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

                       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, 2006
                                       or
     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
               For the transition period from ________ to ________
                         Commission file number 0-26395

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

                Delaware                            94-3228750
        (State 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 [X] No [ ]

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. [ X]

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $1,279,000 based on the closing sale price of the
registrant's common stock on September 30, 2005, 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 23, 2006 was 29,988,439 shares.

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<PAGE>

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FORM 10-K
SALON MEDIA GROUP, INC.
INDEX
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                                                                           Page
PART I                                                                    Number

ITEM 1.    Business........................................................   4

ITEM 1A.   Risk Factors....................................................  13

ITEM 1B.   Unresolved Staff Comments.......................................  23

ITEM 2.    Properties......................................................  23

ITEM 3.    Legal Proceedings...............................................  23

ITEM 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.............................................  24

ITEM 6.    Selected Consolidated Financial Data............................  25

ITEM 7.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations.............................  26

ITEM 7A.   Quantitative and Qualitative Disclosures about Market Risk......  36

ITEM 8.    Consolidated Financial Statements and Supplementary Data........  37

ITEM 9.    Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosures............................  66

ITEM 9A.   Controls and Procedures.........................................  66

ITEM 9B.   Other Information...............................................  66

PART III

ITEM 10.   Directors and Executive Officers of the Registrant..............  67

ITEM 11.   Executive Compensation..........................................  70

ITEM 12.   Security Ownership of Certain Beneficial Owners and
           Management and Related Stockholder Matters......................  72

ITEM 13.   Certain Relationships and Related Transactions..................  80

ITEM 14.   Principal Accountant Fees and Services..........................  80

<PAGE>

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FORM 10-K
SALON MEDIA GROUP, INC.
INDEX - (continued)
--------------------------------------------------------------------------------


PART IV

ITEM 15.   Exhibits, Financial Statement Schedules and
           Reports on Form 8-K.............................................  81

SIGNATURES.................................................................  89




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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
Result 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

     Founded in 1995, 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, a user
blogging program and recently automated its "Letters to the Editor" feature so
that readers can post their own comments to stories directly. Toward the end of
calendar year 2005, Salon added several new features, including Broadsheet, a
women's news digest; How the World Works, an editorial blog about globalization,
and Video Dog, a repertoire of video clips either submitted by Salon's viewers
and hosted on Salon's Website or imbedded links to a portal hosting the actual
vide clip.

     In its editorial product Salon balances two crucial missions: one,
providing original and provocative content on topics that the mainstream media
overlook, and two, providing a filter to help sort through the media chatter and
clutter to help readers find the stories that matter.

     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.

     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 nine daily features
- War Room, the Fix, Audiofile, the Daou Report, King Kaufman's Sports Daily,
Since you Asked, Broadsheet, How the World Works and Video


                                       4
<PAGE>

Dog, Salon provides a rapidly 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 chief political writer Tim
                              Grieve.

Opinion                       Provocative commentary on timely issues, including
                              weekly columns by Sidney Blumenthal, Joe Conason
                              and Garrison Keillor. Opinion also features the
                              Daou Report, an opinionated guide to the
                              blogosphere.

Technology & Business         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. Featuring Patrick
                              Smith's regular Ask the Pilot column and Andrew
                              Leonard's How the World Works blog.

Arts & Entertainment          Arts & Entertainment features movie, music and
                              television reviews and interviews. The section
                              includes frequent television features, extended
                              film coverage including actor and director
                              interviews, a popular gossip column, The Fix, 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 TV critic Heather
                              Havrilesky and film critics Andrew O'Hehir and
                              Stephanie Zacharek, this is Salon's most
                              widely-read category after News.

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 include 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.
                              In our fiscal year 2007, Salon plans on launching
                              the Literary Guide to the World, which will
                              feature books by geographical area.

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.

     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. Table Talk is available
for all Internet users to read, but only Salon Premium subscribers may post. The
Well online community had approximately 2,800 paying subscribers as of May 31,
2006.

     During the year ended March 31, 2006, Salon did not experience an increase
in unique Website visitor traffic and averaged 2.3 million, comparable to prior
years. Increasing the number of monthly


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unique Website visitors is a primary goal for Salon, as each visitor generates
page views, and each page view is a potential platform for advertising
impressions. The resulting advertising impressions are the primary source of our
advertising revenue. For Salon to grow its advertising revenue and ultimately
reach profitability, Salon must increase the number of unique Website visitors.
Within the last two years, Salon has maxed out on its ability to deliver agreed
upon advertising impressions on several occasions due to an insufficient number
of unique visitors.

     To entice existing audience to continually return to our Website, and
attract and retain new visitors to our Website, during the later half of the
year ended March 31, 2006, Salon revamped its Website and introduced new
editorial features, blogs, including our popular Video Dog, a video blog, and
automated our Letters to the Editor.

     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 2006 results from @Plan, an independent syndicated
research firm, Salon's user base has the following characteristics: (a) 59% are
between the ages of 25 and 49, with an overall mean average of 43; (b) an
average household income of $82,600; (c) 72% have earned a college degree; (d)
50% have professional or managerial positions; and (e) 78% are online every day.

Internet Advertising

     Universal McCann, PricewaterhouseCoopers LLP and the Interactive
Advertising Bureau estimate that the total market for all forms of advertising
in the United States was approximately $267 billion in calendar year 2005 and
$260 billion in calendar year 2004. Of these amounts, according to the IAB
Internet Advertising Report, 2005 Full-Year Results, a survey conducted by
PricewaterhouseCoopers and sponsored by the Interactive Adverting Bureau (the
PWC study), Internet advertising was $12.5 billion in 2005 and $9.6 billion in
2004, a 30% increase. However, Salon was not able to capitalize on this increase
due to two main factors: (1) approximately 94% of all Internet advertising
continues to be directed to the top fifty companies, consistent with the last
several years, and (2) search advertising represents 41% of the Internet
advertising format, a segment that Salon does not participate in. In the
advertising segment that Salon participates in, the study indicated that display
related advertising declined as a percent of total Internet advertising, but
increased in total dollar value from approximately $3.7 billion during 2004 to
approximately $4.3 billion during 2005, a 17% growth rate, consistent with the
prior year.

     As the PWC study indicates that the majority of Internet advertising
dollars are going to the 50 largest companies and that 34% of all Internet
advertising is for display advertising, it suggests that Salon and all other
companies like Salon are competing for a display advertising market of
approximately $213 million, based on 2005 results, a decline from $225 million
based on 2004 results.

Pay For Online Content

     The Online Publishers Association (OPA) indicated in their March 2006
report that U.S. consumers in calendar year 2005 spent $2.0 billion for online
content, compared to $1.8 billion in 2004. The growth in this market was
principally in areas that Salon does not participate in, mainly purchases
related to entertainment/lifestyle and personals/dating, which garnered $573
million and $503 million of the spending, respectively, in calendar year 2005.


                                       6
<PAGE>

     A market segment for online content in which Salon does participate is the
general news category, which the OPA reported annual purchases of $78 million
for calendar year 2005, a drop from $88 million in 2004. The OPA indicated that
content providers in this category included Websites such as CNN.com,
NYTimes.com and the Washingtonpost.com. What these Websites offer for sale are
primarily archived stories, video streaming of current news or, in the case of
The New York Times, primarily access to select opinion and editorial content, as
well as archived stories. Some print newspapers offer some of their content on
their Websites "behind a gate," accessible only to paid subscribers in an
attempt to stem a decline in circulation. None of these factors lend themselves
to why individuals tend to subscribe to Salon Premium. Based on reader surveys,
Salon believes that individuals subscribe and pay for Salon Premium primarily to
support Salon's original journalism efforts, and to view its content without any
advertisements.

     The OPA report indicated that 76% of all subscription revenues in the
general news category were for monthly subscriptions during calendar year 2005.
Almost all subscriptions to Salon Premium are on an annual cycle, while
subscriptions to The Well online discussion forum are predominantly on a monthly
basis.

Revenue Sources

     Total revenues for the last three fiscal years, including all other forms
of revenues, are as follows (in thousands):

                                       Year Ended March 31,
                    -----------------------------------------------------------
                           2006                 2005                 2004
                     Amount       %       Amount       %       Amount       %
                    -----------------    -----------------    -----------------
Advertising         $  3,685       57%   $  3,567       54%   $  1,753       39%
Salon Premium          2,036       31%      2,207       33%      1,838       41%
All Other                795       12%        854       13%        908       20%
                    --------   ------    --------   ------    --------   ------
          Total     $  6,516      100%   $  6,628      100%   $  4,499      100%
                    ========   ======    ========   ======    ========   ======

     Since inception, Salon has derived the majority of its revenues by
providing a platform for advertisers to market their goods and services. Most
advertising campaigns are of short duration, generally less than ninety days.
Salon's obligations may include a guarantee of a minimum number of impressions,
or views by a Website visitor of an advertisement, a set number of "Site Pass"
advertisement viewed by a Website visitor 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 to an advertiser, no
further revenue is recognized.

     No customer accounted for over 10% of either total revenue or advertising
revenue for the years ended March 31, 2006, March 31, 2005, or March 31, 2004.

     Due to an industry wide decline in Internet advertising beginning in
calendar year 2000, Salon began offering Salon Premium, a subscription service,
to augment the decline in advertising revenues in April 2001. A subsequent
rebound in Internet advertising, which Salon was able to capitalize on during
its year ended March 31, 2005 and to a lesser extent during its year ended March
31, 2006, has led to a lessened dependence on this source of revenue. Generally,
subscriptions to Salon Premium with no advertisement are $35 for an annual
subscription and $6 for a monthly subscription. Benefits of Salon Premium
include unrestricted access to Salon's content with no banners, pop-ups or site
pass


                                       7
<PAGE>

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, 2006, Salon received $1.8 million in
cash and recognized $2.0 million of revenue for this service from primarily an
approximate 58,700 new and renewed paid 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 from primarily an approximate 79,100 new and renewed paid one year
subscriptions and approximately 5,000 monthly subscriptions. For the year ended
March 31, 2004, Salon received $1.9 million in cash and recognized $1.8 million
of revenue for this service from primarily an approximate 65,300 paid new and
renewed one year subscriptions and approximately 12,200 monthly subscriptions.

     During the year ended March 31, 2006, Salon experienced a decline in Salon
Premium paid subscriptions. Total paid subscriptions were approximately 84,500
for the year ended March 31, 2005 and approximately 65,500 for the year ended
March 31, 2006. The decline in memberships has continued as of this filing and
may continue subsequent to this filing. Paid subscriptions as of June 25, 2006
were approximately 62,000. Salon cannot accurately predict if the downward trend
will continue for the remainder of its year ending March 31, 2007. The renewal
rate for one year paid subscriptions was approximately 69% as of March 31, 2005
compared to approximately 62% as of March 31, 2006. Salon cannot accurately
predict if this trend will continue during its year ending March 31, 2007.

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

     Salon derives revenues from The Well, an on-line discussion forum. Revenue
is recognized ratably over the subscription period. The revenues recognized and
the cash received was $0.5 million each for the years ended March 31, 2006 and
March 31, 2005, and $0.6 million for the year ended March 31, 2004.

     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 eight
active advertising sales employees as of March 31, 2006, of which four actively
solicit orders. As of March 31, 2006, Salon has one individual devoted to
business development and two employees associated with Salon Premium membership
activities.

     During the year ended March 31, 2006, Salon incurred $0.3 million in
advertising costs to promote and attract viewers to its Website, compared to
$0.5 million for the year ended March 31, 2005 and $1.1 million for the year
ended March 31, 2004. The advertising costs of $0.3 million for the year ended
March 31, 2006 were primarily the use of non-cash advertising credits. These
credits resulted from


                                       8
<PAGE>

an investment in Salon by Rainbow Media Holdings in January 2000 in the form of
prepaid advertising rights, which has provided advertising in various television
networks without the use of cash. Advertising costs for the years ended March
31, 2005 and March 31, 2004 included the usage of approximately $0.5 million and
$1.1 million, respectively, of such non-cash advertising credits.

     During the year ended March 31, 2003, Rainbow Media Holdings 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.

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 the PWC study. These companies have Websites that include major
portals such as Yahoo.com, major search engines such as Google and major online
media publications such as CNN.com.

     As of March 31, 2006, Salon believes it has no direct competitor for its
Salon Premium subscription payment plan. Even though some Websites such as the
New York Times, that primarily charges for access to select opinion and
editorial content and archived stories, the Washington Post that charges for
archived stories, or the Wall Street Journal that has an online-edition
subscription plan, they do not provide general interest news and information as
presented by Salon. Salon believes that its award winning content and
independence attract individuals to Salon's Website, and ultimately to subscribe
to its Salon Premium pay-for-online-content service.

Salon's Strategy

     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. Salon is
exploring ways to reach new readers and has made audience development a priority
among its business goals. Although Salon has not in the last several years
allocated, and does not currently contemplate in its next fiscal year allocating
any significant cash resources towards such efforts, Salon has formed and is
working to form partnerships and alliances to deliver Salon's award-winning,
unique, and compelling content to a broader audience. Strategies to grow our
audience include:

     o    Initiating content distribution programs. By syndicating Salon's
          content to other Websites with audiences with distinct demographics,
          such as college portals and affinity sites, which it has done to some
          extent subsequent to March 31, 2006, Salon hopes to expand its
          traditional readership base. Also subsequent to March 31, 2006, Salon
          forged several agreements to syndicate articles to mobile devices,
          including smart phones and other mobile readers.

     o    Structuring our content to take advantage of search engine
          optimization (SEO) and potentially deploy search engine marketing
          plans, to help drive more search traffic to Salon's Website.

     o    Continuing to offer, and potentially expand, a family of in-house
          editorial blogs implemented during the year ended March 31, 2006,
          which cover everything from breaking political news to the latest
          videos. The blogs that Salon has already introduced


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          feature a lively and vocal comments section where readers can react to
          and discuss postings.

     o    Continuing to implement a no Site-Pass required "Blogger Outreach"
          marketing program with key and influential bloggers such as the
          Huffington Post and the Drudge Report to encourage more linking from
          their Website back to Salon's Website. The rollout of this program
          began in February 2006.

     o    Continuing to redesign Salon's Website architecture to be more
          "story-centric", to provide readers with easier navigation, access and
          knowledge of other content, and to encourage return visits and
          associated increase in advertising impressions.

     o    Increasing the visibility of Salon's content by taking advantage of
          RSS, which Salon primarily launched subsequent to March 31, 2006 to
          increase traffic. Under RSS, Salon's content summaries are sent, or
          fed, directly to end users. Salon now uses a feed management tool and
          platform to make it simple for readers to subscribe to Salon content
          feeds as well as provide Salon with key insights into feed readership.

New Channels of Content Distribution

     Salon will be promoting syndication of its content via a partnership with
an interactive media and technology company that enables affinity brands and
groups, including colleges, to receive private-labeled content and
communications. Portions of Salon's content will be a default option on over 200
brands and colleges with which our partner has relationships.

     Portable mobile devices such as PDAs, smart phones and mobile book readers
have become platforms for displaying content, photos, games and services.
Recently developed new technologies enable these devices to allow users to
easily download content using a wireless network or sync technology. Even though
prior partnerships with mobile device content providers have not proven
fruitful, or have only been made available to Salon Premium members, Salon
believes that such partnerships could eventually be a significant driver of
traffic to our Website. Therefore, subsequent to March 31, 2006, Salon licensed
its content for display on mobile devises with Mobileplay, a mobile device
content provider, and hopes to enter into similar agreements in the future. Even
though the agreement with Mobileplay calls for a revenue share, Salon does not
anticipate this to be a significant source of revenue.

     Salon's strategy also includes a program of syndicating content to search
aggregators such as Topix.net, KeepMedia, and Highbeam that gather news and
article content from a variety of information sources and categorize them by
keyword or topic, present the information on their Websites and then provide
direct hyperlinks (in the form of article headlines and first sentence
abstracts) to the Salon Website. Salon contemplates generating minimal direct
revenues but potentially significant traffic from these sources.

New Revenue Streams

     To optimize additional revenue opportunities on its existing pages, Salon,
in the quarter ended March 31, 2006 started using ad inventory provided by
Google Ad Sense for Content, Yahoo's Publisher Network, and AdBrite. These ads
augment traditional direct sales advertising and generate additional revenue
because they are positioned either lower on the page or in locations that are
not purchased by traditional brand advertisers.


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<PAGE>

     Salon has offered RSS feeds in its commitment to provide timely content
such as headlines and popular columns to feed subscribers. With the new insights
and subscriber statistics from Feedburner, Salon can now gather key demographics
and forecast advertising inventory for an entirely new marketing channel. Salon
plans to begin monetization of its feeds during July 2006 which initially may
lead to nominal revenue and a new advertiser base. The RSS feeds should lead to
increased traffic to Salon's Website, and therefore allow it to serve more
advertisements and increase its revenues.

Search Engine Optimization(SEO) Plans

     The search engine marketing and advertising industry has rapidly grown over
the past few years, and Salon is accordingly adopting strategies and
technologies to attract more traffic from search engines. Salon will utilize
best practices such as on-page optimization and a search friendly architecture
to maximize the number of times that Salon's content is reflected in search
results, which in turn should lead to increased traffic to Salon's Website.

"Story-Centric" and Disaggregation Design Enhancements to Main Site

     To retain its current audience, and retain future visitors to its Website,
Salon's strategy includes delivering to users a graphically pleasing and
coherent site, and building a system that both delivers and aggregates
information to multiple sources and devices. Salon began this process during its
fiscal year ended March 31, 2006 by launching a revamped Website with a look and
feel which it believes better suits Website visitors. During the year ending
March 31, 2007, Salon will continue to redesign its Website around the notion
that each page is an entry point and that navigation and information on each
page should encourage more page views. Goals of the redesign include improved
navigation, content access and ambitious new features and content, including
links to related information and blogs, and "most-emailed" stories. Salon
contemplates that its revamped Website will also emphasize individual writers
and articles, as well as promote syndication and re-use of content through the
technologies of content networking.

Halting the Decline in Salon Premium Revenues

     During the year ended March 31, 2006, Salon experienced a steady decline in
Salon Premium subscriptions and corresponding revenues. Salon's strategy to halt
this decline centers on expanding free additional offerings to subscribers. The
contemplated new offerings include possibilities such as free trial memberships
to film or music download services, which would cost little or nothing to Salon.
Salon Premium members will also be offered advanced Web services capabilities
such as a Salon portal, Salon browser toolbar, and personalization and other
interactive features.

Convert the Utilization of our Advertising Credits from Television to Web Based

     Salon has $5.4 million of advertising credits which are valued at $3.7
million on our balance sheet. Since acquiring these credits, Salon has only
utilized the credits to run advertisements on television, an advertising medium
that Salon feels is not effective in driving viewers to its Website. Salon hopes
to be able to utilize the value of its credits to run Web based advertisements
on various Web properties owned by the granters of the credits. There is no
certainty that Salon will be able to come to a mutually acceptable agreement
with the granters of the credits.


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<PAGE>

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. The system allows Salon content to be easily redistributed to
other Websites, newspapers, magazines, and electronic devices. During the year
ended March 31, 2006, Salon revamped the look and feel of its Website to make it
more appealing to its audience. Salon contemplates continued changes to its
Website. Salon also contemplates revamping the architecture of its Web
publishing system in the upcoming year to improve its functionality and to take
better advantage of SEO.

     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 hour, seven-day-a-week Website
availability. Regular automated backups protect the integrity of Salon data.
Salon servers are maintained by a third-party facility in San Francisco, in a
building capable of withstanding a major earthquake. The third-party provides
continuous monitoring of the servers.

     Software to maintain and manage Salon Premium was created in-house and
upgraded in May 2003. Salon is currently in the process of upgrading this
software to further improve its functionality and customer support features.
Salon's system to manage its Salon Premium subscription program currently
complies with the Payment Card Industry (PCI) Data Security Standard.

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 also claims common law protection on certain names
and marks that it has used in connection with business activities.

     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 in the address.

Employees

     As of March 31, 2006, 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
<PAGE>

ITEM 1A. Risk Factors

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

Salon's projected cash flows may not meet expectations

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

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

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

     The certificate of designation and preferences and rights of the Series D
preferred stock stipulates that the Series D conversion price will be equal to
70% of the average closing sales price of Salon's common stock for the thirty
days prior to the date Salon provides notice to purchasers of its intent to sell
additional shares of Series D preferred stock. Such a discount, and the time lag
between the date of the notice and the date a transaction is consummated, may
trigger a non-cash preferred deemed dividend charge. In connection with the sale
of 209 shares of Series D-3 in December 2005, it incurred a preferred deemed
dividend charge of $1.0 million. Currently, there are 1,042 shares of authorized
and unissued shares of Series D preferred that it may sell. Salon cannot predict
to what extent it may incur future preferred deemed dividend charges, if any.

Salon has relied on related parties for significant investment capital

     Salon has been relying on cash infusions from related parties to fund
operations. The related parties are primarily John Warnock, a Director of Salon,
and William Hambrecht. William Hambrecht is the father of Salon's President and
Chief Executive Officer. Subsequent to March 31, 2006, these two related
parties, in conjunction with affiliated entities, exercised warrants for which
Salon received $0.5 million. In addition, William Hambrecht and John Warnock
have committed to provide Salon with $0.4 million in cash in July 2006 from the
exercise of outstanding warrants and from the purchase of additional shares of
Series D preferred stock. Curtailment of cash investments by related parties
could detrimentally impact Salon's cash availability and its ability to fund its
operations.

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

     Based on information available to Salon, the holders of Salon's Series A,
B, C and D preferred stock collectively own approximately 95% of all voting
securities as of May 15, 2006. These stockholders therefore own a controlling
interest in Salon. Of this amount, approximately 69% is held by related parties,
including former Directors, of which approximately 21% is controlled directly or
indirectly by


                                       13
<PAGE>

William Hambrecht and approximately 41% by Director John Warnock. Therefore,
related parties by themselves own a controlling interest in Salon.

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

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

     Salon's preferred stock holders can convert 8,558 shares of preferred stock
to approximately 183 million shares of common stock at their discretion, and as
a group, hold over 18 million shares of common stock. Even though only one
shareholder during the year ended March 31, 2006 converted one share of Series A
preferred stock and 36 shares of Series C preferred stock to 760,173 shares of
common stock, other more significant holders of preferred stock could convert
their holdings to common stock. If these stockholders convert their shares of
preferred stock to common stock and sell the resulting shares, such an inflow of
common stock into the securities market may cause the price of Salon's common
stock to decline.

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

     Salon's Series A, B, C and D preferred stockholders have liquidation
preferences to common stockholders of the first approximately $21.7 million in
potential sales proceeds as of March 31, 2006, which includes the effect of
undeclared dividends of $2.4 million. If a liquidation event were to occur, and
preferred stock dividends were declared, the holders of preferred stock would be
entitled to the first $21.7 million of cash distributions, while the holders of
common stock would receive none of this amount. If a liquidation event were to
occur in excess of $21.7 million and if preferred stock dividends were to be
declared, the holders of preferred stock would be entitled to receive a
relatively larger distribution than the holders of common stock would be
entitled to receive.

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

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

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


                                       14
<PAGE>

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

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

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

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

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

     Salon has been relying on the revenues and cash generated from Salon
Premium subscriptions since its implementation in April 2002. Salon Premium
subscriptions grew from nothing to a high of approximately 89,100 as of December
31, 2004. However, since the high experienced in December 31, 2004,
subscriptions have been declining to approximately 65,500 as of March 31, 2006.
If this decline were to continue, Salon's operations and available cash could be
adversely affected.

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

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

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

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

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

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

     o    successfully sell and market its network to advertisers;

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


                                       15
<PAGE>

     o    increase awareness of the Salon brand;

     o    improve the technology for serving advertising on its Website;

     o    handle temporary high volume traffic spikes to its Website;

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

     o    attract and retain key sales personnel.

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

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

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

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

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

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


                                       16
<PAGE>

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

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

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

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

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

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

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

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

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

     o    the economic and business cycle;

     o    the level of Internet usage;

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

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

     o    the amount and timing of operating costs.

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

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

     Salon's Website contains, and will continue to contain, content that is
politically and culturally controversial. As a result of this content, current
and potential advertisers, potential Salon Premium subscribers, or third parties
who contemplate aggregating content, may refuse to do business with Salon.


                                       17
<PAGE>

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 Salon's 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.

     In April 1999 Salon acquired the Internet address www.salon.com. Because
www.salon.com is the address of the main home page to its Website and
incorporates its company name, it is a vital part of its intellectual property
assets. Salon does not have a registered trademark on the address, and therefore
it may be difficult for it to prevent a third party from infringing on its
intellectual property rights in the


                                       18
<PAGE>

address. If Salon fails to adequately protect its rights in the Website address,
or if a third party infringes its rights in the address, or otherwise dilutes
the value of www.salon.com, its business could be harmed.

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

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

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

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

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

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

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


                                       19
<PAGE>

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

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

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

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

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

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

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

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


                                       20
<PAGE>

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

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

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

Privacy concerns could impair Salon's business

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

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

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


                                       21
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

     In addition, an employment agreement with an executive officer subsequent
to March 31, 2006 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
<PAGE>

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 three years remain on the lease, which
terminates in February 2009.

     Salon leases nominal office space at 41 East 11th Street, 11th Floor, New
York, NY and at 3409 1/2 M Street NW, Washington, DC. The lease for the New York
office terminated on May 31, 2006 and was renewed for an additional one year
term. 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, 2006.



                                       23
<PAGE>

PART II

ITEM 5. Market for Registrant's Common Equity and Related 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

     Information with respect to the quarterly high and low sales prices for
Salon's common stock for its fiscal years 2006 and 2005, based on sales
transactions reported by the OTC (Over-The-Counter) Bulletin Board, is provided
below:

                         Fiscal Year Ended   Fiscal Year Ended
                           March 31, 2006      March 31, 2005
                         -----------------   -----------------
For the quarters ended     High     Low        High     Low
                         -------- --------   -------- --------
   June 30                 0.30     0.15       0.24     0.10
   September 30            0.20     0.13       0.24     0.10
   December 31             0.51     0.11       0.18     0.09
   March 31                0.55     0.18       0.69     0.10

     There were 249 holders of record of Salon common stock as of June 23, 2006.
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 23, 2006 was
$0.20 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
<PAGE>

ITEM 6. Selected Consolidated Financial Data

<TABLE>
<CAPTION>
                                           Dollar amounts in thousands, except per share
                                        ----------------------------------------------------
Year Ended March 31,                      2006       2005       2004       2003       2002
------------------------------------    --------   --------   --------   --------   --------
<S>                                     <C>        <C>        <C>        <C>        <C>
Net revenues                            $  6,516   $  6,628   $  4,499   $  4,003   $  3,619
Net loss (1)                            $  1,122   $    518   $  6,046   $  5,597   $  8,000
Net loss attributable to common
    stockholders (2)                    $  2,162   $    358   $  8,661   $  5,678   $ 11,286
Basic and diluted net loss per share
attributable to common stockholders     $   0.13   $   0.02   $   0.61   $   0.41   $   0.83
Weighted average common shares
    outstanding used in computing
    per share amounts (thousands)         16,188     14,390     14,099     13,938     13,547
Cash and cash equivalents               $    441   $    686   $    696   $    162   $  1,542
Prepaid advertising rights              $  3,718   $  3,970   $  4,430   $  5,480   $  6,266
Total assets                            $  5,304   $  6,069   $  6,270   $  7,590   $ 11,342
Capital leases - long-term portion      $      -   $      -   $      -   $     18   $     77
Total long-term liabilities (3)         $    120   $     82   $  2,621   $    569   $    229
</TABLE>

(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. The net
loss for the year ended March 31, 2002 includes a write-down of long-lived
assets of $782 due to impairments.

(2) The net loss attributable to common stockholders for the year ended March
31, 2006 includes a preferred deemed dividend charge of $1,040 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-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 $2,615 that included $2,040
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
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. The net loss attributable to common stockholders for the fiscal
year ended March 31, 2002 includes a preferred deemed dividend of $3,189 which
was the difference between the offering price of Salon's Series A preferred
stock sold in August and September 2001 and the deemed fair value of Salon's
common stock on the date of the transaction.


                                       25
<PAGE>

(3) 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 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.


ITEM 7. Management's Discussion and Analysis of Financial Condition and Result
of Operations

Overview

     Salon is an Internet media company that produces a content Website with ten
subject-specific sections, and two online communities - The Well and Table Talk.
Salon was incorporated in July 1995 and launched its initial Website in November
1995.

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

     Salon also derives a significant portion of its revenues from its Salon
Premium subscription program. Subscriptions to Salon Premium are generally $35
for one year. Salon Premium revenue is recognized ratably over the period that
services are provided. During the years ended March 31, 2006 and 2005, Salon
received $1.8 million and $2.3 million in cash and recognized $2.0 million and
$2.2 million of revenue for this service, respectively.

     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.

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

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

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

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


                                       26
<PAGE>

     Salon has incurred significant net losses and negative cash flows from
operations since its inception. As of March 31, 2006, Salon had an accumulated
deficit of $93.5 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, 2006, March 31, 2005 and March 31, 2004 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 reoccurring operating losses. At March 31, 2006 Salon had net
operating loss carryforwards of $64.1 million for federal income tax purposes
that begin to expire in March 2015, and $33.1 million for California income tax
purposes that began to expire for the year ended March 31, 2006. 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 $0.3 million during the year ended
March 31, 2006 to $25.0 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.

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


                                       27
<PAGE>

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

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

Prepaid Advertising Rights

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


Results of Operations

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 reflects 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 this year. The drop in paid
one year subscribers negatively impacted our renewal rate which declined from
approximately 69% as of March 31, 2005 to approximately 62% as of March 31,
2006. In addition, 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. As of June 25, 2006, Salon had
approximately 62,000 paid subscribers.


                                       28
<PAGE>

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

     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. During Salon's
second quarter ended September 30, 2005, Salon announced that it was seeking a
buyer for this business.

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.

     As of March 31, 2006, Salon has $5.4 million of advertising credits that it
has valued at $3.7 million. The agreement that allows for the utilization of the
advertising credits will expire on December 31, 2009. Therefore, Salon
anticipates accelerating the utilization of these credits in the coming years.

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% 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.


                                       29
<PAGE>

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 recorded a non-cash preferred
deemed dividend charge of $1.0 million. The charge was a result of Salon's
issuance of 209 shares of Series D-3 preferred stock for which it received
approximately $251,000 in cash. 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 intended sale of shares of Series D preferred stock. The resulting
conversion price on the date Salon gave notice of its intent to sell additional
shares of Series D-3 preferred stock to investors was $0.093. Thereafter,
Salon's common stock price rose sharply to $0.47 per share on the date of the
transaction, which we believe is attributable to investors favorably responding
to the announcement of Salon's ten-year anniversary, Google's announced purchase
of a 5% interest in AOL and other unknown market factors. The increase in our
common stock price and to a lesser extent, the value of the warrants issued in
the transaction resulted in the non-cash preferred deemed dividend charge of
$1.0 million. The preferred deemed dividend represents the difference between
the offering price of Salon's Series D-3 preferred stock and the fair value of
Salon's common stock into which the preferred stock is convertible on the date
of the transaction and the fair value of the warrants 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. The
charge represented 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.


Fiscal Years Ended March 31, 2005 and 2004

Net Revenues

     Salon's net revenue increased 47% to $6.6 million in the year ended March
31, 2005 from $4.5 million in the year ended March 31, 2004.

     Advertising revenues increased 103% to $3.6 million for the year ended
March 31, 2005 from $1.8 million for the year ended March 31, 2004. The increase
in advertising revenues reflected the success of Salon's site pass advertisement
format, which generated the majority of the ad revenue, in conjunction with
traditional advertising banners. This combination of advertisements gained wide


                                       30
<PAGE>

acceptance with advertisers. The increase also reflects the overall increase in
advertising dollars being allocated to Internet properties by companies that
wish to brand their products and services.

     Salon Premium subscription revenues increased by 20% to $2.2 million for
the year ended March 31, 2005 from $1.8 million for the year ended March 31,
2004. The revenue increase reflected a greater number of individuals signing up
for this service, as new and renewed subscriptions during the year ended March
31, 2005 were approximately 84,200 compared to approximately 77,700 during the
year ended March 31, 2004. The increase in the number of subscribers acquired
during the year ended March 31, 2005 compared to the prior year is largely
attributed 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.

     During the year ended March 31, 2005, membership to Salon Premium
decreased, the first time since inception. The number of subscribers to Salon
Premium at March 31, 2004 was approximately 72,000 and increased during the year
to approximately 89,100 on December 31, 2004 and subsequently decreased to
approximately 84,500 as of March 31, 2005. This trend also mirrored Salon's
renewal rate for one year paid subscriptions to Salon Premium, which began the
year at approximately 64%, increased to approximately 73% as of December 31,
2004, and dropped to approximately 69% as of March 31, 2005.

     All other sources of revenue accounted for $0.8 million for the year ended
March 31, 2005 compared to $0.9 million for the year ended March 31, 2004. The
decrease of $0.1 is primarily attributable to a decrease in membership to The
Well. Salon recognized $0.1 million of revenue for its year ended March 31, 2005
for hosting links to a third party's personals/dating Website.

Production and Content

     Production and content expenses during the year ended March 31, 2005 were
$4.4 million versus $4.6 million for the year ended March 31, 2004, a decrease
of $0.2 million. The 4% decrease reflects, among other items, recognizing $0.2
million related to the value of warrants issued for editorial collaboration with
a print publisher during the year ended March 31, 2004, with no comparable
amounts during the year ended March 31, 2005. During the year ended March 31,
2005, salary related expenses increased by $0.2 million due to the opening of an
office in Washington, DC, ad serving charges increased by $0.1 million from an
increase in the number of ads served, while purchased content was reduced by
$0.1 million, depreciation decreased by $0.1 million as assets became more fully
depreciated, and other general expenditures were cut by $0.1 million.

Sales and Marketing Expenses

     Sales and marketing expenses during the year ended March 31, 2005 were $1.9
million versus $2.4 million for the year ended March 31, 2004, a decrease of
$0.5 million or 21%. The decrease primarily reflects utilizing $0.6 million
fewer advertising credits for the year ended March 31, 2005 versus the year
ended March 31, 2004, offset by a $0.1 million charge from the value of warrants
issued to a former employee.

Information Technology Support Expenses

     Information technology support expenses for the years ended March 31, 2005
and March 31, 2004 were $0.6 million.


                                       31
<PAGE>

General and Administrative Expenses

     General and administrative expenses for the year ended March 31, 2005 were
$0.8 million versus $1.4 million for the year ended March 31, 2004, a decrease
of $0.6 million or 45%. The decrease reflects $0.4 million in reduction in
salary related costs from the elimination of three positions and $0.1 million
reduction in general operating costs. The March 31, 2004 results include a
charge of $0.1 million related to the issuance of warrants to a former employee
with no comparable charge during the year ended March 31, 2005.

Amortization of Intangibles

     Salon did not recognize any amortization of intangibles for its year ended
March 31, 2005 as all amounts required to be amortized have previously been
charged to operations. For the year ended March 31, 2004, Salon amortized $0.4
million of intangible assets.

Interest and other income (expense)

     Net interest and other income (expense) for the year ended March 31, 2005
was a benefit of $0.6 million compared to a charge of $1.2 million for the year
ended March 31, 2004.

     The results for the year ended March 31, 2005 includes a benefit 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.

     The results for the year ended March 31, 2004 include a charge of $0.8
million related to the revaluation of warrants held by convertible note holders,
a charge of $0.2 million of interest on convertible notes and other interest
related charges, and $0.3 million related to amortizing the initial value of
warrants issued to the then holders of convertible notes. Salon converted all
outstanding convertible notes to preferred stock on December 30, 2003. The
results for the year ending March 31, 2004 also includes a benefit of $0.1
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

     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. The
charge represented 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 non-cash preferred deemed dividend charge of $2.6 million for the year
ended March 31, 2004 included $2.0 million 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 Salon's common stock on the date of
the transaction and $0.6 million from the change in value during the year ended
March 31, 2004 of warrants issued to preferred stockholders.


                                       32
<PAGE>

Liquidity and Capital Resources

     Net cash used in operations was $0.6 million for the year ended March 31,
2006, $0.8 million for the year ended March 31, 2005 and $2.8 million for the
year ended March 31, 2004. 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 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. The principal use of cash during the year
ended March 31, 2004 was to fund the $6.0 million net loss for the period,
offset partly by non-cash charges of $3.4 million, and use of assets and
liabilities of $0.1 million.

     Net cash used in investing activities was $0.1 million for the year ended
March 31, 2006 for the purchase of computer related equipment. 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. Net cash
used in investing activities was immaterial for the years ended March 31, 2004.
Salon anticipates capital expenditures of $0.1 million during the year ending
March 31, 2007 for computer related equipment.

     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. For the year ended March 31, 2004, net
cash from financing activities was $3.3 million, which was comprised of $2.5
million from the issuance of notes payable, $0.9 million from the issuance of
Series C preferred stock and $0.2 million from bank borrowings, offset by $0.2
million of re-payments to the bank and $0.1 million of payments under capital
leases.

     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, 2006, Salon has no outstanding capital leases and does not
anticipate entering into similar debt instruments during its year ending March
31, 2007. The following summarizes Salon's contractual obligations as of March
31, 2006, and the effect these contractual obligations are expected to have on
Salon's liquidity and cash flows in future periods (in thousands):

<TABLE>
<CAPTION>
                                           Payments Due By Period
                      -----------------------------------------------------------------
                                                                            More than
                           Total       1 Year or Less    1 - 3 Years         3 Years
                      --------------   --------------   --------------   --------------
<S>                   <C>              <C>              <C>              <C>
Operating leases      $          799   $          308   $          491   $            -
                      --------------   --------------   --------------   --------------
          Total       $          799   $          308   $          491   $            -
                      ==============   ==============   ==============   ==============
</TABLE>

     Salon's independent accountants for the years ended March 31, 2004, 2005
and 2006 have included a paragraph in their reports indicating substantial doubt
as to Salon's ability to continue as a


                                       33
<PAGE>

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

     The resurgence of the Internet ad market positively influenced Salon, as
advertising revenues increased from $1.8 million for the year ended March 31,
2004 to $3.6 million for the year ended March 31, 2005 which in turn caused the
net cash used in operations to decrease to $0.8 million for the year ended March
31, 2005. This trend has continued for the year ended March 31, 2006 as the cash
used in operations decreased to $0.6 million.

     As a result of the cash used in operations, $0.4 million from financing
activities and the use of $0.1 million for capital expenditures, Salon's
available cash at March 31, 2006 was $0.4 million. Subsequent to March 31, 2006,
Salon received $0.6 million from the exercise of warrants to purchase 9.8
million shares of common stock. The investors included John Warnock, a Director
of Salon, William Hambrecht, the father of Elizabeth Hambrecht, Salon's CEO and
President, and two entities that William Hambrecht and Elizabeth Hambrecht have
an ownership interest in.

     Based on cash proceeds from the exercise of warrants subsequent to March
31, 2006 and forecasted trade receivable receipts, cash payments, advertising
revenues of a potential high of $5.4 million and total revenues of a potential
high of $8.1 million, Salon estimates that its cash on hand may be $0.1 million
at March 31, 2007. Due to seasonality of advertising sales, Salon forecasts that
it will sustain a cash deficit of approximately $0.1 million by July 2006 that
will increase to an expected high of approximately $0.4 million by October 2006
before diminishing. If the anticipated revenue expectations are not met, Salon's
cash on hand could be significantly less. To address the projected shortfall,
Salon has received commitments from two investors, one of which is a Director of
Salon and the other is the father of Salon's CEO and President, to provide Salon
with approximately $0.4 million in cash in July 2006 from the exercise of an
outstanding warrant and from the purchase of Series D preferred stock. There is
no certainty that Salon will be able to attain any of the above mentioned
projected revenue amounts.

     If anticipated cash balances are not realized, Salon may need to raise
additional working capital. Salon may secure additional working capital from:
(1) the exercise of outstanding warrants, (2) the sale of 1,042 authorized and
unissued shares of Series D preferred stock as of this filing, (3) selling the
Well, or (4) the issuance of securities to a strategic investor.

     Salon has outstanding warrants that expire between the date of this filing
and March 31, 2007, from which Salon estimates it could potentially receive cash
of up to $0.8 million from their exercise. However, with the exception of a
commitment to exercise a warrant for approximately $0.1 million subsequent to
this filing, the actual amount could be considerably less, or nothing at all, as
the terms of the warrants allow for cashless exercise. Except for a commitment
by the two investors noted above to purchase approximately $0.3 million of
Series D preferred stock, the potential to raise additional working capital from
the issuance of additional shares of currently authorized shares of Series D
preferred stock, though viable, is not certain. In addition, Salon may explore
amending the "Securities Purchase Agreement", as amended to date, and the
"Certificate of Designation of Preferences and Rights of the Series D-1
Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred Stock, Series
D-4 Preferred Stock and Series D-5 Preferred Stock," (collectively, the Series D
preferred stock) to allow for the sale of additional shares of Series D than the
1,042 currently authorized and unissued as of this filing. There is no certainty
that Salon will be able to amend these documents or sell any such additional
shares.


                                       34
<PAGE>

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

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

Off-Balance Sheet Arrangements

     Salon has no off-balance sheet arrangements.

Reverse Stock Split

     In October 2005, Salon's stockholders granted to its Board of Directors the
right to effect a reverse stock split of Salon's common stock in four ratios
between 1-for-10 and 1-for-20. The right is to expire the earlier of Salon's
2006 Annual Meeting of Stockholders or December 31, 2006. At present, Salon's
Board of Directors does not plan to exercise such right and effect a reverse
stock split.

Recent Accounting Pronouncements

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

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

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

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


                                       35
<PAGE>

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


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. Salon has no debt arrangements that expose Salon to market risk in
the event of changes in interest rates. As Salon conducts all of its business in
the United States, Salon is not subject to foreign exchange risk.



                                       36
<PAGE>

ITEM 8. Consolidated Financial Statements and Supplementary Data

                                                                            Page

Reports of Independent Registered Public Accounting Firm ....................38

Consolidated Balance Sheets as of March 31, 2006 and 2005 ...................39

Consolidated Statements of Operations for the years
     ended March 31, 2006 2005, and 2004 ....................................40

Consolidated Statements of Stockholders' Equity for
     the years ended March 31, 2006 2005, and 2004 ..........................41

Consolidated Statements of Cash Flows for the years
     ended March 31, 2006 2005, and 2004 ....................................42

Notes to Consolidated Financial Statements...................................43

Selected Quarterly Financial Data (unaudited)................................65


                                       37
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders
Salon Media Group, Inc.

We have audited the accompanying consolidated financial statements of Salon
Media Group, Inc. and its subsidiaries (the "Company") as of March 31, 2006 and
2005, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended March 31,
2006. 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. 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, 2006 and 2005, and the results of
their operations and their cash flows for each of the of the three years in the
period ended March 31, 2006 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 $93.5
million at March 31, 2006. 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.



/S/ Burr, Pilger & Mayer LLP
San Francisco, California
May 4, 2006


                                       38
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                            March 31,
                                                                                     ------------------------
                                                                                        2006          2005
                                                                                     ----------    ----------
<S>                                                                                  <C>           <C>
Assets
       Current assets:
              Cash and cash equivalents                                              $      441    $      686
              Accounts receivable, net                                                      502           623
              Prepaid expenses and other current assets                                     184           232
                                                                                     ----------    ----------
               Total current assets                                                       1,127         1,541

       Property and equipment, net                                                          155           191
       Prepaid advertising rights                                                         3,718         3,970
       Goodwill, net                                                                        200           200
       Other assets                                                                         104           167
                                                                                     ----------    ----------
               Total assets                                                          $    5,304    $    6,069
                                                                                     ==========    ==========
Liabilities and stockholders' equity
       Current liabilities:
              Accounts payable and accrued liabilities                               $      747    $      788
              Deferred revenue                                                              820         1,047
                                                                                     ----------    ----------
               Total current liabilities                                                  1,567         1,835

       Other long-term liabilities                                                          120            82
                                                                                     ----------    ----------

              Total liabilities                                                           1,687         1,917
                                                                                     ----------    ----------
Commitments and Contingencies (Note 8)

Stockholders' equity:
      Preferred stock, $0.001 par value, 5,000,000 shares authorized, 8,558
           shares issued and outstanding at March 31, 2006 and 8,386 shares
           issued and outstanding at March 31, 2005 (aggregate liquidation
           preference of $21,655 at March 31, 2006 and $20,686 at March 31, 2005)                           -

       Common stock, $0.001 par value, 600,000,000 shares authorized, 19,129,012
           shares issued and outstanding at March 31, 2006 and 14,970,622
           shares issued and outstanding at March 31, 2005                                   19            15
       Additional paid-in capital                                                        97,093        95,430
       Unearned compensation                                                                (40)            -
       Accumulated deficit                                                              (93,455)      (91,293)
                                                                                     ----------    ----------
               Total stockholders' equity                                                 3,617         4,152
                                                                                     ----------    ----------
               Total liabilities and stockholders' equity                            $    5,304    $    6,069
                                                                                     ==========    ==========
</TABLE>

           See accompanying notes to Consolidated Financial Statements


                                       39
<PAGE>

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

<TABLE>
<CAPTION>
                                                                  Year Ended March 31,
                                                         --------------------------------------
                                                            2006          2005          2004
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
Net revenues                                             $    6,516    $    6,628    $    4,499
                                                         ----------    ----------    ----------

Operating expenses:
       Production and content                                 4,505         4,446         4,647
       Sales and marketing                                    1,515         1,891         2,393
       Information technology support                           676           617           614
       General and administrative                               964           766         1,386
       Amortization of intangibles                                -             -           353
                                                         ----------    ----------    ----------
             Total operating expenses                         7,660         7,720         9,393

Loss from operations                                         (1,144)       (1,092)       (4,894)

Interest and other income (expense)                              22           574        (1,152)
                                                         ----------    ----------    ----------
             Net loss                                        (1,122)         (518)       (6,046)
Preferred deemed dividend                                    (1,040)          160        (2,615)
                                                         ----------    ----------    ----------
Net loss attributable to common stockholders             $   (2,162)   $     (358)   $   (8,661)
                                                         ==========    ==========    ==========

Basic and diluted net loss per share attributable to
       common stockholders                               $    (0.13)   $    (0.02)   $    (0.61)

Weighted average shares used in computing basic
       and diluted net loss per share attributable
       to common stockholders                                16,188        14,390        14,099
</TABLE>

           See accompanying notes to Consolidated Financial Statements


                                       40
<PAGE>

                             SALON MEDIA GROUP, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  (in thousands, except Preferred Stock Shares)

<TABLE>
<CAPTION>
                                                Preferred               Common                                               Total
                                                  Stock                  Stock        Additional                             Stock-
                                           ------------------------------------------   Paid-In    Unearned   Accumulated   holders'
                                            Shares      Amount     Shares     Amount    Capital  Compensation   Deficit      Equity
                                           -----------------------------------------------------------------------------------------
<S>                                          <C>      <C>          <C>      <C>        <C>         <C>         <C>         <C>
Balance, March 31, 2003                        934           -     14,155         14     85,283           -     (82,274)      3,023

Value of contingent shares issued in
   conjunction with acquisition                  -           -          -          -          5           -           -           5
Series C convertible preferred stock and
  common stock warrants issued from
  conversion of convertible notes payable    5,493           -          -          -      4,394           -           -       4,394
Series C convertible preferred stock and
  common stock warrants issued for cash      1,125           -          -          -        892           -           -         892
Preferred deemed dividend on issuance of
  Series C Convertible preferred stock           -           -          -          -      2,040           -      (2,040)          -
Preferred deemed dividend from revaluation
  of warrants issued to preferred stock
  holders                                        -           -          -          -          -           -        (575)       (575)
Reclassification of warrants to liabilities      -           -          -          -       (294)          -           -        (294)
Net loss                                         -           -          -          -          -           -      (6,046)     (6,046)
                                           -----------------------------------------------------------------------------------------
Balance, March 31, 2004                      7,552    $      -     14,155   $     14   $ 92,320    $      -    $(90,935)   $  1,399

Shares issued under employee stock plans         -           -        399          -         55           -           -          55
Value of shares issued to settle amounts
   owed a trade payable                          -           -        417          1         41           -           -          42
Value of warrants issued                         -           -          -          -        100           -           -         100
Series D convertible preferred stock and
  common stock warrants issued for cash        834           -          -          -      1,207           -        (310)        897
Preferred deemed dividend from revaluation
  of warrants issued to preferred stock
  holders                                        -           -          -          -          -           -         470         470
Extinguishment of warrant liability - see
  Note 12                                        -           -          -          -      1,707           -           -       1,707
Net loss                                         -           -          -          -          -           -        (518)       (518)
                                           -----------------------------------------------------------------------------------------
Balance, March 31, 2005                      8,386    $      -     14,971   $     15   $ 95,430    $      -    $(91,293)   $  4,152

Shares issued under employee stock plans         -           -        520          -         72           -           -          72
Shares issued under warrant agreements           -           -      2,878          3         63           -           -          66
Value of warrants issued                         -           -          -          -         55           -           -          55
Preferred stock converted to common stock      (37)          -        760          1         (1)          -           -           -
Amortization of unearned compensation            -           -          -          -        183         (40)          -         143
Series D convertible preferred stock and
  common stock warrants issued for cash        209           -          -          -        251           -           -         251
Preferred deemed dividend on issuance of
  Series D Convertible preferred stock           -           -          -          -      1,040           -      (1,040)          -
Net loss                                         -           -          -          -          -           -      (1,122)     (1,122)
                                           -----------------------------------------------------------------------------------------
Balance, March 31, 2006                      8,558    $      -     19,129   $     19   $ 97,093    $    (40)   $(93,455)   $  3,617
</TABLE>

           See accompanying notes to Consolidated Financial Statements


                                       41
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                           Year Ended March 31,
                                                                                     --------------------------------
                                                                                       2006        2005        2004
                                                                                     --------    --------    --------
<S>                                                                                  <C>         <C>         <C>
Cash flows from operating activities:
 Net loss                                                                            $ (1,122)   $   (518)   $ (6,046)
 Adjustments to reconcile net loss to net cash used in
    operating activities:
       Loss from retirement of assets                                                       -           -          43
       Stock-based compensation                                                           143           -           -
       Warrant re-valuation                                                                 -        (541)      1,037
       Depreciation and amortization                                                      143         495       1,285
       Allowance for (recovery of) doubtful accounts                                       (1)          2         (10)
       Operating lease incentives                                                           -          65           -
       Gain on issuance of common stock for trade payable                                   -         (25)          -
       Prepaid advertising rights usage                                                   252         460       1,050
       Changes in assets and liabilities:
          Accounts receivable                                                             122        (319)        (69)
          Prepaid expenses, other current assets and other assets                         111        (130)        (59)
          Accounts payable, accrued liabilities and other long-term liabilities            (3)       (254)       (180)
          Deferred revenue                                                               (227)        (60)        189
                                                                                     --------    --------    --------
              Net cash used in operating activities                                      (582)       (825)     (2,760)
                                                                                     --------    --------    --------
Cash flows from investing activities:
 Purchase of property and equipment                                                       (52)       (217)        (35)
 Proceeds from asset sales                                                                  -           -          15
                                                                                     --------    --------    --------
              Net cash used in investing activities                                       (52)       (217)        (20)
                                                                                     --------    --------    --------
Cash flows from financing activities:
 Proceeds from issuance of preferred stock, net                                           251         995         892
 Proceeds from issuance of common stock, net                                              138          55           -
 Proceeds from bank borrowings                                                              -           -         182
 Repayment of short-term borrowings                                                         -           -        (182)
 Proceeds from issuance of notes payable, net                                               -           -       2,513
 Principal payments under capital leases                                                    -         (18)        (91)
                                                                                     --------    --------    --------
              Net cash provided by financing activities                                   389       1,032       3,314
                                                                                     --------    --------    --------
Net increase (decrease) in cash and cash equivalents                                     (245)        (10)        534
Cash and cash equivalents at beginning of period                                          686         696         162
                                                                                     --------    --------    --------
Cash and cash equivalents at end of period                                           $    441    $    686    $    696
                                                                                     ========    ========    ========

Amount paid for interest                                                             $           $      -    $      6
Supplemental schedule of non-cash investing and financing activities:
 Warrants issued in connection with issuance of convertible notes payable            $           $           $    263
 Issuance of stock and warrants in connection with acquisition                                                      5
 Issuance of warrants in connection with agreements                                        55         100         100
 Preferred deemed dividend                                                              1,040        (160)      2,615
 Conversion of notes payable and accrued interest to preferred stock                        -           -       4,394
 Issuance of common stock for trade payable                                                 -          42           -
</TABLE>

           See accompanying notes to Consolidated Financial Statements


                                       42
<PAGE>

                             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.

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, 2006 of $93,455. These
factors raise substantial doubt about Salon's ability to continue as a going
concern.

     Salon's independent accountants for the years ended March 31, 2004, 2005
and 2006 have included a paragraph in their reports indicating substantial doubt
as to Salon's ability to continue as a going concern due to recurring operating
losses and negative cash flows. To address the negative cash flows, Salon
reduced expenses, evidenced by net cash used in operating activities decreasing
from $5.0 million for the year ended March 31, 2002 to $2.8 million for the year
ended March 31, 2004. The reduction in use of cash facilitated raising capital
during this period, which in turn facilitated being awarded a greater number of
advertisements, as advertisers gained confidence in Salon's survivability.

     The resurgence of the Internet ad market positively influenced Salon, as
advertising revenues increased from $1.8 million for the year ended March 31,
2004 to $3.6 million for the year ended March 31, 2005 which in turn caused the
net cash used in operations to decrease to $0.8 million for the year ended March
31, 2005. This trend has continued for the year ended March 31, 2006 as the cash
used in operations decreased to $0.6 million.

     As a result of the cash used in operations, $0.4 million from financing
activities and the use of $0.1 million for capital expenditures, Salon's
available cash at March 31, 2006 was $0.4 million. Subsequent to March 31, 2006,
Salon received $0.6 million from the exercise of warrants to purchase 9.8
million shares of common stock. The investors included John Warnock, a Director
of Salon, William Hambrecht, the father of Elizabeth Hambrecht, Salon's CEO and
President, and two entities that William Hambrecht and Elizabeth Hambrecht have
an ownership interest in.

     Based on cash proceeds from the exercise of warrants subsequent to March
31, 2006 and forecasted trade receivable receipts, cash payments, advertising
revenues of a potential high of $5.4 million and total revenues of a potential
high of $8.1 million, Salon estimates that its cash on hand may be $0.1 million
at March 31, 2007. Due to seasonality of advertising sales, Salon forecasts that
it will sustain a cash deficit of approximately $0.1 million by July 2006 that
will increase to an expected high of approximately $0.4 million by October 2006
before diminishing. If the anticipated revenue expectations are not met, Salon's
cash on hand could be significantly less. To address the projected shortfall,
Salon has received commitments from two investors, one of which is a Director of
Salon and the other is the father of Salon's CEO and President, to provide Salon
with approximately $0.4 million in cash in July


                                       43
<PAGE>

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

2006 from the exercise of an outstanding warrant and from the purchase of Series
D preferred stock. There is no certainty that Salon will be able to attain any
of the above mentioned projected revenue amounts.

     If anticipated cash balances are not realized, Salon may need to raise
additional working capital. Salon may secure additional working capital from:
(1) the exercise of outstanding warrants, (2) the sale of 1,042 authorized and
unissued shares of Series D preferred stock as of this filing, (3) selling the
Well, or (4) the issuance of securities to a strategic investor.

     Salon has outstanding warrants that expire between the date of this filing
and March 31, 2007, from which Salon estimates it could potentially receive cash
of up to $0.8 million from their exercise. However, with the exception of a
commitment to exercise a warrant for approximately $0.1 million subsequent to
this filing, the actual amount could be considerably less, or nothing at all, as
the terms of the warrants allow for cashless exercise. Except for a commitment
by the two investors noted above to purchase approximately $0.3 million of
Series D preferred stock, the potential to raise additional working capital from
the issuance of additional shares of currently authorized shares of Series D
preferred stock, though viable, is not certain. In addition, Salon may explore
amending the "Securities Purchase Agreement", as amended to date, and the
"Certificate of Designation of Preferences and Rights of the Series D-1
Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred Stock, Series
D-4 Preferred Stock and Series D-5 Preferred Stock," (collectively, the Series D
preferred stock) to allow for the sale of additional shares of Series D than the
1,042 currently authorized and unissued as of this filing. There is no certainty
that Salon will be able to amend these documents or sell any such additional
shares.

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

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

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.

Segment and enterprise-wide reporting

     Salon discloses segment enterprise-wide information in accordance with
Statement of Financial Accounting Standard (SFAS) 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.


                                       44
<PAGE>

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

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.

Goodwill and intangible assets

     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. Intangible assets are amortized over their
respective estimated useful lives.

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 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.


                                       45
<PAGE>

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

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
advertising 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, which includes Salon Premium,
The Well and Table Talk, is recognized ratably over the subscription period.
Subscription revenues from Table Talk were eliminated during the year ended
March 31, 2005 and became a no-cost benefit to Salon Premium subscribers. 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 $271, $471, and $1,056, for the fiscal years ended March 31, 2006, 2005, and
2004.

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, 2006, 2005 and 2004 and
comprehensive loss for those periods.

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


                                       46
<PAGE>

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

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. One customer accounted for
11% of total trade accounts receivable at March 31, 2006 and two customers
accounted for 19% and 15%, respectively, of total trade accounts receivable at
March 31, 2005. No customer accounted for 10% or more of total revenue for the
fiscal years ended March 31, 2006, 2005 and 2004 respectively.

Stock-based compensation

     Salon accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25 and Financial Accounting Standards Board (FASB) Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB No. 25" (FIN 44), and complies with the disclosure
provisions of Statement of Financial Accounting Standard (SFAS) 123, as amended
by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure-amendment to FASB Statement No. 123, Accounting for Stock-Based
Compensation." Under APB 25, compensation expense is based on the difference, if
any, on the date of the grant, between the fair value of Salon's stock and the
exercise price. Salon accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force (EITF) Issue
No. 96-18, "Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods or Services." If
Salon's compensation expense under its stock option plan had been determined
pursuant to SFAS 123, Salon's net loss and net loss per share would have been as
follows:

<TABLE>
<CAPTION>
                                                                   Year Ended March 31,
                                                             --------------------------------
                                                               2006        2005        2004
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Net loss attributable to common stockholders:
       As reported                                           $ (2,162)   $   (358)   $ (8,661)
       Add back: stock-based employee compensation
       expense included in reported net loss                        -           -           -
       Deduct: total stock-based compensation expense
       determined under the fair value based method, net
       of related tax                                          (2,321)     (1,390)       (219)
                                                             --------    --------    --------
       Pro forma net loss attributable to common
       stockholders                                          $ (4,483)   $ (1,748)   $ (8,880)
                                                             ========    ========    ========
Basic and diluted net loss per share attributable
common stockholders:
       As reported                                           $  (0.13)   $  (0.02)   $  (0.61)
       Pro forma net loss per share                          $  (0.28)   $  (0.12)   $  (0.63)
</TABLE>


                                       47
<PAGE>

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

     The fair value of the options was estimated at the date of grant using the
Black-Scholes option-pricing model. No options were granted during the year
ended March 31, 2004. Salon determined the estimated fair value of its options
granted for the years ended March 31, 2006, and 2005, using the following
assumptions:

                                        Year Ended March 31,
                            --------------------------------------------
                                 2006           2005            2004
                             ------------   ------------    ------------
Risk-free interest rates     3.80 - 4.30%       3.40%           N/A
Expected lives (in years)         4               4             N/A
Expected volatility              120%           120%            N/A
Dividend yield                   0.0%           0.0%            N/A

     The weighted average grant date fair value per share of options granted
during the years ended March 31, 2006, 2005, and 2004 was $0.19, $0.11 and none,
respectively.

Net loss per share

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

<TABLE>
<CAPTION>
                                                                         Year Ended March 31,
                                                            -----------------------------------------------
                                                                 2006             2005             2004
                                                            -------------    -------------    -------------
<S>                                                         <C>              <C>              <C>
Numerator:
   Net loss attributable to common stockholders             $      (2,162)   $        (358)   $      (8,661)
                                                            =============    =============    =============

Denominator:
   Weighted average shares outstanding                         16,188,000       14,390,000       14,155,000
   Weighted average shares held in escrow                               -                -          (56,000)
                                                            -------------    -------------    -------------
   Weighted average shares used in computing basic
      and diluted net loss per share attributable to
      common stockholders                                      16,188,000       14,390,000       14,099,000
                                                            =============    =============    =============
   Basic and diluted net loss per share attributable to
      common stockholders                                   $       (0.13)   $       (0.02)   $       (0.61)
                                                            =============    =============    =============

   Antidilutive securities including options, warrants
      and convertible preferred stock not included
      in loss per share calculation                           237,979,000      232,006,000      199,312,000
                                                            =============    =============    =============
</TABLE>


                                       48
<PAGE>

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

Recent accounting pronouncements

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

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

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

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

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


                                       49
<PAGE>

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

Note 3. Balance Sheet Components

                                                       Year Ended March 31,
                                                       --------------------
                                                         2006        2005
                                                       --------    --------
Accounts receivable, net:
    Accounts receivable                                $    532    $    653
    Less: allowance for doubtful accounts                   (30)        (30)
                                                       --------    --------
                                                       $    502    $    623
                                                       ========    ========
Prepaid expenses and other current assets
    Receivable from employees                                48          89
    Prepaid expenses                                         40          88
    Short term deposits                                      96          54
    Other receivables                                         -           1
                                                       --------    --------
                                                       $    184    $    232
                                                       ========    ========
Property and equipment, net
    Computer hardware and software                     $  1,263    $  1,316
    Leasehold improvements                                   67          67
    Furniture and office equipment                          242         243
                                                       --------    --------
                                                          1,572       1,626
    Less accumulated depreciation and amortization       (1,417)     (1,435)
                                                       --------    --------
                                                       $    155    $    191
                                                       ========    ========

Other assets
    Long-term deposits                                 $    104    $    167
                                                       --------    --------
                                                       $    104    $    167
                                                       ========    ========

Accounts payable and accrued liabilities
    Accounts payable                                   $    253    $    216
    Salaries and wages payable                              290         270
    Accrued services                                         88          92
    Reserve for claims                                       75         151
    Other accrued expenses                                   41          59
                                                       --------    --------
                                                       $    747    $    788
                                                       ========    ========

     Depreciation expense for the years ended March 31, 2006, 2005 and 2004 was
$88, $115, and $347 respectively.

Note 4. 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


                                       50
<PAGE>

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

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. The aggregate number of
shares purchased by an employee may not exceed 2,000 shares in any one Offering
Period, generally six months (subject to limitations imposed by the Internal
Revenue Code). A total of 500,000 shares are available for purchase under the
ESPP.

Note 5. 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 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,
2006.

Note 6. Bank Line of Credit

     In October 2002, Salon entered into an Accounts Receivable Purchase
Agreement with a bank. Under the terms of the agreement, the bank could make
advances of 60% or 80% of the face value of acceptable receivables from Salon,
depending on the nature of the receivable. The aggregate advances on receivables
outstanding under the agreement could not exceed $1,000, however the amount was
capped at $300 until such time as Salon had $2,500 of unrestricted cash. Amounts
advanced under this agreement accrued interest at prime plus 1% per annum on the
average daily balance outstanding and were subject to a fee of 1.25% per month
on the average daily balance outstanding. Upon collection of the outstanding
receivable used as collateral for the advance, the corresponding advance was
paid back to the bank along with applicable fees. As part of the agreement,
Salon issued 37,500 warrants to the bank. The warrants were valued at an
immaterial amount using the Black-Scholes option-pricing model, applying a
contractual life of seven years, a weighted average risk-free rate of 4.375%, an
expected dividend yield of 0%, a volatility of 120% and a deemed fair value of
common stock of seven cents. During the year ended March 31, 2003, Salon
borrowed and repaid $82 leaving no amounts owed at the end of the year. During
the year ended March 31, 2004, Salon borrowed and repaid $182. The agreement
expired in January 2004 with no amounts owed and was not renewed.

Note 7. Related Party Transactions

     On October 10, 2000, Salon loaned its Chairman $75 with an agreed 6.3%
annual interest rate with no due date. A balance of $48 remains outstanding as
of March 31, 2006 and is included as a component of "Prepaid expenses and other
current assets" in Salon's Consolidated Balance Sheets. During the year ended
March 31, 2006, $45 of interest and principal was paid to Salon.

     From July 24, 2002 through December 31, 2003 Salon issued $4,227 of
promissory and convertible promissory notes to various investors and issued
warrants to purchase 10,146,036 shares of


                                       51
<PAGE>

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

common stock. The promissory notes were converted to 5,493 shares of Series C
preferred stock in December 2003. Related parties pertaining to the issuance of
notes were comprised of the following:

                                            Promissory                 Series C
                                               Note       Warrants      Shares
Name                                          Amount       Issued       Issued
-----------------------------------------   ----------   ----------   ----------

The Hambrecht 1980 Revocable Trust          $       50      150,000           64
WR Hambrecht + Co., LLC                             50      150,000           64
The Sarah & William Hambrecht Foundation            80       40,107          108
HAMCO Capital Corporation                          100      300,000          127
Ironstone Group, Inc                               650    1,950,000          843
                                            ----------   ----------   ----------
Total William Hambrecht related entities           930    2,590,107        1,206

John Warnock                                     2,199    5,649,345        2,849
Wenner Media LLC                                   200      600,000          250
Robert McKay                                       117       58,423          158
Brian Dougherty                                     50       25,000           67
Elizabeth Hambrecht                                 25       75,000           31
                                            ----------   ----------   ----------
Total all                                   $    3,521    8,997,875        4,561
                                            ==========   ==========   ==========

Elizabeth Hambrecht has an ownership interest in WR Hambrecht + Co., LLC and in
HAMCO Capital Corporation. William Hambrecht has an ownership interest in HAMCO
Capital Corporation and Ironstone Group, Inc. Jann Wenner, who served as a
Director of Salon from January 2004 through February 2006, has a controlling
interest and is the Chairman and President of Wenner Media LLC. Robert McKay is
a Director of Salon. Brian Dougherty served as a Director of Salon until April
2003.

     In addition to converting promissory notes to shares of Series C preferred
stock in December 2003, Salon received $500 from Director John Warnock for which
Salon issued 625 shares of Series C preferred stock and granted warrants to
purchase 1,500,000 shares of common stock. In February 2004, Salon issued 125
shares of Series C preferred stock and warrants to purchase 300,000 shares of
common stock to The Hambrecht 1980 Revocable Trust and issued 125 shares of
Series C preferred stock and warrants to purchase 300,000 shares of common stock
to WR Hambrecht + Co, Inc.

     In December 2003, Wenner Media LLC received a warrant to purchase 2,600,000
shares of common stock, of which 2,000,000 was part of an editorial
collaboration agreement. Former Salon director Jann Wenner is the Chairman and
President of Wenner Media LLC. During the years ended March 31, 2006 and March
31, 2005, Salon received $4 and $17 respectively, from Wenner Media for
editorial collaboration.


                                       52
<PAGE>

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

     On June 4, 2004, September 30, 2004 and February 2, 2005, Salon issued a
total of 834 shares of Series D preferred stock and warrants to purchase
1,489,457 shares of common stock. The related parties in these transactions
were:

                                             Series D
                                              Shares      Warrants     Purchase
Name                                          Issued       Issued       Price
-----------------------------------------   ----------   ----------   ----------
The Hambrecht 1980 Revocable Trust          $      334      590,216          401
HAMCO Capital Corporation                           63      115,653           76
                                            ----------   ----------   ----------
Total William Hambrecht related entities           397      705,869          477

John Warnock                                       416      742,943          499
                                            ----------   ----------   ----------
Total all                                   $      813    1,448,812          976
                                            ==========   ==========   ==========

     During the year ended March 31, 2006, John Warnock, a Director of Salon,
exercised the following outstanding warrants and received common stock of Salon:

   Date          Number           Exercise     Cash Received
 Exercised     Of Shares       Price per share   by Salon
------------------------------------------------------------
 5/24/2005         99,345        0.08979801              9
 1/23/2006        150,000        0.04505918              6
 1/23/2006        300,000        0.04168543             13
 1/23/2006        300,000        0.04168543             13
             -------------                     ------------
                  849,345                               41
             =============                     ============

     Brian Dougherty, a former Director of Salon, exercised a warrant on May 17,
2005 for 25,000 shares of common stock for which Salon received $2. On July 20,
2005, Robert McKay, a Director of Salon, through the Elaine McKay Family
Partnership, exercised a warrant for 58,423 shares of common stock for which
Salon received $5. The Sarah and William Hambrecht Foundation, for which William
Hambrecht and Elizabeth Hambrecht, Salon's CEO and President and daughter of
William Hambrecht serve as Directors, exercised a warrant on July 22, 2006 for
40,107 shares of common stock for which Salon received $4.

     On each of February 7, 2006, March 7, 2006 and March 20, 2006, Ironstone
Group, Inc. converted warrants for 300,000 shares of common stock to 262,450,
255,337 and 249,977 shares of common stock for which Salon received no cash.
William Hambrecht has an ownership interest in Ironstone Group, Inc.

     On October 7, 2005, Michael O'Donnell, a former CEO and President of Salon,
converted a warrant for 1,000,000 shares of common stock to 642,857 shares of
common stock for which Salon received no cash.


                                       53
<PAGE>

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

Note 8. 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 New York,
NY that expires in May 2006, for its office in Washington, D.C. that expires in
May 2007 and to host its servers in San Francisco, CA that expires in September
2007. Rent expense under operating lease agreements was $396, $634, and $625,
for the years ended March 31, 2006, 2005, and 2004, respectively.

     In May 2003, Salon subleased its former office in New York. The sublease
agreement, which expired in December 2004, resulted in a charge to rent expense
of $180 that was included in Salon's results of operations for the year ended
March 31, 2004.

     Salon has no capital leases as of March 31, 2006. Total future minimum
rental payments under capital leases and non-cancelable operating leases in
effect at March 31, 2006 are as follows:

                                              Operating
    Year Ending March 31,                       Leases
    ---------------------                   -------------
          2007                              $         308
          2008                                        262
          2009                                        229
          2010                                          -
                                            -------------
              Total lease payments                    799
                                            =============

     Subsequent to March 31, 2006, Salon extended its lease agreement for its
office in New York to expire in May 2007.

     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 9. Goodwill and Intangible Assets

     In accordance with FASB No. 142, "Goodwill and Other Intangible Assets"
(SFAS No. 142), goodwill amortization was discontinued as of March 31, 2002. The
carrying value of goodwill at March 31, 2006 and March 31, 2005 was $200 and has
been found not to be impaired.


                                       54
<PAGE>

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

     The following table sets forth information concerning Salon's intangible
assets as of March 31, 2006 and 2005:

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

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

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, 2006, Salon has net operating loss carry-forwards of $64,075 and $33,137 for
Federal and California purposes, respectively, available to reduce future
taxable income, if any. During the year ended March 31, 2006, $375 of California
net operating loss carry-forwards expired and additional $1,297 is due to expire
as of March 31, 2007, 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, 2006, 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.

     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,
                                                     -----------------------
                                                         2006         2005
                                                     ----------   ----------
Net operating losses                                 $   23,719   $   23,274
Other                                                     1,309        1,483
                                                     ----------   ----------
Total deferred tax assets                                25,028       24,757
Valuation allowance                                     (25,028)     (24,757)
                                                     ----------   ----------
Net deferred tax asset                               $        -   $        -
                                                     ==========   ==========


                                       55
<PAGE>

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

     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,
                                       --------------------------------------
                                          2006          2005          2004
                                       ----------    ----------    ----------
Statutory tax benefit                  $     (735)   $     (122)   $   (2,945)
State taxes, net of federal benefit          (126)          (21)         (505)
Permanent differences                         493          (244)        1,608
Other                                          97          (172)          330
                                       ----------    ----------    ----------
Total                                        (271)         (559)       (1,512)
Change in valuation allowance                 271           559         1,512
                                       ----------    ----------    ----------
                                       $        -    $        -    $        -
                                       ==========    ==========    ==========

Note 11. Employee Stock Option Plan

     Salon has two stock option plans approved by shareholders. The Salon
Internet, Inc. 1995 Stock Option Plan (the 1995 Plan) 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 Plans). In October 2005,
Salon's stockholders approved an amendment to the 2004 Plan to increase the
maximum number of shares of common stock that may be issued under the plan by
16,000,000 to a total of 46,000,000.

     Under the 2004 Plan, incentive and nonqualified stock options may be
granted to officers, employees, directors and consultants of Salon. Options
generally vest over periods of one to four years and have terms of ten years.
However, in the case of 20,910,000 options granted on February 7, 2005 and
7,641,000 options granted on May 16, 2005, half vested on the date of grant, and
the remaining half vested on February 7, 2006. The exercise price of options is
determined by the Board of Directors and is generally at least equal to the fair
market value of the stock on the grant date.

     On February 7, 2005, Salon granted its Chairman 1,000,000 options from a
plan not approved by shareholders.

     At March 31, 2006 and 2005, Salon had 17,364,000 and 9,090,000 shares of
common stock authorized and available for grants under the 2004 Plan and at
March 31, 2004 had 3,336,000 shares of common stock authorized and available for
grants under the 1995 Plan.


                                       56
<PAGE>

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

     The following table summarizes activity under Salon's Plans from March 31,
2003 through March 31, 2006:

                                                      Weighted
                                                      Average
                                     Number of        Exercise
                                      shares           Price
                                   ------------    ------------
Balance March 31, 2003                6,136,000    $       1.62
Options granted                               -    $          -
Options terminated                   (2,185,000)   $       1.83
Options exercised                             -    $          -
                                   ------------
Balance March 31, 2004                3,951,000    $       1.50
Options granted                      21,910,000    $       0.14
Options terminated                     (663,000)   $       1.27
Options exercised                      (399,000)   $       0.14
                                   ------------
Balance March 31, 2005               24,799,000    $       0.33
Options granted                      10,792,000    $       0.24
Options terminated                   (3,533,000)   $       0.33
Options exercised                      (520,000)   $       0.14
                                   ------------
Balance March 31, 2006               31,538,000    $       0.30
                                   ============

The following table summarizes information about stock options outstanding at
March 31, 2006:

<TABLE>
<CAPTION>
                                Options Outstanding                   Options Exercisable
                    ------------------------------------------     --------------------------
                                      Weighted
                                      Average        Weighted                       Weighted
                     Number of       Remaining       Average        Number of        Average
    Range of           Shares       Contractual      Exercise         Shares        Exercise
Exercise Prices     Outstanding     Life (Years)      Price        Exercisable       Price
---------------     -----------     ------------    ----------     -----------    -----------
<S>                  <C>                <C>         <C>             <C>             <C>
 $0.06 - $ 0.06           8,000         6.5         $    0.06            7,000      $   0.06
 $0.12 - $ 0.14      22,384,000         8.7              0.14       20,766,000          0.14
 $0.19 - $ 0.26       7,191,000         8.9              0.26        6,840,000          0.26
 $0.32 - $ 0.37       1,269,000         8.0              0.36          455,000          0.36
 $0.52 - $ 0.52          18,000         2.6              0.52           18,000          0.52
 $1.38 - $ 2.00         257,000         4.4              1.88          257,000          1.88
 $2.92 - $ 3.63          40,000         3.0              2.96           40,000          2.96
 $5.06 - $ 5.25          30,000         3.6              5.22           30,000          5.22
 $8.50 - $10.06         341,000         3.4              9.67          341,000          9.67
                    -----------                                    -----------
                     31,538,000         8.6         $    0.30       28,754,000      $   0.31
                    ===========                                    ===========
</TABLE>


                                       57
<PAGE>

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

     At March 31, 2005 and 2004 options to purchase 13,605,000 and 3,061,000
shares of common stock, respectively, were exercisable.

Note 12. Stockholders' Equity

Preferred stock

     Salon has 5,000,000 shares of preferred stock, authorized in April 1999,
whose preferences, rights and privileges may be amended by the Board of
Directors and by no less than a majority vote by each series of A, B, C or D
preferred stock.

     A summary of the series of shares of preferred stock that Salon has
outstanding, corresponding warrants issued, and common stock equivalents,
follows as of March 31, 2006:

<TABLE>
<CAPTION>
                                                                         Conversion       Common
                             Per Share        Warrants Outstanding         Rate to      Equivalent
   Series       Shares         Price        Number   Exercise Price (1)   Common (2)      Shares
   ------       ------       ---------    ---------- ------------------  -----------    ----------
<S>               <C>         <C>         <C>              <C>             <C>         <C>
   A(3,4)           808       $4,000       6,272,000       $0.10942        0.09957      32,459,897

      B             125       $4,000       1,414,827       $0.08980        0.08003       6,247,750

   C(3,5)         6,582         $800       2,700,000       $0.03450        0.04000     131,640,000

     D-1            417       $1,200         807,095       $0.13742        0.09300       5,380,642
     D-2            208       $1,200         340,363       $0.12650        0.11000       2,269,090
     D-2            209       $1,200         341,999       $0.16100        0.11000       2,279,999
     D-3            209       $1,200         404,516       $0.54050        0.09300       2,696,774
              ----------                -------------                                --------------
  D total         1,043                    1,893,973                                    12,626,505
              ----------                -------------                                --------------
                  8,558                   12,280,800                                   182,974,152
              ==========                =============                                ==============
</TABLE>

     (1)  Exercise Prices of Series A, B and D-1 have been adjusted as of March
          31, 2006 pursuant to an antidilution provision of the underlying
          security.
     (2)  Rates of conversion to common stock of the Series A and B preferred
          stock has been adjusted as of March 31, 2006 pursuant to an
          antidilution provision of the underlying security.
     (3)  Reflects conversion by an investor in January 2006 of one share Series
          A preferred stock to 40,173 shares of common stock and thirty-six
          shares of Series C preferred stock to 720,000 shares of common stock.
     (4)  Subsequent to March 31, 2006 warrants to purchase 1,600,000 share of
          common stock were exercised by two investors. One of the investors was
          a foundation in which Salon's CEO and president serves as a Director.
     (5)  Subsequent to March 31, 2006 warrants to purchase 1,800,000 share of
          common stock were exercised by two investors. The investors included a
          Director of Salon and the father of Salon's CEO and President.

     As of March 31, 2006, the Purchase Agreement, as amended, and the
Certificate of Designation of Preferences and Rights of the Series D-1, D-2,
D-3, D-4 and D-5, collectively "Series D," preferred stock allow the sale and
issuance of an additional 1,042 shares of Series D preferred stock and stipulate


                                       58
<PAGE>

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

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 the Series D
preferred offering is made.

     The holders of the Series A, B, and C preferred stock are entitled
dividends of 8.0%, as and if declared by the Board of Directors, and the holders
of the Series D preferred stock are entitled dividends of 5.0%, as and if
declared by the Board of Directors. As of March 31, 2006, no cash dividend has
been declared or paid.

     In event of a liquidation occurrence, the holders of Series D preferred
stock and the holders of the Series C preferred stock rank in parity, and are
entitled to receive, prior and in preference to any distribution of any assets
or property of Salon to the holders of common stock, Series A and B preferred
stock. The holders of Series D preferred stock are entitled to 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. 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 is to 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. 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.

     If, after initial preferential liquidation payments to the holders of
Series A, B, C and D preferred stock holders, any assets remain available for
distribution, such assets are to be distributed ratably among the holders of
common stock and preferred stock, based on to 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.

     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. The holders of Series C Preferred
Stock hold approximately 87% of this group of securities.

     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. Subsequent to March 31, 2006, the preferred stockholders as a
group control approximately 95% of all voting securities of Salon.


                                       59
<PAGE>

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

     The aggregate liquidation preferences of all preferred stockholders as of
March 31, 2006 were $19,247 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, 2005 were $19,062
excluding the effect of undeclared dividends, and $20,686 including the effect
of undeclared dividends.

     On November 22, 2005, Salon amended its Certificate of Incorporation to
increase the number of authorized shares of common stock from 50,000,000 shares
to 600,000,000 thereby allowing the holders of all series of preferred
stockholders, at their option, to convert their shares to common stock at any
time. Prior to that date, only the holders of Series A and B could convert their
shares of preferred stock to common stock. As of March 31, 2006, one share of
Series A preferred stock was converted to 40,173 shares of common stock and 36
shares of Series C preferred stock was converted to 720,000 shares of common
stock. No shares of preferred stock were converted to common stock in prior
years.

     The Series A, B, C and D preferred stock conversion price is subject to a
downward adjustment anti-dilution provision under certain circumstances related
to subsequent Salon stock issuances. The effect of this provision through March
31, 2006, has been to reduce the Series A conversion rate from an original 0.25
to 0.09957, and the series B conversion rate from an original 0.1767 to 0.08003.

     The exercise price of warrants issued in conjunction with the issuance of
Series A, B, C and D are also subject to a downward adjustment anti-dilution
provision under certain circumstances related to subsequent Salon warrant
issuances. The effect of this provision through March 31, 2006, was to reduce
the per share exercise price of warrants issued to Series A preferred
stockholders from an original $0.2875 to $0.10942, the series B conversion price
from an original $0.21 to $0.08980, and the Series D-1 shares issued on June 4,
2004 from an original $0.13800 to $0.13742.

     Due to the difference between the offering price of Salon's 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 fair value of warrants
issued, Salon recorded a $1,040 preferred deemed dividend charge during its year
ended March 31, 2006 from the issuance of Series D-3 preferred stock, a $310
preferred deemed dividend charge during its year ended March 31, 2005 from the
issuance of Series D-1 and D-2 preferred stock and a $2,040 preferred deemed
dividend charge during its year ended March 31, 2004 from the issuance of Series
C preferred stock. 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 is reflected is reflected in the results of operations for the year
ended March 31, 2005. The preferred deemed dividend charge of $2,040 in
conjunction with a charge of $575 from a change in value of warrants issued to
preferred stockholders is reflected is reflected in the results of operations
for the year ended March 31, 2004.

     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.


                                       60
<PAGE>

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

Stock warrants

     In September 1998, Salon issued warrants to purchase up to 220,000 shares
of common stock at an exercise price of $0.52 per share in connection with the
sale of pre-IPO Series C convertible preferred stock offering. Upon completion
of the initial public offering, the warrant was converted to the right to
purchase an equivalent number of Salon's common stock at the same exercise price
per share. The warrants may be exercised at any time within 10 years after
issuance and expire in September 2008. As of March 31, 2006, warrants to
purchase 172,529 shares of common stock remain exercisable.

     In August 2001 and September 2001, Salon issued warrants to purchase a
total of 6,472,000 shares of common stock in conjunction with the issuance of
Series A preferred stock, all with a five year life. Due to an anti-dilution
provision of the warrants, the exercise price of the warrants has been reduced
to $0.10942 as of March 31, 2006. During the year ended March 31, 2006, a
warrant to purchase 200,000 shares of common stock was converted to 112,464
shares of common stock under the net exercise provision of the warrant.
Accordingly, Salon did not receive any cash consideration. Subsequent to March
31, 2006, two warrant to purchase 1,600,000 shares of common stock were
exercised for which Salon received $175 in cash. One of the warrants was
exercised by a foundation for which Salon's CEO and President serves as a
Director. Subsequent to March 31, 2006, warrants to purchase 3,168,000 shares of
common stock remain exercisable and expire on August 9, 2006 and warrants to
purchase 1,504,000 shares of common stock remain exercisable and expire on
September 13, 2006.

     In January 2002, Salon issued warrants to purchase 30,000 shares of common
stock at an exercise price of $0.15 per share and a five year life. The warrants
have not been exercised as of March 31, 2006.

     In March 2002, Salon issued a warrant to purchase 1,414,827 shares of
common stock in conjunction with the issuance of Series B preferred stock. The
warrant may be exercised at any time within five years and have not been
exercised as of March 31, 2006. Due to an anti-dilution provision of the
warrant, the exercise price of each warrant share has been reduced from $0.21 to
$0.0898 as of March 31, 2006.

     In October 2002, Salon issued a warrant to purchase 37,500 shares of common
stock at an exercise price of $0.05 per share with a seven year life. The
subsequent issuance of Series C preferred stock triggered an anti-dilution
provision of the warrant agreement, increasing the number of warrants to 44,285
and lowering the exercise price to $0.0431. The warrant has not been exercised
as of March 31, 2007.

     In October 2003, Salon issued warrants to purchase 1,000,000 shares of
common stock at an exercise price of $0.05 per share to its former President and
Chief Executive Officer. Salon valued the warrant using the Black-Scholes
option-pricing model, applying a contractual life of 2 years, a weighted average
risk-free interest rate of 1.625%, an expected dividend yield of 0%, a
volatility of 120% and a deemed fair value of common stock of $0.05. The fair
market value of the warrant of $31 was amortized through Salon's fiscal year
ending March 31, 2004 as a component of general and administrative expense in
the Consolidated Statement of Operations. In October 2005, the warrant was
converted to 642,857 shares of common stock in which Salon did not receive any
cash consideration.

     In December 2003, Salon issued a warrant to purchase 2,600,000 shares of
common stock with a three year life as part of an editorial collaboration
agreement with a publisher and a convertible note. Due


                                       61
<PAGE>

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

to an anti-dilution provision of the warrant, the exercise price of each warrant
share has been reduced from $0.0575 to $0.04506 as of March 31, 2006. The
Chairman and President of the publisher served as a Director of Salon from
January 2004 through February 2006. The warrant has not been exercised as of
March 31, 2006.

     In December 2003, Salon issued a warrant to purchase 1,500,000 shares of
common stock at an initial exercise price of $0.0345 per share in conjunction
with the issuance of 625 shares of Series C preferred stock. In addition, in
February 2004, Salon issued three warrants to purchase 1,200,000 shares of
common stock at an initial exercise price of $0.0345 per share in conjunction
with the additional issuance of 500 shares of Series C preferred stock. These
warrants have a five year life. Subsequent to March 31, 2006, the warrant
originally issued in December 2003 was exercised by a Director of Salon for
which Salon received $52 and a warrant to purchase 300,000 shares of common
stock was exercised by the father of Salon's CEO and President for which Salon
received $10. Subsequent to March 31, 2006 two warrants to purchase 900,000
shares of common stock remain outstanding that expire in February 2007.

     In June 2004, Salon issued warrants to purchase 807,095 shares of common
stock in conjunction with the issuance of 417 shares Series D-1 preferred stock.
As the transaction resulted in a $195 preferred deemed dividend in Salon's
consolidated statement of operations for the year ended March 31, 2005, Salon
valued the warrants using the Black-Scholes option-pricing model, applying a
contractual life of 3 years, a weighted average risk-free interest rate of
3.19%, an expected dividend yield of 0%, a volatility of 120%, a deemed fair
value of common stock of $0.12 and an exercise price of $0.138 per share.
Subsequent to March 31, 2006, warrants to purchase 363,870 shares of common
stock were exercised by two investors for which Salon received $50. The two
investors included the father of Salon's CEO and President and an entity in
which the father of Salon's CEO and President and Salon's CEO and President both
have an ownership interest. Subsequent to March 31, 2006, warrants to purchase
443,225 shares of common stock remain outstanding.

     In September 2004, Salon issued a warrant to purchase 340,363 shares of
common stock to a Director of Salon in conjunction with the issuance of 208
shares of Series D-2 preferred stock. As the transaction resulted in a $23
preferred deemed dividend in Salon's consolidated statement of operations for
the year ended March 31, 2005, Salon valued the warrants using the Black-Scholes
option-pricing model, applying a contractual life of 3 years, a weighted average
risk-free interest rate of 2.792%, an expected dividend yield of 0%, a
volatility of 120%, a deemed fair value of common stock of $0.11 and an exercise
price of $0.1265 per share. This warrant has not been exercised as of March 31,
2006.

     In February 2005, Salon issued to two investors warrants to purchase
341,999 shares of common stock in conjunction with the issuance of an additional
209 shares of Series D-2 preferred stock. The investors included the father of
Salon's CEO and President and an entity in which the father of Salon's CEO and
President and Salon's CEO and President both have an ownership interest. As the
transaction resulted in a $92 preferred deemed dividend in Salon's consolidated
statement of operations for the year ended March 31, 2005, Salon valued the
warrants using the Black-Scholes option-pricing model, applying a contractual
life of 3 years, a weighted average risk-free interest rate of 3.327%, an
expected dividend yield of 0%, a volatility of 120%, a deemed fair value of
common stock of $0.14 and an exercise price of $0.161 per share. Subsequent to
March 31, 2006, these warrants were exercised for which Salon received $55.


                                       62
<PAGE>

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

     In March 2005, Salon issued a warrant to purchase 600,000 shares of common
stock at an exercise price of $0.27 per share to its former Senior Vice
President-Business Operations. Salon valued the warrants using the Black-Scholes
option-pricing model, applying a contractual life of 2 years, a weighted average
risk-free interest rate of 3.75%, an expected dividend yield of 0%, a volatility
of 120% and a deemed fair value of common stock of $0.27. The fair market value
of the warrants of $100 was amortized through Salon's fiscal year ending March
31, 2005 as a component of Sales and marketing expense in the Consolidated
Statement of Operations. The warrants may be exercised at any time within two
years after issuance and expires in March 2007. The warrant has not been
exercised as of March 31, 2006.

     From July 2002 through December 2003, Salon issued warrants to purchase
10,146,036 shares of common stock in conjunction with the issuance of
convertible notes payable and a promissory note. Salon valued the warrants using
the Black-Scholes option-pricing model, applying a contractual life of 3 years,
a weighted average risk-free interest rate ranging from 1.625% to 2.75%, an
expected dividend yield of 0%, a volatility of 120% and a deemed fair value of
common stock ranging from $0.03 to $0.07 per share. The fair market value of the
warrants of $324 was amortized during Salon's fiscal years ending March 31, 2003
and March 31, 2004 as a component of Interest and other expense in the
Consolidated Statement of Operations. During the year ended March 31, 2006,
warrants to purchase 1,027,541 shares of common stock were converted to 848,387
shares of common stock for which Salon did not receive any consideration under
the net exercise provision of the warrant. Of the total warrants tendered for
conversion, 900,000 was from an entity that the father of Salon's CEO and
President has an ownership interest therein and were converted to 767,764 shares
of common stock. In addition, warrants to purchase 1,274,480 shares of common
stock were exercised for which Salon received $65 and a warrant to purchase
5,000 shares of common stock expired. Subsequent to March 31, 2006, warrants to
purchase 1,344,015 shares of common stock were converted to 1,053,558 shares of
common stock for which Salon did not receive any consideration under the net
exercise provision of the warrant, and included an investor that the father of
Salon's CEO and President has an ownership interest therein. In addition,
subsequent to March 31, 2006, warrants to purchase 5,700,000 shares of common
stock were exercised for which Salon received $248. The investors in these
transactions included a Director of Salon, the father of Salon's CEO and
President, and two entities that the father of Salon's CEO and President and
Salon's CEO and President have an ownership interest therein. Subsequent to
March 31, 2006, warrants to purchase 195,000 shares of common stock at an
exercise price of $0.0345 per share and a warrant to purchase 600,000 shares of
common stock, all issued in conjunction with the issuance of convertible notes
payable, remain outstanding.

     In August 2005, Salon issued a warrant to purchase 400,000 shares of common
stock as part of an employee separation agreement. Salon valued the warrants
using the Black-Scholes option-pricing model, applying a contractual life of 1
year, a weighted average risk-free interest rate of 3.625%, an expected dividend
yield of 0%, a volatility of 120% and a deemed fair value of common stock of
$0.18. The fair market value of the warrants of $33 was amortized during Salon's
fiscal year ending March 31, 2006 as a component of Information technology
support in the Consolidated Statement of Operations. The warrant remains
outstanding as of March 31, 2006.

     In February 2006, Salon issued a warrant to purchase 100,000 shares of
common stock to a consultant. Salon valued the warrants using the Black-Scholes
option-pricing model, applying a


                                       63
<PAGE>

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

contractual life of 2 years, a weighted average risk-free interest rate of
4.38%, an expected dividend yield of 0%, a volatility of 120% and a deemed fair
value of common stock of $0.36. The fair market value of the warrants of $22 was
amortized during Salon's fiscal year ending March 31, 2006 as a component of
General and administrative expenses in the Consolidated Statement of Operations.

Convertible securities issued in excess of then authorized shares of common
stock

     On July 24, 2002, Salon issued convertible promissory notes that did not
stipulate a maximum number of shares of common stock that they could be
converted into. As the 50,000,000 shares of common stock then authorized were
deemed to be insufficient to satisfy all obligations under convertible
instruments, warrant agreements and options, Salon recorded the fair value of
the then outstanding warrants of $175 as a long-term liability. The inadequacy
of the number of authorized shares of common stock was exasperated by the
issuance of 6,618 shares of Series C preferred stock, which could be converted
to 132,360,000 shares of common stock, except for a lack in a sufficient number
of authorized shares of common stock. From July 24, 2002, at each measurement
period (the last day of each fiscal quarter), through November 22, 2004, Salon
re-measured the value of its outstanding warrants.

     For the year ended March 31, 2004, the re-measurement of warrants resulted
in a charge of $1,610, of which $575 related to warrants issued in conjunction
with the issuances of preferred stock, and was recorded as a preferred deemed
dividend in Salon's results of operations for the year then ended. From June 30,
2004 through November 22, 2004, the re-measurement of warrants resulted in a
benefit of $1,011, of which $470 related to warrants issued in conjunction with
the issuances of preferred stock, and was recorded as a preferred deemed
dividend in Salon's results of operations for the year then ended.

     On November 22, 2004, Salon amended its Certificate of Incorporation,
increasing the number of authorized shares of common stock from 50,000,000 to
600,000,000. As of that date, Salon has had a sufficient number of authorized
shares of common stock to satisfy all obligations under convertible instruments,
warrant agreements and options, and relieved its then cumulative $1,707 warrant
long-term liability to a component of additional paid-in-capital.

Common stock issued for prepaid advertising rights

     In December 1999, Salon issued 1,125,000 shares of common stock,
representing approximately 10% of Salon's then outstanding common stock to a
broadcasting company in exchange for $11,812 in advertising and promotional time
to be delivered over ten years. Based on the then closing price of Salon's
common stock, Salon recorded the value of the services to be rendered at $8,100
that it is amortizing as used. To date, the broadcasting company has delivered
$6,383 of advertising and promotion time.


                                       64
<PAGE>

<TABLE>
<CAPTION>
Selected Quarterly Financial Data (unaudited)
(in thousands, except per share data)

                                                     First        Second         Third        Fourth
                                                    Quarter       Quarter       Quarter       Quarter
                                                  ----------    ----------    ----------    ----------
<S>                                               <C>           <C>           <C>           <C>
2006:
Net revenue                                       $    1,630    $    1,654    $    2,069    $    1,163
Gross margin                                             577           614           886           (66)
Net loss attributable to common stockholders            (116)         (160)         (945)         (941)
Basic net loss per share
    attributable to common stockholders                (0.01)        (0.01)        (0.06)        (0.05)
Diluted net loss per share
    attributable to common stockholders                (0.01)        (0.01)        (0.06)        (0.05)
Shares used in per share calculation
    Basic                                             15,132        15,428        16,129        18,028
    Diluted                                           15,132        15,428        16,129        18,028

2005:
Net revenue                                       $    1,733    $    1,256    $    2,150    $    1,489
Gross margin                                             533           252         1,019           378
Net income (loss) attributable to
    common stockholders                               (1,164)        1,018           395          (607)
Basic net income (loss) per share
    attributable to common stockholders                (0.08)         0.07          0.03         (0.04)
Diluted net income (loss) per share
    attributable to common stockholders                (0.08)         0.00          0.00         (0.04)
Shares used in per share calculation
    Basic                                             14,155        14,161        14,507        14,743
    Diluted                                           14,155       205,148       203,387        14,743
</TABLE>



                                       65
<PAGE>

ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.

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 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

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

ITEM 9B. Other Information

None


                                       66
<PAGE>

PART III

ITEM 10. Directors and Executive Officers of The Registrant

     Salon's executive officers and directors as of March 31, 2006 are as
follows:

Name                      Age    Position
-----------------------  -----   -----------------------------------------------
David Talbot(2)            54    Chairman of the Board, Director
Elizabeth Hambrecht(3)     43    Chief Executive Officer and President, Director
Joan Walsh                 47    Editor-in-Chief
Conrad Lowry               54    Chief Financial Officer and Secretary
Deepak Desai (1,4,6)       47    Director
Robert Ellis (2,4)         70    Director
George Hirsch(1,4)         71    Director
Robert McKay(3)            42    Director
James Rosenfield (3,5)     77    Director
John Warnock(1,5)          65    Director

     (1)  Class I director whose term expires at the 2008 Annual Meeting of
          Stockholders
     (2)  Class II directors whose term expires at the next Annual Meeting of
          Stockholders
     (3)  Class III directors whose term expires at the 2007 Annual Meeting of
          Stockholders
     (4)  Member of Audit Committee
     (5)  Member of Compensation Committee
     (6)  Audit Committee financial expert

     David Talbot co-founded Salon in 1995. He served as Chief Executive Officer
from 1995 through April 1999 and again from October 2003 through February 2005.
He became Chairman of the Board in April 1999. He served as Editor-in-Chief from
Salon's incorporation in 1995 through February 2005. From 1990 to 1995, Mr.
Talbot was the Arts & Features editor for the San Francisco Examiner newspaper.
Mr. Talbot has co-authored three books and written for numerous publications
including The New Yorker, Rolling Stone and Playboy. He is currently writing a
book about John and Robert Kennedy for Simon & Schuster. Mr. Talbot holds a
Bachelor of Arts degree in sociology from the University of California at Santa
Cruz.

     Elizabeth Hambrecht has served as Salon's Chief Executive Officer since
February 2005 and Salon's President since October 2003. Previously, she served
as Salon's Chief Financial Officer and Secretary from May 2003 until February
2005. 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, the Asian Art Museum of San
Francisco, and of KQED, a public broadcast company for Northern California.

     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


                                       67
<PAGE>

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 of Director 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.

     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 began serving as 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
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. 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.)


                                       68
<PAGE>

     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 actively on a number
of corporate and foundation boards. 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.

     John Warnock has served as a Director of Salon since August 2001. 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.

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 the Company'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 David Talbot,
Salon's Chairman, for the sale of common stock on August 15, 17 and 18, 2005
that was filed on August 24, 2005.


                                       69
<PAGE>

ITEM 11. Executive Compensation

Executive Compensation

     The following table sets forth information concerning the compensation
during the fiscal years ended March 31, 2006, March 31, 2005, and March 31,
2004, of the Chief Executive Officer and the four other most highly compensated
current and former executive officers.

<TABLE>
<CAPTION>
                                             SUMMARY COMPENSATION TABLE

                                                       Annual Compensation             Long Term
                                                -----------------------------------   Compensation
                                                                                         Awards
                                                                                      ------------
                                                                                       Securities
                                                                                       Underlying      All Other
          Name and Principal Position            Year       Salary       Bonus(1)        Options     Compensation
----------------------------------------------  ------    ----------   ------------   ------------   ------------
<S>                                              <C>       <C>          <C>             <C>            <C>
David Talbot..................................   2006      $ 95,000     $        -              -      $      -
     Chairman                                    2005      $177,860     $        -      5,000,000      $      -
                                                 2004      $191,250     $        -              -      $      -

Elizabeth Hambrecht...........................   2006      $159,122     $        -              -      $      -
     President and Chief Executive Officer       2005      $132,891     $        -      2,500,000      $      -
                                                 2004      $130,000     $        -              -      $      -

Joan Walsh....................................   2006      $159,122     $        -              -      $      -
     Editor-In-Chief                             2005      $132,891     $        -      2,000,000      $      -
                                                 2004      $115,000     $        -              -      $      -

Conrad Lowry..................................   2006      $130,000     $        -              -      $      -
     Chief Financial Officer and Secretary       2005      $109,652     $        -      1,500,000      $      -
                                                 2004      $106,250     $        -              -      $      -

Melissa Barron(2).............................   2006      $ 86,667     $   21,300              -      $      -
     (Former)Senior Vice President - Sales       2005      $130,000     $   50,440      1,000,000      $      -
                                                 2004      $130,000     $   33,527              -      $      -
</TABLE>

     (1)  Bonuses are principally based on performance and are shown in the year
          earned.
     (2)  Ceased being an officer on February 15, 2006. Salary amount includes
          $21,667 regular pay and severance of $65,000 to be paid in next fiscal
          year.

Stock Options Granted in Fiscal 2006

     None of the individuals named in the Summary Compensation Table received
any option grants during the year ended March 31, 2006.


                                       70
<PAGE>

Option Exercises and Fiscal 2006 Year-End Values

     The following table sets forth information concerning unexercised options
to purchase our Common Stock held as of March 31, 2006, by the persons named in
the Summary Compensation Table.

<TABLE>
<CAPTION>
                                                         Number of Securities
                                                       Underlying Unexercised       Value of Unexercised
                                                               Options              In-the-Money Options
                                                        at Fiscal Year End(2)       at Fiscal Year End(1)
                                                        ---------------------       ---------------------
                               Shares
                              acquired      Value
          Name              on exercise   Realized    Exercisable  Unexercisable  Exercisable  Unexercisable
------------------------    -----------   --------    -----------  -------------  -----------  -------------
<S>                           <C>          <C>         <C>            <C>          <C>          <C>
David Talbot............      100,000      $7,047      5,846,884            -      $ 589,250    $       -
Elizabeth Hambrecht.....            -           -      2,500,000            -      $ 275,000    $       -
Joan Walsh..............            -           -      2,205,713            -      $ 233,750    $       -
Conrad Lowry............            -           -      1,595,491            -      $ 171,350    $       -
Melissa Barron..........            -           -        475,144      500,000      $  45,650    $  55,000
</TABLE>

(1)  Based on a closing price of Salon's common stock on March 31, 2006, of
     $0.25 per share as reported on the Over-The-Counter (OTC) Bulletin Board
     and is net of the exercise price of such options.
(2)  Other than options granted in February 2005, Salon's stock options
     generally vest one-fourth on the first anniversary of the date of grant and
     1/48 per month thereafter for each full month of the optionee's continuous
     employment by Salon. Of the options granted in February 2005, 50% vested on
     the date of grant and 50% vested one year from the date of grant. All
     options are exercisable only to the extent vested.

Compensation of Directors

     The independent directors of Salon received no cash compensation for
serving as a director during the year ended March 31, 2006. In May 2005, George
Hirsch, James Rosenfield and Jann Wenner, in consideration of their serving as
directors, each received options to purchase 650,000 shares of common stock at
an exercise price of $0.26 per share. Of the options granted, 50% vested on the
date of grant and 50% vested on February 2006, with the exception of those
granted to Jann Wenner, who resigned as a Director prior to full vesting of the
option grant.

Employment Contracts and Termination of Employment and Change-in-Control
Arrangements

     No employment contracts or termination of employment and change-in-control
arrangements exist as of March 31, 2006, for the persons named in the Summary
Compensation Table. Subsequent to March 31, 2006, Salon entered into a
separation agreement with Melissa Barron, who ceased serving as an officer of
Salon in February 2006.

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.


                                       71
<PAGE>

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

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, 2005, 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.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
       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)
-----------------------------------------------------------------------------------------------------
<S>                                <C>                        <C>                   <C>
Equity compensation plans          30,537,781 (1)             $0.31                 17,781,797 (2)
approved by security
holders
-----------------------------------------------------------------------------------------------------
Equity compensation plans           1,000,000                 $0.14                    None
not approved by security
holders
                              -----------------------------------------------------------------------
Total                              31,537,781                  N/A                  17,781,797
-----------------------------------------------------------------------------------------------------
</TABLE>

(1)  Includes 2,623,724 shares issuable under the terminated Salon Internet,
     Inc. 1995 Stock Option Plan and 27,914,057 shares issuable under the Salon
     Media Group, Inc. 2004 Stock Plan.
(2)  Includes 17,364,272 shares available from the Salon Media Group, Inc. 2004
     Stock Plan, and 417,525 shares available from the Salon.com, Inc. 1999
     Employee Stock Purchase Plan, (which was suspended March 1, 2001).


Equity Compensation Plans Not Approved by Security Holders

     In February 2005, Salon entered into a Non-Plan Stock Agreement with its
Chairman, pursuant to which Salon granted such person non-qualified options to
purchase 1,000,000 shares of common stock at an exercise price of $0.14 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.


                                       72
<PAGE>

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 May 15,
2006 (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) by the Chief
Executive Officer and the other four most highly compensated executive officers
serving on March 31, 2006 (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 (2)     of Class (3)
---------------------------------------------    -------------     ------------
William R. Hambrecht (4)                          45,326,738           66.6%
Shea  Ventures LLC (5)                            23,846,958           46.0%
Adobe Systems Incorporated (6)                     9,991,331           27.5%
Octavia LLC (7)                                    7,600,750           21.1%
Constellation Venture Capital (8)                  3,679,237           11.7%
Wasserstein Adelson Ventures LP (9)                3,550,372           11.3%
Nancy & Timothy Armstrong  (10)                    3,101,290            9.8%
Thomas H. Dittmer Declaration of Trust (11)        2,986,735            9.5%
Michael Fuchs (12)                                 2,986,735            9.5%
The Timken Living Trust (13)                       1,724,328            5.7%
William E. Mayer Holdings (14)                     1,493,663            5.0%

Executive Officers and Directors
John Warnock (15)                                 88,946,079           80.7%
Jann Wenner (16)                                   7,600,000           21.1%
Robert McKay (17)                                  6,829,158           19.4%
David Talbot (18)                                  5,854,615           17.1%
Elizabeth Hambrecht (19)                           3,195,000           10.1%
Joan Walsh (20)                                    2,205,713            7.2%
Conrad Lowry (21)                                  1,595,491            5.3%
James Rosenfield (22)                                771,750            2.6%
George Hirsch (23)                                   664,653            2.3%
Robert Ellis (24)                                    550,000            1.9%
Deepak Desai (25)                                    500,000            1.7%
All executive officers and directors
  as a group (11 persons)                        118,712,459           84.9%

(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.

(3)  Calculated on the basis of 28,466,519 shares of Common Stock outstanding as
     of May 15, 2006, shares of Common Stock underlying options exercisable
     within sixty (60) days of May 15, 2006, shares of Common


                                       73
<PAGE>

     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. Elizabeth
     Hambrecht, Salon's President and Chief Executive Officer, has an ownership
     interest in the Hambrecht Entities. Mr. Hambrecht, in conjunction with the
     Hambrecht 1980 Revocable Trust and the Hambrecht Entities, jointly own
     3,124,129 shares of Common Stock. Mr. Hambrecht disclaims beneficial
     ownership of the shares of Salon's Common Stock held directly by the
     Hambrecht Entities other than his proportionate ownership interest.
     Includes 18,676,422 shares of Common Stock that Mr. Hambrecht, the
     Hambrecht Entities and the Sarah & William Hambrecht Foundation have the
     right to acquire upon conversion of 125 shares of Series A Preferred Stock,
     upon conversion of 486 shares of Series C Preferred Stock, and upon
     conversion of 334 shares of Series D Preferred Stock. Elizabeth Hambrecht
     is a Director and has voting rights in the Sarah & William Hambrecht
     Foundation. Includes 700,000 shares of Common Stock issuable upon exercise
     of immediately exercisable warrants held by the Hambrecht Entities.
     Includes 3,311,025 shares of Common Stock that HAMCO Capital has the right
     to acquire upon conversion of 127 shares of Series C Preferred Stock and
     upon conversion of 63 shares of Series D preferred stock. Mr. Hambrecht and
     Elizabeth Hambrecht, both have an ownership interest in HAMCO Capital.
     Includes 16,860,000 shares of Common Stock that Ironstone Group, Inc. has
     the right to acquire upon conversion of 843 shares of Series C Preferred.
     Mr. Hambrecht has an ownership interest in Ironstone Group, Inc. Ms.
     Hambrecht disclaims beneficial ownership of the shares held directly by the
     Hambrecht Entities and HAMCO Capital Corporation, other than her
     proportionate ownership interest.

(5)  Consists of 425,315 shares of Common Stock held by the stockholder.
     Includes 18,961,643 shares of Common Stock that the stockholder has the
     right to acquire upon conversion of 125 shares of Series A Preferred Stock,
     upon conversion of 697 shares of Series C Preferred Stock and 1,600,000
     shares of Common Stock issuable upon exercise of immediately exercisable
     warrants. Includes 2,560,000 shares of Common Stock that a trust controlled
     by the stockholder has the right to acquire upon conversion of 128 shares
     of Series C Preferred Stock and 300,000 shares of Common Stock issuable
     upon exercise of immediately exercisable warrants. Edward Shea, the Manager
     of the stockholder, is a Director of Ironstone Group, Inc. mentioned under
     item (4).

(6)  Consists of 2,187,594 shares of Common Stock held by the stockholder.
     Includes 6,247,750 shares of Common Stock that the stockholder has the
     right to acquire upon conversion of 125 shares of Series B Preferred Stock
     and 1,555,987 shares of Common Stock issuable upon exercise of immediately
     exercisable warrants. Salon director John Warnock is the co-Chairman of the
     stockholder and disclaims beneficial ownership of the shares held by the
     stockholder.

(7)  Includes 6,810,735 shares of Common Stock that the stockholder has the
     right to acquire upon conversion of 62 shares of Series A Preferred Stock
     and upon conversion of 216 shares of Series C Preferred Stock and 790,015
     shares of Common Stock issuable upon exercise of immediately exercisable
     warrants.

(8)  Consists of 530,192 shares of Common Stock held by Constellation Venture
     Capital, LP and 114,138 shares held by Constellation Venture Offshore, LP.
     Includes 2,089,003 shares of Common Stock that Constellation Venture
     Capital has the right to acquire upon conversion of 52 shares of Series A
     Preferred Stock and 441,904 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. Includes 416,000 shares of Common Stock
     issuable upon exercise of an immediately exercisable warrant held by
     Constellation Venture Capital, L.P. and 88,000 shares of Common Stock
     issuable upon exercise of an immediately exercisable warrant held by
     Constellation Venture Offshore, LP. Constellation Venture Capital, LP and
     Constellation Venture Offshore, LP are entities of Bear Stearns.

(9)  Consists of 515,464 shares of Common Stock held by the named stockholder.
     Includes 2,530,908 shares of Common Stock that the named stockholder has
     the right to acquire upon conversion of 63 shares of Series A Preferred
     Stock and 504,000 shares of Common Stock issuable upon exercise of an
     immediately exercisable warrant.


                                       74
<PAGE>

(10) Includes 2,696,774 shares of Common Stock that the stockholder has the
     right to acquire upon conversion of 209 shares of Series D Preferred Stock
     and 404,516 shares of Common Stock issuable upon exercise of an immediately
     exercisable warrant.

(11) Includes 2,490,735 shares of Common Stock that the stockholder has the
     right to acquire upon conversion of 62 shares of Series A Preferred Stock
     and 496,000 shares of Common Stock issuable upon exercise of an immediately
     exercisable warrant.

(12) Includes 2,490,735 shares of Common Stock that the stockholder has the
     right to acquire upon conversion of 62 shares of Series A Preferred Stock
     and 496,000 shares of Common Stock issuable upon exercise of an immediately
     exercisable warrant. Mr. Fuchs served as a Director of Salon until
     September 2003.

(13) Includes 1,724,328 shares of Common Stock that the stockholder has the
     right to acquire upon conversion of 25 shares of Series A Preferred Stock
     and upon conversion of 36 shares of Series C Preferred Stock.

(14) Consists of 42,051 shares of Common Stock held by the stockholder. Includes
     1,290,967 shares of Common Stock that the stockholder has the right to
     acquire upon conversion of 51 shares of Series C Preferred Stock, upon
     conversion of 21 shares of Series D Preferred Stock and 160,645 shares of
     Common Stock issuable upon exercise of an immediately exercisable warrant.

(15) Consists of 7,208,533 shares of Common Stock held by the Director. Includes
     81,197,546 shares of Common Stock that the stockholder has the right to
     acquire upon conversion of 125 shares of Series A Preferred Stock, upon
     conversion of 3,474 shares of Series C Preferred Stock, upon conversion of
     416 shares of Series D preferred stock and 1,742,943 shares of Common Stock
     issuable upon exercise of immediately exercisable warrants. Includes
     540,000 shares subject to options that may be exercised within sixty (60)
     days of May 15, 2006.

(16) Includes 5,000,000 shares of Common Stock that Wenner Media LLC has the
     right to acquire upon conversion of 250 shares of Series C Preferred Stock
     and 2,600,000 shares of Common Stock issuable upon exercise of an
     immediately exercisable warrant. Mr. Wenner, the Chairman and President of
     Wenner Media LLC, disclaims beneficial ownership of the shares of Salon's
     Common Stock equivalents held directly by Wenner Media LLC other than his
     proportionate ownership interest. Mr. Wenner resigned as a Director in
     February 2006.

(17) Consists of 84,000 shares of Common Stock held by the Robert McKay Family
     Partnership and 58,423 shares of Common Stock in a trust controlled by the
     stockholder. Mr. McKay is the managing partner of the Robert McKay Family
     Partnership. Includes 2,490,735 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 496,000 shares of Common Stock
     issuable upon exercise of an immediately exercisable warrant. Includes
     3,160,000 shares of Common Stock that a trust controlled by the stockholder
     has the right to acquire upon conversion of 158 shares of Series C
     Preferred Stock. Includes 540,000 shares subject to options that may be
     exercised within sixty (60) days of May 15, 2006.

(18) Consists of 7,731 shares of Common Stock, of which 2,577 shares are held by
     Camille Peri, Mr. Talbot's spouse and a former employee of Salon, and 5,154
     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 5,846,884 shares subject to
     options that may be exercised within sixty (60) days of May 15, 2006.

(19) Includes 620,000 shares of Common Stock that the Officer has the right to
     acquire upon conversion of 31 shares of Series C Preferred Stock and 75,000
     shares of Common Stock issuable upon exercise of an immediately exercisable
     warrant. Includes 2,250,000 shares subject to options that may be exercised
     within sixty (60) days of May 15, 2006. Excludes her proportional
     beneficial ownership of amounts owned by the Hambrecht Entities and HAMCO
     Capital described in footnote (4).

(20) Includes 2,205,713 shares subject to options that may be exercised within
     sixty (60) days of May 15, 2006.

(21) Includes 1,595,491 shares subject to options that may be exercised within
     sixty (60) days of May 15, 2006.

(22) Includes 771,750 shares subject to options that may be exercised within
     sixty (60) days of May 15, 2006.

(23) Consists of 14,653 shares of Common Stock held by the Director and 650,000
     shares subject to options that may be exercised within sixty (60) days of
     May 15, 2006.


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<PAGE>

(24) Consists of 10,000 shares of Common Stock held by the Director and 540,000
     shares subject to options that may be exercised within sixty (60) days of
     May 15, 2006.

(25) Consists of 500,000 shares subject to options that may be exercised within
     sixty (60) days of May 15, 2006.

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, 2006 (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           15.5%
John Warnock (3,7)                                      125           15.5%
Shea Ventures LLC (3)                                   125           15.5%
Wasserstein Adelson Ventures, LP (4)                     63            7.8%
Constellation Venture Capital (5)                        63            7.8%
McKay Investment Group (6,7)                             62            7.7%
Octavia LLC (6)                                          62            7.7%
Thomas H. Dittmer Declaration of Trust (6)               62            7.7%
Michael Fuchs (6,8)                                      62            7.7%
All executive officers and directors as a
  group (2 persons)                                     187           23.1%

(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.

(2)  Includes 75 shares held by the Sarah & William Hambrecht Foundation that
     are convertible into 3,012,986 shares of Common Stock, subject to
     adjustment. Also includes 50 shares held by WR Hambrecht + Co. LLC that are
     convertible into 2,008,657 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 5,021,643 shares
     of Common Stock, subject to adjustment.

(4)  Shares held by the named stockholder are convertible into 2,530,908 shares
     of Common Stock, subject to adjustment.

(5)  Includes 52 shares held by Constellation Venture Capital, LP that are
     convertible to 2,089,003 shares of Common Stock and 11 shares held by
     Constellation Venture Capital (Offshore), LP that are convertible to
     441,904 shares of Common Stock, all subject to adjustment.

(6)  Shares held by the named stockholder are convertible into 2,490,735 shares
     of Common Stock, subject to adjustment.

(7)  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.

(8)  Mr. Fuchs served as a Director of Salon until September 2003.


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<PAGE>

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, 2006 (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 6,247,750 shares
     of Common Stock, subject to adjustment.

(3)  No director or Named Executive Officer beneficially owns shares of Series B
     Preferred Stock. However, Salon Director John Warnock 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, 2006 (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 (2,8)                                    3,474            52.8%
William R. Hambrecht (3,8)                            1,456            22.1%
Shea Ventures LLC (4)                                  825             12.5%
Wenner Media LLC (5,8)                                 250             3.8%
Elaine McKay Family Partnership (6,8)                  158             2.4%
Elizabeth Hambrecht (7,8)                               31              *%
All executive officers and directors as
 a group (4 persons)                                  3,913            59.5%

*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


                                       77
<PAGE>

     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 69,480,000 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 3,780,000 shares of Common
     Stock, subject to adjustment, 189 shares held by a trust of Mr. Hambrecht
     that are convertible to 3,780,000 shares of Common Stock, subject to
     adjustment, and 108 shares held by the Sarah & William Hambrecht Foundation
     that are convertible to 2,160,000 shares of Common Stock, subject to
     adjustment. Elizabeth Hambrecht is a Director and has voting rights in the
     Sarah & William Hambrecht Foundation. Includes 127 shares held by HAMCO
     Capital that are convertible to 2,540,000 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 16,860,000 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 16,500,000 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
     13,940,000 shares of Common Stock, subject to adjustment. Includes 128
     shares owned by the E&M RP Trust that are convertible into 2,560,000 shares
     of Common Stock, subject to adjustment.

(5)  Shares held by the named stockholder are convertible into 5,000,000 shares
     of Common Stock, subject to adjustment. Jann Wenner, who served as a
     Director until February 2006, has an ownership interest in and is the
     Chairman and President of Wenner Media LLC. Mr. Wenner disclaims beneficial
     ownership of the shares held directly by Wenner Media LLC other than his
     proportionate ownership interest.

(6)  Shares held by the named stockholder are convertible into 3,160,000 shares
     of Common Stock, subject to adjustment. Mr. McKay, Director, has an
     ownership interest in the Elaine McKay Family Partnership. Mr. McKay
     disclaims beneficial ownership of the shares held directly by the Elaine
     McKay Family Partnership other than his proportionate ownership interest.

(7)  Stockholder is the President and Chief Executive Officer of the registrant.

(8)  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. Includes 250 shares held by Wenner
     Media LLC, as its Chairman and President Mr. Wenner served as a Director of
     Salon until February 2006.


                                       78
<PAGE>

Series D Preferred Stock

     The following table sets forth information regarding the beneficial
ownership of Salon's Series D-1, D-2 and D-3 Preferred Stock (the "Series D
Preferred Stock") as of March 31, 2006 (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)                                        416            39.9%
William R. Hambrecht (4)                                397            38.1%
Nancy & Timothy Armstrong (3)                           209            20.0%
All executive officers and directors as
 a group (1 persons) (2)                                416            39.9%

(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 a Director of Salon, are
     convertible into 4,952,960 shares of Common Stock, subject to adjustment.

(3)  Shares held by the named stockholder are convertible into 2,696,774 shares
     of Common Stock, subject to adjustment.

(4)  Mr. Hambrecht is the father Elizabeth Hambrecht, Salon's President and
     Chief Executive Officer. Includes 334 shares held by a trust of the
     stockholder that are convertible to 3,934,779 shares of common stock,
     subject to adjustment. Includes 63 shares held by HAMCO Capital Corporation
     that are convertible to 771,025 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.


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<PAGE>

ITEM 13. Certain Relationships and Related Transactions

     On October 10, 2000, Salon loaned its Chairman $75,179 with an agreed 6.3%
annual interest rate with no due date. During the year ended March 31, 2006,
$18,136 of interest and $27,163 of principal was repaid. As of March 31, 2006,
$48,016 of the loan remains outstanding.

     During the year ended March 31, 2006, John Warnock, a Director of Salon,
exercised the following outstanding warrants by payment in cash of the aggregate
exercise price and received common stock of Salon:

    Date          Number           Exercise      Cash Received
 Exercised      Of Shares       Price per share     by Salon
-----------  ---------------    ---------------  --------------
 5/24/2005           99,345        0.08979801           8,921
 1/23/2006          150,000        0.04505918           6,758
 1/23/2006          300,000        0.04168543          12,506
 1/23/2006          300,000        0.04168543          12,506
             ---------------                    --------------
                    849,345                            40,691
             ===============                    ==============

     Brian Dougherty, a former Director of Salon, exercised a warrant on May 17,
2005 for 25,000 shares of common stock for which Salon received $2,245. On July
20, 2005, Robert McKay, a Director of Salon, through the Elaine McKay Family
Partnership, exercised a warrant for 58,423 shares of common stock for which
Salon received $5,246. The Sarah and William Hambrecht Foundation, for which
William Hambrecht and Elizabeth Hambrecht, Salon's CEO and President and
daughter of William Hambrecht serve as Directors, exercised a warrant on July
22, 2006 for 40,107 shares of common stock for which Salon received $3,602.

     On each of February 7, 2006, March 7, 2006 and March 20, 2006, Ironstone
Group, Inc. converted warrants for 300,000 shares of common stock to 262,450,
255,337 and 249,977 shares of common stock for which Salon received no cash.
William Hambrecht has an ownership interest in Ironstone Group, Inc.

     On October 7, 2005, Michael O'Donnell, a former CEO and President of Salon,
converted a warrant for 1,000,000 shares of common stock to 642,857 shares of
common stock for which Salon received no cash.

ITEM 14. Principal Accountant Fees and Services

     Burr, Pilger & Mayer LLP has served as Salon's independent registered
accountant since November 14, 2003. Prior to that date, PricewaterhouseCoopers
LLP served as Salon's independent registered accountant.

     Audit fees incurred by Salon from Burr, Pilger & Mayer LLP for the years
ended March 31, 2004, March 31, 2005 and March 31, 2006 were $55,665, $66,995
and $72,585 respectively. Audit fees incurred by Salon from
PricewaterhouseCoopers LLP for the years ended March 31, 2004 and March 31, 2005
were $28,500 and $1,000. Audit fees were the only fees incurred from Burr,
Pilger & Mayer LLP and PricewaterhouseCoopers LLP.


                                       80
<PAGE>

     During the year ended March 31, 2006, 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.

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.


                                       81
<PAGE>

   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.

 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.


                                       82
<PAGE>

 4.2.24(18)    Form of Convertible Promissory Note used during March 2003 by
               Salon Media Group, Inc.

 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.


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<PAGE>

 4.2.59(30)    Note and Warrant Purchase Agreement dated October 30, 2003.

 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 Media Group, 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.

 4.2.85(39)    Common Stock Purchase Warrant dated September 30, 2004 issued by
               Salon Media Group, Inc.


                                       84
<PAGE>

 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.

  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.

  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.


                                       85
<PAGE>

  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 Talbot

 16.1 (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.

    23.5       Consent of Burr, Pilger & Mayer LLP, Independent Registered
               Public Accounting Firm dated June 23, 2006.

  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.

    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.


                                       86
<PAGE>

     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.

     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.


                                       87
<PAGE>

     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.

     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.


                                       88
<PAGE>

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 him and in his 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      June 28, 2006
--------------------------     Officer, and Director
   Elizabeth Hambrecht         (Principal Executive Officer)

    /s/ Conrad Lowry           Chief Financial Officer and        June 28, 2006
--------------------------     Secretary
      Conrad Lowry             (Principal Financial Officer)

    /s/ David Talbot           Chairman of the Board, Director    June 28, 2006
--------------------------
      David Talbot


                                       89
<PAGE>

    /s/ Deepak Desai           Director                           June 28, 2006
--------------------------
      Deepak Desai

    /s/ Robert Ellis           Director                           June 28, 2006
--------------------------
      Robert Ellis

    /s/ George Hirsch          Director                           June 28, 2006
--------------------------
      George Hirsch

    /s/ Robert McKay           Director                           June 28, 2006
--------------------------
      Robert McKay

  /s/ James Rosenfield         Director                           June 28, 2006
--------------------------
   James H. Rosenfield

    /s/ John Warnock           Director                           June 28, 2006
--------------------------
      John Warnock


                                       90