholders and as an incentive to remain with Salon. Salon
      believes that options to purchase its common stock, priced at the market price
      on the date of grant, are the best tool to motivate executives to build
      stockholder value. In addition, the granting of stock options has been an
      appealing form of compensation to Salon as their granting requires no cash
      outlay. However, these grants affect Salon’s results of operations as they
      require Salon to record non-cash stock-based compensation. As options are not
      transferable, they have no value unless the price of the stock increases after
      a
      grant of options is made. Because these options typically vest over a four-year
      period, they are an incentive for executives to build Salon’s value over time
      and encourage executives to remain in the long-term employment with Salon.





The
      goals
      of Salon’s option grant guidelines are to ensure that future grants are
      competitive from a grant value perspective and that option usage is consistent
      with option pool forecasts.





During
      fiscal year 2007, the Board of Directors of Salon adopted a policy that options
      are to be granted only at regularly scheduled meetings of the Board. The
      proximity of any awards to an earnings announcement or other market events
      is
      coincidental. The exercise price of the options is the closing price of Salon’s
      common stock on the date of the grant and the grant date is the date that the
      Board approves the grant. All new hires are awarded options and Salon’s
      Compensation Committee makes recommendations to the Board of options grants
      to
      be made to executive officers.





The
      number of stock options Salon granted to executives has varied widely. During
      fiscal year 2007, Salon made a large grant to: (1) Mr. Neimeth, upon his joining
      Salon, of a total 250,000 shares to offset a below market base annual salary
      and
      as an incentive to join Salon as it was felt his hiring was critical in
      attaining future revenue goals; and (2) Joan Walsh, Salon’s Editor-in-Chief, of
      175,000 shares, as an incentive to remain with Salon as Salon had insufficient
      cash to grant a cash bonus. In December 2006, with a falling common stock price
      and with most outstanding options being out-of-the-money, Salon granted options
      to all of its employees. The across the board grant to all employees took into
      consideration a number of factors, including performance of the individual,
      job
      level, and prior grants. Of these grants, Elizabeth Hambrecht, Conrad Lowry
      and
      Christopher Neimeth each received a grant for




77


25,000
      shares, while Harvey Gamm only received a grant for 3,800 as he had not yet
      been
      promoted to Senior Vice President - Sales. Upon Mr. Gamm’s promotion in February
      2007, he received an additional grant of 20,000 shares as an inducement to
      create shareholder value.





As
      an
      additional inducement in attaining revenue goals, Mr. Gamm’s compensation plan
      for fiscal year 2008 includes provisions for the granting of 10,000 options
      per
      quarter if pre-determined advertising revenue goals are attained for the first
      three quarters of the year. As of this filing, Mr. Gamm will not be eligible
      to
      receive an option of 10,000 shares for Salon’s first fiscal quarter as revenue
      goals will most likely not be met.





As
      of
      March 31, 2007, Salon’s stock option plan allows for the granting of only
      312,239 shares of common stock, of which it contemplates granting 114,000 to
      a
      Vice President of Technology. Salon is therefore limited to the number of option
      shares it can issue to its executive officers. As a result, Salon will seek
      approval at its next shareholder meeting to increase the number of shares that
      may be issued under the current stock option plan.





***Restricted
      Stock.*** Salon
      currently does not have an equity plan that allows for the issuance of
      restricted stock. As the employment agreement with Mr. Neimeth, Salon’s Senior
      Vice President - Publisher stipulates that he be eligible to receive up to
      250,000 shares of restricted stock, Salon will solicit approval of such a plan
      by Salon’s Board of Directors and stockholders no later than December 31, 2007.
      After the creation of such an equity plan, the Compensation Committee will
      recommend to the Board of Directors that similar awards be made to the other
      Named Executive Officers. It is contemplated that such awards will vest over
      a
      period of four years and be subject to accelerated vesting in the event that
      the
      Named Executive Officer is terminated for reasons other than cause, or if a
      change in control event were to occur. Salon feels that the issuance of
      restricted stock will be a valuable incentive tool for its executives as this
      type of equity award will have immediate value upon vesting with no cash outlay
      by the company.





The
      employment agreement with Mr. Neimeth stipulates that he be eligible to receive
      250,000 shares of restricted stock if mutually agreed goals were attained.
      These
      goals have yet to be determined, but the Compensation Committee contemplates
      setting them by December 31, 2007 that will include revenue and profitability
      components.





***Perquisites.*** Salon
      does not offer any perquisites to its executive officers.





***Retirement
      and Other Benefits.*** Salon
      has a 401(k) savings plan for its employees that allows for matching
      contributions and profit sharing. Due to limited cash, Salon has never made
      matching or profit sharing contributions and has no intent to do so in the
      2008
      fiscal year.  Salon
      does not have a deferred compensation plan for any employee.





*Named
      Executive Officer Cash Compensation*





Elizabeth
      Hambrecht, CEO and President, received a base annual salary of $170,000 during
      fiscal year 2007. Due solely to limited cash, Ms. Hambrecht did not receive
      any
      other form of cash compensation during fiscal year 2007.





Conrad
      Lowry, CFO and Secretary, received a base annual salary of $130,000 during
      fiscal years 2006 and 2007. Due solely to limited cash, Mr. Lowry did not
      receive any other form of cash compensation during fiscal year 2007. Effective
      June 1, 2007, Mr. Lowry received a cost of living increase, raising his base
      annual salary to $140,000.





78


Joan
      Walsh, Editor-in-Chief, received a base annual salary of $170,000 during fiscal
      year 2007. Effective April 1, 2007, Ms. Walsh’s base annual salary was increased
      to $200,000 so as to be commensurate with the salary of Salon’s Senior Vice
      President - Publisher. Due solely to limited cash, Ms. Walsh did not receive
      any
      other form of cash compensation during fiscal year 2007.





Chris
      Neimeth joined Salon on June 6, 2006 as Senior Vice President - Publisher at
      a
      base annual salary of $200,000 and received a signing bonus of $5,000 to cover
      legal costs. Effective June 16, 2007, Mr. Neimeth received a cost of living
      increase, raising his base annual salary to $208,000. During fiscal year 2007,
      Mr. Neimeth met revenue goals as set by the Compensation Committee and received
      $50,000.





Harvey
      Gamm, Senior Vice President - Sales received a base annual salary of $110,000
      from April 1, 2006 through February 19, 2007. On February 20, 2007, Mr. Gamm
      was
      promoted to Senior Vice President - Sales and commenced receiving a base annual
      salary of $150,000. Mr. Gamm earned $208,430 of commissions after attaining
      predetermined advertising revenue goals. The commission plan for Mr. Gamm was
      formerly on a calendar year basis and was changed to a fiscal year basis
      effective January 1, 2007. As a consequence, for the three month period ended
      March 31, 2007, Mr. Gamm was awarded a bonus of $33,452 based on the revenue
      he
      generated during the period. The Compensation Committee has set certain
      advertising revenue goals for Mr. Gamm for fiscal year 2008 as part of his
      non-equity incentive compensation plan.





*Deductibility
      of Executive Compensation*





Section 162(m)
      of the Internal Revenue Code limits deductions for executive compensation in
      excess of $1 million except for certain compensation which qualifies for a
      performance-based exception. Certain types of compensation in excess of $1
      million are deductible by a company if performance criteria are specified in
      detail and are contingent on stockholder approval of the compensation
      arrangement. As Salon has been unable to award bonuses and other forms of
      non-equity incentive compensation to all of its Named Executive Officers due
      limited cash, the $1 million limitation has not been a factor for Salon. In
      the
      future, Salon and the Compensation Committee will endeavor to structure
      executive compensation plans to achieve maximum deductibility under
      Section 162(m) with minimal sacrifices of flexibility and impact on
      corporate objectives.





*Accounting
      for Stock-Based Compensation*




Salon
      has expensed
      stock option grants under SFAS 123R which requires companies to include the
      fair
      value of equity compensation as a compensation expense in their income
      statements. **





**COMPENSATION
      COMMITTEE REPORT**





The
      Compensation Committee of Salon has reviewed and discussed the Compensation
      Discussion and Analysis required by Item 402(b) of Regulation S-K with
      management and, based on such review and discussions, the Compensation Committee
      recommended to the Board that the Compensation Discussion and Analysis be
      included in this Annual Report on Form 10-K.




THE
      COMPENSATION COMMITTEE


James
      Rosenfield


John
      Warnock





79




**ITEM
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**





**Equity
      Compensation Plan Information**




Information
      regarding Equity Compensation Plans may be found in Part II, Item 5, commencing
      on page 24 of this Annual Report on Form 10-K.




**Security
      Ownership of Certain Beneficial Owners and Management**





The
      following table sets forth information regarding the beneficial ownership of
      Common Stock and Common Stock equivalents of Salon as of June 1, 2007
      (a) by each stockholder who is known by Salon to be the beneficial owner of
      more than 5% of the outstanding Common Stock and Common Stock equivalents or
      the
      combined total voting power of all classes of capital stock of Salon on a fully
      diluted, as converted basis, (b) by each director and nominee,
      (c) each executive officer named in the Summary Compensation Table, and
      (d) by all executive officers and directors of Salon as a group.




**Amount
                and****Nature
                of****Beneficial**
            
            **Percent****Name
                and Address of Beneficial Owner (1)**
            
            **Ownership
                (2)**
            
            **of
                Class (3)**William
                R. Hambrecht (4)
            
            2,183,011
            
            56.0%Shea
                Ventures LLC (5)
            
            1,210,866
            
            40.1%Adobe
                Systems Incorporated (6)
            
            431,117
            
            19.1%Octavia
                LLC (7)
            
            359,819
            
            15.8%Wenner
                Media LLC (8)
            
            268,424
            
            12.3%Constellation
                Venture Capital (9)
            
            168,226
            
            8.1%Nancy
                & Timothy Armstrong (10)
            
            156,393
            
            7.5%HVS
                Boxers, LLC (11)
            
            132,723
            
            6.4%**Executive
                Officers and Directors**John
                Warnock (12)
            
            4,910,442
            
            76.3%Elizabeth
                Hambrecht (13)
            
            358,912
            
            15.6%Robert
                McKay (14)
            
            325,975
            
            14.5%David
                Talbot (15)
            
            286,478
            
            12.9%Joan
                Walsh (16)
            
            110,285
            
            5.4%Conrad
                Lowry (17)
            
            79,774
            
            4.0%Christopher
                Neimeth (18)
            
            67,707
            
            3.4%James
                Rosenfield (19)
            
            38,587
            
            2.0%George
                Hirsch (20)
            
            33,232
            
            1.7%Harvey
                Gamm (21)
            
            30,250
            
            1.5%Robert
                Ellis (22)
            
            27,500
            
            1.4%Deepak
                Desai (23)
            
            25,000
            
            1.3%All
                executive officers and directors as a group (12 persons)
            
            6,294,142
            
            81.0%





(1)
            The
                address for all beneficial owners is c/o Salon Media Group, Inc.,
                101
                Spear Street, Suite 203, San Francisco, CA
                94105.




(2)
            Unless
                otherwise noted, the persons named in the table above have sole voting
                and
                investment power with respect to all shares of Common Stock and Common
                Stock equivalents shown as beneficially owned by them, subject to
                community property laws where applicable and to the information contained
                in the footnotes to this table.




80


(3)
            Calculated
                on the basis of 1,939,572 shares of Common Stock outstanding as of
                June 1,
                2007, shares of Common Stock underlying options exercisable within
                sixty (60) days of June 1, 2007, shares of Common Stock that a
                shareholder has the right to acquire upon conversion of shares of
                Series A, B, C, and D Preferred Stock, and currently exercisable
                warrants to acquire shares of Common Stock are deemed outstanding
                for
                purposes of calculating the beneficial ownership of Common Stock
                of the
                holders of such options and warrants, as applicable, on a stand-alone
                basis, without considering the ownership interest of other stockholders.




(4)
            Mr.
                Hambrecht has an ownership interest in WR Hambrecht + Co., LLC and
                WR
                Hambrecht + Co., Inc. (together the “Hambrecht Entities”) and is the
                Chairman and Chief Executive Officer of those entities. The Hambrecht
                Entities own 71,322 shares of Common Stock and 290,624 of Common
                Stock
                that the Hambrecht Entities have the right to acquire upon conversion
                of
                50 shares of Series A Preferred Stock and 189 shares of Series C
                Preferred
                Stock. Elizabeth Hambrecht, Salon’s President and Chief Executive Officer,
                has a pecuniary ownership interest in the Hambrecht Entities. Mr.
                Hambrecht individually owns 23,206 shares of common stock, 368,985
                shares
                of Common Stock that Mr. Hambrecht has the right to acquire upon
                conversion of 189 shares of Series C Preferred Stock and 292 shares
                of
                Series D Preferred Stock and 26,696 shares of Common Stock issuable
                upon
                exercise of an immediately exercisable warrant. Includes ownership
                by The
                Sarah and William Hambrecht Foundation of 32,005 shares of Common
                Stock
                and 260,437 shares of common stock that the Foundation has the right
                to
                acquire upon conversion of 75 shares of Series A Preferred Stock
                and 108
                shares of Series C Preferred Stock. William Hambrecht and Elizabeth
                Hambrecht are Directors and have voting rights in the Sarah & William
                Hambrecht Foundation. Includes ownership by HAMCO Capital Corporation,
                consisting of 20,782 shares of Common Stock and 165,984 shares of
                Common
                Stock that HAMCO has the right to acquire upon conversion of 127
                shares of
                Series C Preferred Stock and 63 shares of Series D preferred stock.
                Mr. Hambrecht and Elizabeth Hambrecht, both have an ownership interest
                in
                HAMCO Capital. Includes ownership by Ironstone Group, Inc., consisting
                of
                79,970 shares of Common Stock and 843,000 shares of Common Stock
                that
                Ironstone has the right to acquire upon conversion of 843 shares
                of Series
                C Preferred Stock. Mr. Hambrecht has an ownership interest in Ironstone
                Group, Inc. Mr. Hambrecht and Ms. Hambrecht disclaim beneficial ownership
                of the shares of Salon’s Common Stock held directly by the Hambrecht
                Entities, HAMCO Capital and Ironstone, other than their proportionate
                ownership interest.




(5)
            Consists
                of 101,265 shares of Common Stock held by the stockholder and 951,062
                shares of Common Stock that the stockholder has the right to acquire
                upon
                conversion of 125 shares of Series A Preferred Stock and 697 shares
                of
                Series C preferred Stock. Includes 30,539 shares of Common Stock
                of a
                trust, as well as 128,000 shares of Common Stock that the trust has
                the
                right to acquire upon conversion of 128 shares of Series C Preferred
                Stock. Edward Shea is the Manager of the stockholder and a Trustee
                of the
                trust, and is also a Director of Ironstone Group, Inc. mentioned
                under
                item (4).




(6)
            Consists
                of 109,379 shares of Common Stock held by the stockholder. Includes
                314,680 shares of Common Stock that the stockholder has the right
                to
                acquire upon conversion of 125 shares of Series B Preferred Stock and
                7,058 shares of Common Stock issuable upon exercise of an immediately
                exercisable warrant. Salon’s Chairman John Warnock is the co-Chairman of
                the stockholder and disclaims beneficial ownership of the shares
                held by
                the stockholder.




(7)
            Consists
                of 17,085 shares of Common Stock held by the stockholder. Includes
                342,014
                shares of Common Stock that the stockholder has the right to acquire
                upon
                conversion of 62 shares of Series A Preferred Stock and 216 shares of
                Series C Preferred Stock.




(8)
            Consists
                of 18,424 shares of Common Stock held by the stockholder. Includes
                250,000
                shares of Common Stock that Wenner Media LLC has the right to acquire
                upon
                conversion of 250 shares of Series C Preferred Stock. Mr. Wenner, the
                Chairman and President of Wenner Media LLC served as a Director of
                Salon
                until February 2006.




(9)
            Consists
                of 33,084 shares of Common Stock held by Constellation Venture Capital,
                LP
                and 7,096 shares of Common Stock held by Constellation Venture Offshore,
                LP. Includes 105,689 shares of Common Stock that Constellation Venture
                Capital has the right to acquire upon conversion of 52 shares of
                Series A Preferred Stock and 22,357 shares of Common Stock that
                Constellation Venture Capital Offshore, LP has the right to acquire
                upon
                conversion of 11 shares of Series A Preferred Stock.




81


(10)
            Includes
                136,168 shares of Common Stock that the stockholder has the right
                to
                acquire upon conversion of 209 shares of Series D Preferred Stock and
                20,225 shares of Common Stock issuable upon exercise of an immediately
                exercisable warrant.




(11)
            Consists
                of 6,709 shares of Common Stock. Includes 126,014 shares of Common
                Stock
                that the stockholder has the right to acquire upon conversion of
                62 shares
                of Series A Preferred Stock.




(12)
            Consists
                of 410,426 shares of Common Stock held by the Chairman of the Board
                of
                Salon. Includes 4,376,499 shares of Common Stock that the stockholder
                has
                the right to acquire upon conversion of 125 shares of Series A
                Preferred Stock, 3,474 shares of Series C Preferred Stock, and 874
                shares of Series D preferred stock and 96,517 shares of Common Stock
                issuable upon exercise of immediately exercisable warrants. Includes
                27,000 shares subject to options that may be exercised within sixty
                (60)
                days of June 1, 2007.




(13)
            Consists
                of 3,750 shares of Common stock held by the Officer. Includes 230,162
                shares of Common Stock that the Officer has the right to acquire
                upon
                conversion of 31 shares of Series C Preferred Stock and 334 shares of
                Series D Preferred Stock. Includes 125,000 shares subject to options
                that
                may be exercised within sixty (60) days of June 1, 2007. Excludes
                her
                proportional beneficial ownership of amounts owned by the Hambrecht
                Entities and HAMCO Capital described in footnote
                (4).




(14)
            Consists
                of 4,200 shares of Common Stock held by the Robert McKay Family
                Partnership, 7,840 shares of Common Stock held by the McKay Investment
                Group and 2,921 shares of Common Stock in the Elaine McKay Family
                Partnership. Includes 284,014 shares of Common Stock that the McKay
                Investment Group, Inc. has the right to acquire upon conversion of
                62
                shares of Series A Preferred Stock and that the Elaine McKay Family
                Partnership has the right to acquire upon conversion of 158 shares
                of
                Series C Preferred Stock. Mr. McKay, a Director of Salon, is the
                Managing Partner of all the entities. Includes 27,000 shares subject
                to
                options that may be exercised within sixty (60) days of June 1,
                2007.




(15)
            Consists
                of 384 shares of Common Stock, of which 128 shares are held by Camille
                Peri, Mr. Talbot's spouse, and 256 shares held in trust for the benefit
                of
                Mr. Talbot's children. Mr. Talbot disclaims beneficial ownership
                of the
                shares held individually by his spouse and in trust for his children.
                Includes 286,094 shares subject to options that may be exercised
                within
                sixty (60) days of June 1, 2007.




(16)
            Includes
                110,285 shares subject to options that may be exercised within sixty
                (60)
                days of June 1, 2007.




(17)
            Includes
                79,774 shares subject to options that may be exercised within sixty
                (60)
                days of June 1, 2007.




(18)
            Includes
                67,707 shares subject to options that may be exercised within sixty
                (60)
                days of June 1, 2007.




(19)
            Includes
                38,587 shares subject to options that may be exercised within sixty
                (60)
                days of June 1, 2007.




(20)
            Consists
                of 732 shares of Common Stock held by the Director and 32,500 shares
                subject to options that may be exercised within sixty (60) days of
                June 1,
                2007.




(21)
            Consists
                of 10,250 shares of Common Stock held by the Officer and 20,000 shares
                subject to options that may be exercised within sixty (60) days of
                June 1,
                2007.




(22)
            Consists
                of 500 shares of Common Stock held by the Director and 27,000 shares
                subject to options that may be exercised within sixty (60) days of
                June 1,
                2007.




(23)
            Includes
                25,000 shares subject to options that may be exercised within sixty
                (60)
                days of June 1, 2007.




82




**Series A
      Preferred Stock**




The
      following table sets forth information regarding the beneficial ownership of
      Salon’s Series A Preferred Stock as of March 31, 2007 (a) by each
      stockholder who is known by Salon to be the beneficial owner of more than 5%
      of
      the outstanding shares of Series A Preferred Stock, (b) by each
      director and nominee, (c) by the Named Executive Officers, and (d) by
      all current executive officers and directors of Salon as a group.




**Amount
                and****Nature
                of****Beneficial**
            
            **Percent****Name
                and Address of Beneficial Owner (1)**
            
            **Ownership**
            
            **of
                Class**William
                R. Hambrecht (2)
            
            125
            
            
            18.3%John
                Warnock (3,6)
            
            125
            
            
            18.3%Shea
                Ventures LLC (3)
            
            125
            
            
            18.3%Constellation
                Venture Capital (4)
            
            63
            
            
            9.2%McKay
                Investment Group (5,6)
            
            62
            
            
            9.1%Octavia
                LLC (5)
            
            62
            
            
            9.1%HVS
                Boxers LLC (5)
            
            62
            
            
            9.1%All
                executive officers and directors as a group (2 persons)
            
            187
            
            
            27.4%




(1)
            Unless
                otherwise noted, the persons named in the table above have sole voting
                and
                investment power with respect to all shares of Preferred Stock shown
                as
                beneficially owned by them, subject to community property laws where
                applicable and to the information contained in the footnotes to this
                table. The address for each beneficial owner is c/o Salon Media Group,
                Inc., 101 Spear Street, Suite 203, San Francisco, CA
                94105.




(2)
            Includes
                75 shares held by the Sarah & William Hambrecht Foundation that are
                convertible into 152,437 shares of Common Stock, subject to adjustment.
                Also includes 50 shares held by WR Hambrecht + Co. LLC that are
                convertible into 101,624 shares of Common Stock, subject to adjustment.
                Mr. Hambrecht is the father of Elizabeth Hambrecht, Salon’s President and
                Chief Executive Officer. Ms. Hambrecht has an ownership interest
                in WR
                Hambrecht + Co. LLC and is a Director of and has voting rights in
                the
                Sarah & William Hambrecht Foundation.




(3)
            Shares
                held by the named stockholder are convertible into 254,062 shares
                of
                Common Stock, subject to adjustment.




(4)
            Includes
                52 shares held by Constellation Venture Capital, LP that are convertible
                to 105,689 shares of Common Stock and 11 shares held by Constellation
                Venture Capital (Offshore), LP that are convertible to 22,357 shares
                of
                Common Stock, all subject to
                adjustment.




(5)
            Shares
                held by the named stockholder are convertible into 126,014 shares
                of
                Common Stock, subject to
                adjustment.




(6)
            Director
                or related to director. Except as indicated in the table above, no
                other
                director or Named Executive Officer beneficially owns shares of
                Series A Preferred Stock.




83




**Series B
      Preferred Stock**




The
      following table sets forth information regarding the beneficial ownership of
      Salon’s Series B Preferred Stock as of March 31, 2007 (a) by each
      stockholder who is known by Salon to be the beneficial owner of more than 5%
      of
      the outstanding shares of Series B Preferred Stock, (b) by each
      director and nominee, (c) by the Named Executive Officers, and (d) by
      all executive officers and directors of Salon as a group.




**Amount
                and****Nature
                of****Beneficial**
            
            **Percent****Name
                and Address of Beneficial Owner (1)**
            
            **Ownership**
            
            **of
                Class**Adobe
                Systems Inc. (2)
            
            125
            
            
            100.0%All
                executive officers and directors as a group (3)
            
            0
            
            
            0.0%





(1)
            Unless
                otherwise noted, the persons named in the table above have sole voting
                and
                investment power with respect to all shares of Preferred Stock shown
                as
                beneficially owned by them, subject to community property laws where
                applicable and to the information contained in the footnotes to this
                table. The address for each beneficial owner is c/o Salon Media Group,
                Inc., 101 Spear Street, Suite 203, San Francisco, CA
                94105.




(2)
            Shares
                held by the named stockholder are convertible into 314,680 shares
                of
                Common Stock, subject to
                adjustment.




(3)
            No
                director or Named Executive Officer beneficially owns shares of
                Series B Preferred Stock. However John Warnock, Salon’s Chairman of
                the Board, is the Co-Chairman of the Board of Adobe Systems Inc.
                and
                disclaims beneficial ownership of the shares of Series B Preferred
                stock
                held by Adobe Systems Inc.




**Series C
      Preferred Stock**




The
      following table sets forth information regarding the beneficial ownership of
      Salon’s Series C Preferred Stock as of March 31, 2007 (a) by each
      stockholder who is known by Salon to be the beneficial owner of more than 5%
      of
      the outstanding shares of Series C Preferred Stock, (b) by each
      director and nominee, (c) by the Named Executive Officers, and (d) by
      all current executive officers and directors of Salon as a group.




**Amount
                and****Nature
                of****Beneficial**
            
            **Percent****Name
                and Address of Beneficial Owner (1)**
            
            **Ownership**
            
            **of
                Class**John
                Warnock (2,7)
            
            3,474
            
            
            52.8%William
                R. Hambrecht (3)
            
            1,456
            
            
            22.1%Shea
                Ventures LLC (4)
            
            825
            
            
            12.5%Elaine
                McKay Family Partnership (5,7)
            
            158
            
            
            2.4%Elizabeth
                Hambrecht (6,7)
            
            31
            
            
            *%All
                executive officers and directors as a group (3 persons)
            
            3,663
            
            
            55.7%





*Less
      than 1%.




(1)
            Unless
                otherwise noted, the persons named in the table above have sole voting
                and
                investment power with respect to all shares of Preferred Stock shown
                as
                beneficially owned by them, subject to community property laws where
                applicable and to the information contained in the footnotes to this
                table. The address for each beneficial owner is c/o Salon Media Group,
                Inc., 101 Spear Street, Suite 203, San Francisco, CA
                94105.




84


(2)
            Shares
                held by the named stockholder are convertible into 3,474,000 shares
                of
                Common Stock, subject to
                adjustment.




(3)
            Mr.
                Hambrecht has an ownership interest in WR Hambrecht + Co., LLC and
                WR
                Hambrecht + Co., Inc. (together the “Hambrecht Entities”) and is the
                Chairman and Chief Executive Officer of those entities. Elizabeth
                Hambrecht, Salon’s President and Chief Executive Officer, has an ownership
                interest in the Hambrecht Entities. Includes 189 shares held by the
                Hambrecht Entities that are convertible to 189,000 shares of Common
                Stock,
                subject to adjustment, 189 shares held by a trust of Mr. Hambrecht
                that
                are convertible to 189,000 shares of Common Stock, subject to adjustment,
                and 108 shares held by the Sarah & William Hambrecht Foundation that
                are convertible to 108,000 shares of Common Stock, subject to adjustment.
                Mr. Hambrecht and Ms. Hambrecht are Directors and have voting rights
                in
                the Sarah & William Hambrecht Foundation. Includes 127 shares held by
                HAMCO Capital that are convertible to 127,000 shares of Common Stock,
                subject to adjustment. Mr. Hambrecht and Elizabeth Hambrecht, both
                have an
                ownership interest in HAMCO Capital. Includes 843 shares held by
                Ironstone
                Group, Inc. that are convertible to 843,000 shares of Common Stock,
                subject to adjustment. Mr. Hambrecht has an ownership interest in
                Ironstone Group, Inc. Mr. Hambrecht disclaims beneficial ownership
                of the
                shares held directly by HAMCO Capital Corporation and Ironstone Group,
                Inc., other than his proportionate ownership interest. Ms. Hambrecht
                disclaims beneficial ownership of the shares held directly by the
                Hambrecht Entities and HAMCO Capital Corporation, other than her
                proportionate ownership interest. Excludes 825 shares held by or
                controlled by Edward Shea that are convertible into 825,000 shares
                of
                Common Stock, subject to adjustment mentioned under item (4). Mr.
                Shea is
                a Director of Ironstone Group, Inc.




(4)
            Includes
                697 shares held by the named stockholder that are convertible into
                697,000
                shares of Common Stock, subject to adjustment. Includes 128 shares
                owned
                by the E&M RP Trust that are convertible into 128,000 shares of Common
                Stock, subject to adjustment.




(5)
            Shares
                held by the named stockholder are convertible into 158,000 shares
                of
                Common Stock, subject to adjustment. Mr. McKay, Director, has an
                ownership
                interest in the Elaine McKay Family Partnership. Mr. McKay is the
                Managing
                Partner of the partnership.




(6)
            Shares
                held by the officer are convertible into 31,000 shares of Common
                Stock.
                Stockholder is the President and Chief Executive Officer of the
                registrant.




(7)
            Current
                director or related to director. Except as indicated in the table
                above,
                no other director or Named Executive Officer beneficially owns shares
                of
                Series C Preferred Stock.




**Series D
      Preferred Stock**




The
      following table sets forth information regarding the beneficial ownership of
      Salon’s Series D-1, D-2, D-3, D-4 and D-5 Preferred Stock (the “Series D
      Preferred Stock”) as of March 31, 2007 (a) by each stockholder who is known
      by Salon to be the beneficial owner of more than 5% of the outstanding shares
      of
      Series D Preferred Stock, (b) by each director and nominee,
      (c) by the Named Executive Officers, and (d) by all current executive
      officers and directors of Salon as a group.




**Amount
                and****Nature
                of****Beneficial**
            
            **Percent****Name
                and Address of Beneficial Owner(1)**
            
            **Ownership**
            
            **of
                Class**John
                Warnock (2,6)
            
            874
            
            
            48.7%William
                R. Hambrecht (3)
            
            355
            
            
            19.8%Elizabeth
                Hambrecht (4,6)
            
            334
            
            
            18.6%Nancy
                & Timothy Armstrong (5)
            
            209
            
            
            11.7%All
                executive officers and directors as a group (2 persons)
                (6)
            
            1,218
            
            
            67.9%




85


(1)
            Unless
                otherwise noted, the persons named in the table above have sole voting
                and
                investment power with respect to all shares of Preferred Stock shown
                as
                beneficially owned by them, subject to community property laws where
                applicable and to the information contained in the footnotes to this
                table. The address for each beneficial owner is c/o Salon Media Group,
                Inc., 101 Spear Street, Suite 203, San Francisco, CA
                94105.




(2)
            Shares
                held by the named stockholder, who is the Chairman of the Board of Salon,
                are convertible into 648,437 shares of Common Stock, subject to
                adjustment.




(3)
            Mr.
                Hambrecht is the father Elizabeth Hambrecht, Salon’s President and Chief
                Executive Officer. Includes 292 shares held by a trust of the stockholder
                that are convertible to 179,985 shares of common stock, subject to
                adjustment. Includes 63 shares held by HAMCO Capital Corporation
                that are
                convertible to 38,984 shares of common stock, subject to adjustment.
                Mr.
                Hambrecht and Elizabeth Hambrecht, both have an ownership interest
                in
                HAMCO Capital. Mr. Hambrecht disclaims beneficial ownership of the
                shares
                held directly by HAMCO Capital Corporation other than his proportionate
                ownership interest. Ms. Hambrecht disclaims beneficial ownership
                of the
                shares held directly by HAMCO Capital Corporation other than her
                proportionate ownership interest.




(4)
            Shares
                held by the Officer are convertible into 199,162 shares of Common
                Stock,
                subject to adjustment.




(5)
            Shares
                held by the named stockholder are convertible into 136,168 shares
                of
                Common Stock, subject to
                adjustment.




(6)
            Current
                director or related to director. Except as indicated in the table
                above,
                no other director or Named Executive Officer beneficially owns shares
                of
                Series D Preferred Stock.




86


**ITEM
      13. Certain Relationships and Related Transactions**





On
      October 10, 2000, Salon loaned its former Chairman $75,179 with an agreed 6.3%
      annual interest rate with no due date. During the year ended March 31, 2007,
      the
      balance of the principal of $48,016 was paid off in its entirety, as well as
      $1,480 of interest.




During
      the year ended March 31, 2007, the following warrants were exercised by related
      parties:





**Exercise****Issue**
              **Date**
            **Exercise**
              **Date**
            **Warrant
                Holder**
            **Warrant**
              **Shares**
            **Price
                per**
              **share**
            
            **Cash**
              **Received**04/10/03
            04/05/06
            John
                Warnock (1)
            15,000
            $0.834
            $
            12,50604/29/03
            04/05/06
            John
                Warnock (1)
            15,000
            $0.901
            
            13,51808/09/01
            05/11/06
            Sarah
                & William Hambrecht Foundation (2)
            30,000
            $2.188
            
            65,65206/12/03
            05/11/06
            The
                Hambrecht 1980 Revocable Trust (3)
            7,500
            $0.901
            
            6,75906/12/03
            05/11/06
            WR
                Hambrecht + Co LLC (4)
            7,500
            $0.901
            
            6,75907/10/03
            05/11/06
            HAMCO
                Capital Corporation (5)
            7,500
            $0.834
            
            6,25311/24/03
            05/11/06
            HAMCO
                Capital Corporation (5)
            7,500
            $0.901
            
            6,75902/10/04
            05/11/06
            The
                Hambrecht 1980 Revocable Trust (3)
            15,000
            $0.690
            
            10,35006/04/04
            05/11/06
            HAMCO
                Capital Corporation (5)
            4,064
            $2.748
            
            11,17106/04/04
            05/11/06
            The
                Hambrecht 1980 Revocable Trust (3)
            14,129
            $2.748
            
            38,83302/02/05
            05/11/06
            HAMCO
                Capital Corporation (5)
            1,718
            $3.220
            
            5,53202/02/05
            05/11/06
            The
                Hambrecht 1980 Revocable Trust (3)
            15,381
            $3.220
            
            49,52905/28/03
            05/12/06
            John
                Warnock (1)
            45,000
            $0.901
            
            40,55307/10/03
            05/12/06
            John
                Warnock (1)
            15,000
            $0.833
            
            12,50607/30/03
            05/12/06
            John
                Warnock (1)
            15,000
            $0.690
            
            10,35008/29/03
            05/12/06
            John
                Warnock (1)
            15,000
            $0.690
            
            10,35009/12/03
            05/12/06
            John
                Warnock (1)
            15,000
            $0.901
            
            13,51809/29/03
            05/12/06
            John
                Warnock (1)
            15,000
            $1.036
            
            15,54210/10/03
            05/12/06
            John
                Warnock (1)
            15,000
            $0.901
            
            13,51810/30/03
            05/12/06
            John
                Warnock (1)
            15,000
            $0.901
            
            13,51811/12/03
            05/12/06
            John
                Warnock (1)
            15,000
            $0.969
            
            14,53011/24/03
            05/12/06
            John
                Warnock (1)
            15,000
            $0.901
            
            13,51812/11/03
            05/12/06
            John
                Warnock (1)
            15,000
            $0.901
            
            13,51812/30/03
            05/12/06
            John
                Warnock (1)
            75,000
            $0.690
            
            51,75012/31/03
            05/12/06
            John
                Warnock (1)
            15,000
            $0.690
            
            10,35008/09/01
            06/29/06
            John
                Warnock (1)
            50,000
            $2.188
            
            109,41908/09/01
            08/08/06
            WR
                Hambrecht + Co LLC (4)
            20,000
            $2.188
            
            43,76808/29/03
            08/29/06
            Eu
                Revocable Trust (6)
            3,750
            $0.690
            
            2,587Total
                exercised
            499,042
            
            $
            622,916





(1)
            John
                Warnock is the Chairman of the Board of Directors of
                Salon.


(2)
            Elizabeth
                Hambrecht, Salon’s CEO and President and her father, William Hambrecht,
                have voting rights in the Sarah and William Hambrecht
                Foundation.


(3)
            The
                Hambrecht 1980 Revocable Trust is a trust of William Hambrecht, the
                father
                of Salon’s CEO and President.


(4)
            William
                Hambrecht is the Chairman and Chief Executive Officer of WR Hambrecht
                +
                Co. LLC. Elizabeth Hambrecht has a pecuniary interest in WR Hambrecht
                +
                Co. LLC.


(5)
            William
                Hambrecht and Elizabeth Hambrecht have an ownership interest in HAMCO
                Capital Corporation.


(6)
            The
                Eu Revocable Trust is for the benefit of Elizabeth
                Hambrecht.





87





During
      the year ended March 31, 2007, warrants for 92,300 shares of common stock were
      converted by related parties to 57,741 shares of common stock for which Salon
      did not receive any consideration under the net exercise provisions of the
      warrants, as follows:





**Exercise****Issue**
              **Date**
            **Exercise**
              **Date**
            **Warrant
                Holder**
            **Warrant**
              **Shares**
            **Price
                per**
              **share**
            **Converted**
              **Shares**04/10/03
            04/04/06
            Ironstone
                Group, Inc (1)
            15,000
            $0.834
            12,76604/29/03
            04/25/06
            Ironstone
                Group, Inc (1)
            15,000
            $0.901
            12,18310/06/03
            05/11/06
            Ironstone
                Group, Inc (1)
            15,000
            $1.036
            10,90910/30/03
            05/11/06
            Ironstone
                Group, Inc (1)
            7,500
            $0.901
            5,72108/09/01
            08/09/06
            McKay
                Investment Group (2)
            24,800
            $2.188
            7,84002/10/04
            02/07/07
            WR
                Hambrecht + Co Inc. (3)
            15,000
            $0.690
            8,322Total
                converted
            92,300
            
            57,741




(1)
            William
                Hambrecht has an ownership interest in Ironstone Group,
                Inc.


(2)
            Salon
                Director Robert McKay is the managing partner of the McKay Investment
                Group.


(3)
            William
                Hambrecht is the Chairman and Chief Executive Officer of WR Hambrecht
                +
                Co. Inc. Elizabeth Hambrecht has a pecuniary interest in WR Hambrecht
                +
                Co. Inc.





During
      the year ended March 31, 2007, the following related parties purchased shares
      of
      Salon’s Series D preferred stock:




Series
                D
            
            Cash
            
            Shares
            
            WarrantsPurchaser
            
            Date
            
            Subclass
            
            Received
            
            Issued
            
            IssuedThe
                Hambrecht 1980 Revocable Trust (2)
            
            07/27/06
            
            D-3
            
            $150,000
            
            125
            
            9,097John
                Warnock (1)
            
            07/27/06
            
            D-3
            
            99,600
            
            83
            
            6,040John
                Warnock (1)
            
            07/27/06
            
            D-4
            
            50,400
            
            42
            
            3,056The
                Hambrecht 1980 Revocable Trust (2)
            
            09/21/06
            
            D-4
            
            200,400
            
            167
            
            17,599John
                Warnock (1)
            
            09/21/06
            
            D-4
            
            199,200
            
            166
            
            17,494John
                Warnock (1)
            
            12/15/06
            
            D-4
            
            50,400
            
            42
            
            8,244John
                Warnock (1)
            
            12/15/06
            
            D-5
            
            150,000
            
            125
            
            24,536$900,000
            
            750
            
            86,066




(1)
            John
                Warnock is the Chairman of the Board of Directors of
                Salon.


(2)
            The
                Hambrecht 1980 Revocable Trust is a trust of William Hambrecht, the
                father
                of Salon’s CEO and President.





In
      November 2006, William Hambrecht, the father of Salon’s CEO and President sold
      to her in a private transaction 146 shares of Series D-1 preferred stock and
      188
      shares of Series D-2 preferred stock.





**Policies
      with Respect to Review, Approval or Ratification of Transactions with Related
      Persons**





Salon
      has
      relied on cash infusion from related persons to meet cash operating needs from
      the year ended March 31, 2003 through the year ended March 31, 2007.  During
      this period of inadequate cash, the Board of Directors approved related
      person transactions after full disclosure of the interests of related
      parties.  Subsequent to March 31, 2007, Salon’s Audit Committee will
      separately review, approve and/or




88


ratify
      all related party transactions, as the Audit Committee is empowered to
      do under Salon's Audit Committee Charter.





Salon
      has
      disclosed in filings with the Securities and Exchange Commission (SEC) all
      related party transactions. The SEC defines a related party transaction to
      include any transaction, arrangement or relationship in which Salon is a
      participant and in which any of the following persons has or will have a direct
      or indirect material interest:





·
            An
                executive officer, director or director nominee of
                Salon;


·
            Any
                person who is known to be the beneficial owner of more than 5% of
                Salon’s
                common stock;


·
            Any
                person who is an immediate family member of an executive officer,
                director
                or director nominee of Salon or beneficial owner of more than 5%
                of
                Salon’s common stock;


·
            Any
                firm, corporation or other entity in which any of the foregoing persons
                is
                employed or is a partner or principal or in a similar position or
                in which
                such person, together with any other of the foregoing, has a 5% or
                greater
                beneficial interest.








**ITEM
      14. Principal Accountant Fees and Services**





Burr,
      Pilger & Mayer LLP is Salon’s independent registered accountant. The
      aggregate audit fees billed by Burr, Pilger & Mayer LLP for the years ended
      March 31, 2006 and March 31, 2007 were $54,075 and $85,241 respectively. Burr,
      Pilger & Mayer LLP did not perform any services for which Salon incurred
      fees for audit-related fees, tax fees, or other fees, nor did any other such
      firm.





During
      the year ended March 31, 2007, all audit fees were pre-approved by the Audit
      Committee. The Audit Committee has adopted a policy that it must pre-approve
      all
      fees for audit services, tax services and other services.





89


**PART
      IV**





**ITEM
      15. Exhibits, Financial Statement Schedules, and Reports on Form
      8-K**





1.
            Financial
                Statements





The
      information concerning Salon’s financial statements and the Report of Burr,
      Pilger & Mayer LLP, Salon’s Independent Auditors required by this item are
      incorporated by reference herein to the section of this Report in Item 8,
      entitled “Financial Statements and Supplementary Data.”





2.
            Financial
                Statement Schedules





None.





3.
            Exhibits





The
      following Exhibits are filed as part of, or incorporated by reference into,
      this
      Report.





**Exhibit****Number**
            
            **Description
                of Document**2.1(7)
            
            Agreement
                and Plan of Reorganization dated as of May 5, 2000, among Salon.com,
                a
                Delaware corporation, Target Acquisition Corporation, a Delaware
                corporation and wholly-owned subsidiary of Salon, MP3Lit.com, a Nevada
                corporation and Gary Hustwit, Valerie Hustwit and William
                Hustwit.3.2(3)
            
            Restated
                Certificate of Incorporation of Salon as of June 17, 1999 with Certificate
                of Amendment of Article Fourth as of June 24, 1999.3.3.1
                (40)
            
            Certificate
                of Amendment to Restated Certificate of Incorporation, dated as of
                November 19, 2004.3.4(3)
            
            Form
                of Bylaws of Salon adopted June 24, 1999.3.4(10)
            
            Certificate
                of Designation of Preferences and Rights of the Series A Preferred
                Stock
                dated as of August 8, 2001.3.4.1(12)
            
            Certificate
                of Designation of Preferences and Rights of the Series B Preferred
                Stock,
                dated as of February 8, 2002.3.4.2(36)
            
            Certificate
                of Designation of Preferences and Rights of the Series C Preferred
                Stock,
                dated as of December 23, 2003.3.4.3(38)
            
            Certificate
                of Designation of Preferences and Rights of the Series D-1 Preferred
                Stock, Series D-2 Preferred Stock, Series D-3 Preferred Stock, Series
                D-4
                Preferred Stock and Series D-5 Preferred Stock dated as of June 1,
                2004.4.1(1)
            
            Third
                Amended and Restated Rights Agreement dated April 14,
                1999.4.1(8)
            
            Fourth
                Amended and Restated Rights Agreement dated January 12,
                2000.4.2(1)
            
            Second
                Amended and Restated Voting Agreement dated April 14,
                1999.4.2(5)
            
            Bylaws
                of the Company are incorporated by reference to Exhibit 3.4 to the
                Company’s Registration Statement on Form
                S-1.




90


4.2.1(10)
            
            Securities
                Purchase Agreement dated as of August 9, 2001 between Salon Media
                Group,
                Inc. and the Purchasers listed on Exhibit A attached
                thereto.4.2.2(10)
            
            Securities
                Rights Agreement dated as of August 9, 2001 between Salon Media Group,
                Inc. and the Purchasers listed on Exhibit A attached
                thereto.4.2.3(10)
            
            Form
                of Common Stock Purchase Warrant dated August 9, 2001 issued by Salon
                Media Group, Inc.4.2.4(11)
            
            Securities
                Purchase Agreement dated as of September 13, 2001 between Salon Media
                Group, Inc. and the Purchasers listed on Exhibit A attached
                thereto.4.2.5(11)
            
            Securities
                Rights Agreement dated as of September 13, 2001 between Salon Media
                Group,
                Inc. and the Purchasers listed on Exhibit A attached
                thereto.4.2.6(11)
            
            Form
                of Common Stock Purchase Warrant dated September 13, 2001 issued
                by Salon
                Media Group, Inc.4.2.7(12)
            
            Securities
                Purchase Agreement dated as of February 14, 2002 between Salon Media
                Group, Inc. and Adobe Systems Incorporated.4.2.8(12)
            
            Securities
                Rights Agreement dated as of February 14, 2002 between Salon Media
                Group,
                Inc. and Adobe Systems Incorporated.4.2.9(12)
            
            Form
                of Common Stock Purchase Warrant dated February 14, 2002 issued by
                Salon
                Media Group, Inc.4.2.10(13)
            
            Note
                and Warrant Purchase Agreement dated as of July 24,
                2002.4.2.11(13)
            
            Form
                of Convertible Promissory Note, dated July 24, 2002 issued by Salon
                Media
                Group, Inc.4.2.12(13)
            
            Form
                of Common Stock Purchase Warrant, dated July 24, 2002 issued by Salon
                Media Group, Inc.4.2.13(14)
            
            Note
                dated as of October 3, 2002.4.2.14(15)
            
            Note
                and Warrant Purchase Agreement dated as of December 18,
                2002.4.2.15(15)
            
            Form
                of Convertible Promissory Note, dated December 18, 2002 issued by
                Salon
                Media Group, Inc.4.2.16(15)
            
            Form
                of Common Stock Purchase Warrant, dated December 18, 2002 issued
                by Salon
                Media Group, Inc.4.2.17(16)
            
            Note
                and Warrant Purchase Agreement dated as of January 26,
                2003.4.2.18(16)
            
            Form
                of Convertible Promissory Note, dated January 26, 2003 issued by
                Salon
                Media Group, Inc.4.2.19(16)
            
            Form
                of Common Stock Purchase Warrant, dated January 26, 2003 issued by
                Salon
                Media Group, Inc.4.2.20(17)
            
            Note
                and Warrant Purchase Agreement dated as of February 11,
                2003.4.2.21(17)
            
            Form
                of Convertible Promissory Note, dated February 11, 2003 issued by
                Salon
                Media Group, Inc.4.2.22(17)
            
            Form
                of Common Stock Purchase Warrant, dated February 11, 2003 issued
                by Salon
                Media Group, Inc.4.2.23(18)
            
            Form
                of Note and Warrant Purchase Agreement used during March
                2003.4.2.24(18)
            
            Form
                of Convertible Promissory Note used during March 2003 by Salon Media
                Group, Inc.




91


4.2.25(18)
            
            Form
                of Common Stock Purchase Warrant used during March 2003 by Salon
                Media
                Group, Inc.4.2.26(19)
            
            Note
                and Warrant Purchase Agreement dated April 10, 2003.4.2.27(19)
            
            Convertible
                Promissory Note dated April 10, 2003 by Salon Media Group,
                Inc.4.2.28(19)
            
            Common
                Stock Purchase Warrant dated April 10, 2003 by Salon Media Group,
                Inc.4.2.29(20)
            
            Note
                and Warrant Purchase Agreement dated April 29, 2003.4.2.30(20)
            
            Convertible
                Promissory Note dated April 29, 2003 by Salon Media Group,
                Inc.4.2.31(20)
            
            Common
                Stock Purchase Warrant dated April 29, 2003 by Salon Media Group,
                Inc.4.2.32(21)
            
            Note
                and Warrant Purchase Agreement dated May 28, 2003.4.2.33(21)
            
            Convertible
                Promissory Note dated May 28, 2003 by Salon Media Group,
                Inc.4.2.34(21)
            
            Common
                Stock Purchase Warrant dated May 28, 2003 by Salon Media Group,
                Inc.4.2.35(22)
            
            Note
                and Warrant Purchase Agreement dated June 12, 2003.4.2.36(22)
            
            Convertible
                Promissory Note dated June 12, 2003 by Salon Media Group,
                Inc.4.2.37(22)
            
            Common
                Stock Purchase Warrant dated June 12, 2003 by Salon Media Group,
                Inc.4.2.38(23)
            
            Note
                and Warrant Purchase Agreement dated June 26, 2003.4.2.39(23)
            
            Convertible
                Promissory Note dated June 26, 2003 by Salon Media Group,
                Inc.4.2.40(23)
            
            Common
                Stock Purchase Warrant dated June 26, 2003 by Salon Media Group,
                Inc.4.2.41(25)
            
            Note
                and Warrant Purchase Agreement dated July 10, 2003.4.2.42(25)
            
            Convertible
                Promissory Note dated July 10, 2003 by Salon Media Group,
                Inc.4.2.43(25)
            
            Common
                Stock Purchase Warrant dated July 10, 2003 by Salon Media Group,
                Inc.4.2.44(26)
            
            Note
                and Warrant Purchase Agreement dated July 30, 2003.4.2.45(26)
            
            Convertible
                Promissory Note dated July 30, 2003 by Salon Media Group,
                Inc.4.2.46(26)
            
            Common
                Stock Purchase Warrant dated July 30, 2003 by Salon Media Group,
                Inc.4.2.47(27)
            
            Note
                and Warrant Purchase Agreement dated September 12,
                2003.4.2.48(27)
            
            Convertible
                Promissory Note dated September 12, 2003 by Salon Media Group,
                Inc.4.2.49(27)
            
            Common
                Stock Purchase Warrant dated September 12, 2003 by Salon Media Group,
                Inc.4.2.50(28)
            
            Note
                and Warrant Purchase Agreement dated September 29,
                2003.4.2.51(28)
            
            Convertible
                Promissory Note dated September 29, 2003 by Salon Media Group,
                Inc.4.2.52(28)
            
            Common
                Stock Purchase Warrant dated September 29, 2003 by Salon Media Group,
                Inc.4.2.53(28)
            
            Note
                and Warrant Purchase Agreement dated October 6, 2003.4.2.54(28)
            
            Convertible
                Promissory Note dated October 6, 2003 by Salon Media Group,
                Inc.4.2.55(28)
            
            Common
                Stock Purchase Warrant dated October 6, 2003 by Salon Media Group,
                Inc.4.2.56(29)
            
            Note
                and Warrant Purchase Agreement dated October 10, 2003.4.2.57(29)
            
            Convertible
                Promissory Note dated October 10, 2003 by Salon Media Group,
                Inc.4.2.58(29)
            
            Common
                Stock Purchase Warrant dated October 10, 2003 by Salon Media Group,
                Inc.4.2.59(30)
            
            Note
                and Warrant Purchase Agreement dated October 30,
                2003.


92





4.2.60(30)
            
            Convertible
                Promissory Note dated October 30, 2003 by Salon Media Group, Inc.
                with
                Ironstone Group, Inc.4.2.61(30)
            
            Common
                Stock Purchase Warrant dated October 30, 2003 by Salon Media Group,
                Inc.
                with Ironstone Group, Inc.4.2.62(30)
            
            Convertible
                Promissory Note dated October 30, 2003 by Salon Media Group, Inc.
                with
                John Warnock.4.2.63(30)
            
            Common
                Stock Purchase Warrant dated October 30, 2003 by Salon Media Group,
                Inc.
                with John Warnock.4.2.64(30)
            
            Note
                and Warrant Purchase Agreement dated November 12, 2003.4.2.65(30)
            
            Convertible
                Promissory Note dated November 12, 2003 by Salon Media Group,
                Inc.4.2.66(30)
            
            Common
                Stock Purchase Warrant dated November 12, 2003 by Salon Media Group,
                Inc.4.2.67(31)
            
            Note
                and Warrant Purchase Agreement dated November 24, 2003.4.2.68(31)
            
            Convertible
                Promissory Note dated November 24, 2003 by Salon Media Group, Inc.
                and
                John Warnock.4.2.69(31)
            
            Common
                Stock Purchase Warrant dated November 24, 2003 by Salon Media Group,
                Inc.
                for John Warnock.4.2.70(31)
            
            Convertible
                Promissory Note dated November 24, 2003 by Salon Media Group, Inc.
                and
                HAMCO Capital Corporation.4.2.71(31)
            
            Common
                Stock Purchase Warrant dated November 24, 2003 by Salon Media Group,
                Inc.
                for HAMCO Capital Corporation.4.2.72(32)
            
            Note
                and Warrant Purchase Agreement dated December 10, 2003.4.2.73(32)
            
            Convertible
                Promissory Note dated December 10, 2003 by Salon Media Group, Inc.
                and
                Wenner Media LLC.4.2.74(32)
            
            Common
                Stock Purchase Warrant dated December 10, 2003 by Salon Media Group,
                Inc.
                for Wenner Media LLC.4.2.75(32)
            
            Note
                and Warrant Purchase Agreement dated December 11, 2003.4.2.76(32)
            
            Convertible
                Promissory Note dated December 10, 2003 by Salon Media Group, Inc.
                and
                John Warnock.4.2.77(32)
            
            Common
                Stock Purchase Warrant dated December 10, 2003 by Salon Media Group,
                Inc.
                for John Warnock.4.2.78(36)
            
            Securities
                Purchase Agreement dated as of December 30, 2003 between Salon MediaGroup,
                Inc. and the Purchasers listed on the Schedule of Purchasers attached
                thereto.4.2.79(36)
            
            Form
                of Common Stock Purchase Warrant dated December 30, 2003 issued by
                Salon
                Media Group, Inc.4.2.80(37)
            
            Securities
                Purchase Agreement dated as of February 10, 2004 between Salon Media
                Group, Inc. and the Purchasers listed on the Schedule of Purchasers
                attached thereto.4.2.81(37)
            
            Form
                of Common Stock Purchase Warrant dated February 10, 2004 issued by
                Salon
                Media Group, Inc.4.2.82(38)
            
            Securities
                Purchase Agreement dated as of June 4, 2004 between Salon Media Group,
                Inc. and the Purchasers listed on the Schedule of Purchasers attached
                thereto.4.2.83(38)
            
            Form
                of Common Stock Purchase Warrant dated June 4, 2004 issued by Salon
                Media
                Group, Inc.4.2.84(39)
            
            Amendment
                No. 1 to Securities Purchase Agreement dated as of September 30,
                2004.




93


4.2.85(39)
            
            Common
                Stock Purchase Warrant dated September 30, 2004 issued by Salon Media
                Group, Inc.4.2.86(43)
            
            Amendment
                No. 2 to Securities Purchase Agreement dated as of February 2,
                2005.4.2.87(43)
            
            Form
                of Common Stock Purchase Warrant dated February 2, 2005 issued by
                Salon
                Media Group, Inc.4.2.88(45)
            
            Amendment
                No. 3 to Securities Purchase Agreement dated November 9,
                2005.4.2.89(46)
            
            Amendment
                No. 4 to Securities Purchase Agreement dated December 21,
                2005.4.2.90(46)
            
            Common
                Stock Purchase Warrant dated December 21, 2005 issued by Salon Media
                Group, Inc.4.2.91(48)
            
            Amendment
                No. 5 to Securities Purchase Agreement dated July 27,
                2006.4.2.92(48)
            
            Common
                Stock Purchase Warrant dated July 27, 2006 issued by Salon Media
                Group,
                Inc. to The Hambrecht 1980 Revocable Trust.4.2.93(48)
            
            Common
                Stock Purchase Warrant dated July 27, 2006 issued by Salon Media
                Group,
                Inc. to John E. and Marva M. Warnock.4.2.94(48)
            
            Common
                Stock Purchase Warrant dated July 27, 2006 issued by Salon Media
                Group,
                Inc. to John E. and Marva M. Warnock.4.2.95(49)
            
            Amendment
                No. 6 to Securities Purchase Agreement dated September 21,
                2006..4.2.96(49)
            
            Common
                Stock Purchase Warrant dated September 21, 2006 issued by Salon Media
                Group, Inc. to The Hambrecht 1980 Revocable Trust.4.2.97(49)
            
            Common
                Stock Purchase Warrant dated September 21, 2006 issued by Salon Media
                Group, Inc. to John E. and Marva M. Warnock.4.2.98(50)
            
            Amendment
                No. 7 to Securities Purchase Agreement dated December 18,
                2006..4.2.99(50)
            
            Common
                Stock Purchase Warrant dated December 18, 2006 issued by Salon Media
                Group, Inc. to John E. and Marva M. Warnock.4.2.100(50)
            
            Common
                Stock Purchase Warrant dated December 18, 2006 issued by Salon Media
                Group, Inc. to John E. and Marva M. Warnock.5.0
                (41)
            
            Legal
                opinion filed by DLA Piper Rudnick Gray Cary US LLP dated January
                14,
                2005.10.0(4)
            
            Commercial
                Office Lease between Pacific Resources PCX Development, Inc. and
                Salon
                dated July 9, 1999.10.0(6)
            
            Rainbow
                Media Holdings, Inc. Stock Purchase Agreement dated December 3,
                1999.10.1(1)
            
            1995
                Stock Option Plan.10.1(6)
            
            Bravo
                Website Agreement dated January 12, 2000.10.2(2)
            
            1999
                Employee Stock Purchase Plan.10.2(6)
            
            Bravo
                Production Agreement dated January 12, 2000.10.3(1)
            
            Form
                of Indemnity Agreement.10.4(1)
            
            Commercial
                Office Lease between T/W Associates and Salon dated June 25,
                1997.10.6(1)
            
            Employment
                Agreement between Michael O’Donnell and Salon dated November 7,
                1996.10.6(9)
            
            Employment
                Agreement between Robert O’Callahan and Salon dated June 26,
                2000.10.9(1)
            
            Warrant
                to Purchase Stock issued to Imperial Bancorp dated December 17,
                1998.10.10(1)
            
            Warrant
                to Purchase Stock issued to Imperial Bank dated April 13,
                1998.10.11(1)
            
            Warrant
                to Purchase Stock issued to Imperial Bankcorp dated April 14,
                1997.10.12(1)
            
            Warrant
                to Purchase Stock issued to America Online Inc. dated July 31,
                1998.10.13(1)
            
            Warrant
                to Purchase Stock issued to Adobe Ventures II L.P. dated September
                18,
                1998.




94


10.14(1)
            
            Warrant
                to Purchase Stock issued to ASCII Ventures dated September 18,
                1998.10.15(1)
            
            Warrant
                to Purchase Stock issued to H&Q Salon Investors, L.P. dated September
                18, 1998.10.16(2)
            
            Warrant
                to Purchase Stock issued to Daiwa Securities America Inc. dated April
                14,
                1999.10.17(2)
            
            Warrant
                to Purchase Stock issued to ACT III Communications dated April 14,
                1999.10.18(9)
            
            Amendment
                No. 2 To Anchor Tenant Agreement between America Online, Inc. and
                Salon.10.19(1)
            
            Series
                A Preferred Stock Purchase Agreement dated December 22,
                1995.10.20(1)
            
            First
                Amendment to the Series A Preferred Stock Purchase Agreement dated
                August
                2, 1996.10.21(1)
            
            Second
                Amendment to the Series A Preferred Stock Purchase Agreement dated
                February 6, 1997.10.22(1)
            
            Series
                B Preferred Stock Purchase Agreement dated November 28,
                1997.10.23(1)
            
            Series
                C Preferred Stock Purchase Agreement dated September 18,
                1998.10.24(1)
            
            Series
                C Preferred Stock Purchase Agreement dated April 14,
                1999.10.25(2)
            
            Warrant
                to Purchase Stock issued to Chatsworth Securities LLC dated April
                14,
                1999.10.26(24)
            
            Amended
                Office Lease between Salon’s San Francisco landlord and Salon dated June
                24, 2003.10.27(33)
            
            Amended
                Office Lease between Salon’s San Francisco landlord and Salon dated
                December 31, 2003.10.28(42)
            
            Office
                Lease between BRE/Rincon II Leasehold L.L.C. and Salon Media Group,
                Inc.
                dated January 13, 2005.10.29
                (44)
            
            Salon
                Media Group, Inc. 2004 Stock Plan.10.30
                (44)
            
            Form
                of the Salon Media Group, Inc. Notice of Grant of Stock Option and
                Stock
                Option Agreement.10.31(44)
            
            Salon
                Media Group, Inc. Non-Plan Stock Option Agreement with David
                Talbot10.32(47)
            
            Employment
                Agreement with Christopher Neimeth10.33(47)
            
            Salon
                Media Group, Inc. Non-Plan Stock Option Agreement with Christopher
                Neimeth16.1
                (34)
            
            Letter
                from PricewaterhouseCoopers LLP to the Securities and Exchange
                Commission.16.2
                (35)
            
            Letter
                from PricewaterhouseCoopers LLP to the Securities and Exchange
                Commission.21.1(8)
            
            Subsidiaries
                of Salon.23.2
                (41)
            
            Consent
                of PricewaterhouseCoopers LLP, Independent Registered Public Accounting
                Firm dated January 13, 2005.23.3
                (41)
            
            Consent
                of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting
                Firm dated January 12, 2005.23.1
            
            Consent
                of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting
                Firm.24.1(1)
            
            Power
                of Attorney (included on page II-5).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.


95





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.**Footnote**
            
            **Footnote
                Description**1
            
            Incorporated
                by reference to the exhibit filed with Salon’s Registration Statement
                report on Form S-1 filed on April 19, 1999.2
            
            Incorporated
                by reference to the exhibit filed with Salon’s Registration Statement
                report on Form S-1/A filed on May 27, 1999.3
            
            Incorporated
                by reference to the exhibit filed with Salon’s Registration Statement
                report on Form S-1/A filed on June 18, 1999.4
            
            Incorporated
                by reference to the exhibit filed with Salon’s Quarterly Report on Form
                10-Q filed on August 16, 1999.5
            
            Incorporated
                by reference to the exhibit filed with Salon’s Registration Statement
                report on Form S-8 filed on September 8, 1999.6
            
            Incorporated
                by reference to the exhibit filed with Salon’s Quarterly Report on Form
                10-Q filed on February 14, 2000.7
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on May 22, 2000.8
            
            Incorporated
                by reference to the exhibits filed with Salon’s Annual Report on Form
                10-K405 filed on June 30, 2000.9
            
            Incorporated
                by reference to the exhibit filed with Salon’s Quarterly Report on Form
                10-Q filed on November 13, 2000.10
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on August 20, 2001.11
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on September 25, 2001.12
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on March 13, 2002.13
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on July 29, 2002.14
            
            Incorporated
                by reference to the exhibit filed with Salon’s Current Report on Form 8-K
                filed on October 15, 2002.15
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on December 30, 2002.16
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on February 11, 2003.




96


17
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on February 24, 2003.18
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on March 28, 2003.19
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on April 22, 2003.20
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on May 12, 2003.21
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on June 10, 2003.22
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on June 27, 2003.23
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on July 11, 2003.24
            
            Incorporated
                by reference to the exhibit filed with Salon’s Quarterly Report on Form
                10-Q filed on August 11, 2003.25
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on July 25, 2003.26
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on August 7, 2003.27
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on September 29, 2003.28
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on October 14, 2003.29
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on October 27, 2003.30
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on November 14, 2003.31
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on December 9, 2003.32
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on December 24, 2003.33
            
            Incorporated
                by reference to the exhibit filed with Salon’s Quarterly Report on Form
                10-Q filed on February 6, 2004.34
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on November 17, 2003.35
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on November 26, 2003.36
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on January 14, 2004.37
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on February 25, 2004.




97


38
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on June 16, 2004.39
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on October 6, 2004.40
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on December 13, 2004.41
            
            Incorporated
                by reference to the exhibits filed with Salon’s Registration Statement on
                Form S-8 filed on January 14, 2005.42
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on January 19, 2005.43
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on February 4, 2005.44
            
            Incorporated
                by reference to the exhibits filed with Salon’s Annual Report on Form 10-K
                filed on June 29, 2005.45
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on November 10, 2005.46
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on December 22, 2005.47
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on June 9, 2006.48
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on July 31, 2006.49
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on September 26, 2006.50
            
            Incorporated
                by reference to the exhibits filed with Salon’s Current Report on Form 8-K
                filed on December 20, 2006.





98


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities and 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.








By : /s/
      Elizabeth Hambrecht


Elizabeth
      Hambrecht


President
      and Chief Executive Officer







**POWER
      OF ATTORNEY**




**KNOW
      ALL PERSONS BY THESE PRESENTS,** that
      each person whose signature appears below constitutes and appoints Elizabeth
      Hambrecht, and each or any one of them, his true and lawful attorney-in-fact
      and
      agent, with full power of substitution and resubstitution, for her and in her
      name, place and stead, in any and all capacities, to sign any and all amendments
      to this Annual Report on Form 10-K, and to file the same, with all exhibits
      thereto, and other documents in connection therewith, with the Commission,
      granting unto said attorneys-in-fact and agents, and each of them, full power
      and authority to do and perform each and every act and thing requisite and
      necessary to be done in connection therewith, as fully to all intents and
      purposes as he might or could do in person, hereby ratifying and confirming
      our
      signatures as they may be signed by ours said attorney-in-fact and any and
      all
      amendments to this Annual Report on Form 10-K.





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.




Signature
            
            Title
            
            Date/s/
                Elizabeth Hambrecht
            
            President
                and Chief Executive Officer,
            
            June
                27, 2007Elizabeth
                Hambrecht
            
            and
                Director(Principal
                Executive Officer)/s/
                Conrad Lowry
            
            Chief
                Financial Officer and Secretary
            
            June
                27, 2007Conrad
                Lowry
            
            (Principal
                Financial Officer)/s/
                Deepak Desai
            
            Director
            
            June
                27, 2007Deepak
                Desai





99


/s/
                Robert Ellis
            
            Director
            
            June
                27, 2007Robert
                Ellis/s/
                George Hirsch
            
            Director
            
            June
                27, 2007George
                Hirsch/s/
                Robert McKay
            
            Director
            
            June
                27, 2007Robert
                McKay/s/
                James Rosenfield
            
            Director
            
            June
                27, 2007James
                H. Rosenfield/s/
                David Talbot
            
            Director
            
            June
                27, 2007David
                Talbot/s/
                John Warnock
            
            Chairman
                of the Board, Director
            
            June
                27, 2007John
                Warnock






100