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

                       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, 2005
                                       or

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
               For the transition period from ________ to ________

                         Commission file number 0-26395

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

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

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

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

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

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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12b-2 of the Act. Yes |_| No |X|

The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $908,000 based on the closing sale price of the
registrant's common stock on September 30, 2004, 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 21, 2005 was 15,346,609 shares.

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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 2.     Properties...................................................... 15

ITEM 3.     Legal Proceedings............................................... 15

ITEM 4.     Submission of Matters to a Vote of Security Holders............. 15


PART II

ITEM 5.     Market for Registrant's Common Equity and Related
            Stockholder Matters............................................. 16

ITEM 6.     Selected Consolidated Financial Data............................ 17

ITEM 7.     Management's Discussion and Analysis of Financial Condition
            and Result of Operations........................................ 19

ITEM 7A.    Quantitative and Qualitative Disclosures about Market Risk...... 40

ITEM 8.     Consolidated Financial Statements and Supplementary Data........ 41

ITEM 9.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosures....................................... 73

ITEM 9A.    Controls and Procedures......................................... 73

ITEM 9B.    Other Information............................................... 73


PART III

ITEM 10.    Directors and Executive Officers of the Registrant.............. 74

ITEM 11.    Executive Compensation.......................................... 74

ITEM 12.    Security Ownership of Certain Beneficial Owners and
            Management and Related Stockholder Matters...................... 75

ITEM 13.    Certain Relationships and Related Transactions.................. 75

ITEM 14.    Principal Accountant Fees and Services.......................... 75

<PAGE>

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

PART IV

ITEM 15.    Exhibits, Financial Statement Schedules and Reports on
            Form 8-K........................................................ 75

SIGNATURES  ................................................................ 84






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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, on-line 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 added two popular features, the daily music
download column Audiofile, and the Daou Report, an opinionated guide to the
blogosphere.

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

Website Content Areas

     The main entry and navigation point to Salon's eight primary
subject-specific sections is Salon's home page at www.salon.com. Built around
six daily features - War Room, the Fix, Audiofile, the Daou Report, King
Kaufman's Sports Daily and Since you Asked, Salon provides a rapidly updated
array of news, features, interviews, columnists and blogs, including the
following:


                                       4
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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 Arianna
                    Huffington. Opinion also features the Daou Report, an
                    opinionated guide to the blogosphere.

Technology &        Smart, opinionated coverage of Internet news and digital
Business            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 groundbreaking series on globalization.

Arts &              Arts & Entertainment features movie, music and television
Entertainment       reviews and interviews. The section includes frequent
                    television features, extended film coverage including actor
                    and director interviews, and a popular gossip column, The
                    Fix. One popular new feature is Audiofile, a daily music
                    download column. Anchored by TV critic Heather Havrilesky
                    and film critic Stephanie Zacharek, this is Salon's most
                    widely-read site after News.

Life                Life features articles by thought-provoking writers about
                    family life, motherhood and women's lives and issues. 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.

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
member-only subscription 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 a total of approximately 2,900 paying subscribers as
of March 31, 2005.

     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.

     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


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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.

Web awards that Salon has won since 2000 include:

2004
  David Talbot, Salon's then Chairman and CEO received the Carr Van Anda Award
  for "Outstanding Journalist"
  "Outstanding Digital Journalism Article" - GLAAD

2003
  "Top 100 Classics - News and Entertainment Categories" - PC Magazine
  "Feature Journalism - Independent" - Online Journalism Awards

2002
  "Best 50 Websites" - Time Magazine
  "Best Print and Zine" - Webby Awards
  "Best of the Web - Book Clubs" - Forbes
  "Outstanding Digital Journalism Overall Coverage" - GLAAD

2001
  "Best Online Magazine" - Yahoo Internet Life
  "Best Independent Enterprise Journalism" - Online Journalism Awards
  "Top 100 Websites" - PC Magazine

2000
  "General Excellence in Online Journalism Original to the Web" - Online
  Journalism Awards
  "Enterprise Journalism Original to the Web" - Online Journalism Awards
  "Best Technology Website" and "Best Parenting Website" - Forbes


Traffic and Demographics

     Salon's position as a platform for advertisers is directly related to the
traffic to our Website, with the best measure of traffic being unique visitors.
Unique visitors to a Website generate page views or interactions with an
advertisement, which in turn generate various matrixes utilized by advertisers
to determine the effectiveness of an advertising campaign. To determine its
unique visitors, Salon analyzes its server log files. As defined by Salon, a
unique visitor is an individual (non-duplicated) visitor to its Website.

     Unique visitors during the years ending March 31, 2002 and March 31, 2001
ranged from 3.5-3.8 million per month. However, the launch of Salon Premium in
April 2001, which restricted access to Salon's content, suppressed the number of
unique monthly visitors, which declined to 2.6-3.0 million the last six months
of the year ended March 31, 2003. Even though Salon has experienced periods of
higher Website traffic during recent busy news cycles related to the war in Iraq
and the 2004 presidential elections, the average number of unique visitors has
averaged 2.7 million visitors per month for the years ended March 31, 2005 and
March 31, 2004. The plateau experienced by Salon in the number of unique
visitors to its Website mimics what has been happening throughout the Internet,
which has seen only a negligible growth in the overall number of unique visitors
during calendar year 2004.


                                       6
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     Salon believes its viewers are attractive to advertisers and brand
campaigns. According to the Summer 2005 results from @Plan, an independent
syndicated research firm, Salon's user base has the following characteristics:
(a) 58% are between the ages of 25 and 49, with an overall mean average of 42;
(b) an average household income of $81,700; (c) 72% have earned a college degree
and 41% have earned a post-graduate degree; (d) 49% have professional or
managerial positions; and (e) 82% are online every day.

Internet Advertising

     Universal McCann, PricewaterhouseCoppers LLP and the Interactive
Advertising Bureau estimate that during 2004, the total market for all forms of
advertising in the United States was approximately $260 billion, of which
according to a study conducted by PricewaterhouseCoopers and sponsored by the
Interactive Adverting Bureau (the PWC study), Internet advertising was $9.6
billion. Of the total spent in 2004 on Internet advertising, approximately 94%
of this market was directed to the top fifty companies, which is consistent with
the 95% reported for 2003. Even though the PWC study indicated that Internet
advertising had tremendous growth, increasing 32% from the $7.2 billion
experienced in 2003, the majority of the growth was in search advertising, which
grew from $2.5 billion in 2003 to $3.9 billion in 2004. In the market that Salon
competes in, the study indicated that display forms of advertising grew from
$3.2 billion in 2003 to $3.8 billion in 2004, a 17% growth rate.

     As the PWC study indicates that the majority of Internet advertising
dollars are going to the largest companies and that 39% of all Internet
advertising is for display advertising therefore suggests that Salon, and all
other companies like Salon, are competing for a display advertising market of
approximately $225 million, based on 2004 results.

     Salon has noted that in December 2004 it ran out of inventory of available
page views and ad impressions to sell to advertisers. In June 2004, Salon nearly
ran out of ad inventory as well. In a report published by DoubleClick, it also
noted that in 2004 many online publishers sold out their advertising inventory.
It appears a switch from a buyers market to a sellers market has begun according
to DoubleClick as the number of unique Website visitors has reached a plateau,
the inventory for ad impressions has shrunken as fewer smaller ad formats such
as "buttons" are being served, and are being replaced by larger formats, and
more importantly, advertisers have begun to more broadly accept the need to have
a presence and advertise on the Internet. The potential overall industry
shortage of inventory should present to Salon opportunities to increase its
advertising revenues.

Pay For Online Content

     In a recent report, the Online Publishers Association (OPA) estimated that
U.S. consumers spent $1.8 billion for online content in 2004 compared to $1.6
billion in 2003. While this may imply a large market for Salon, the bulk of
these purchases are related to personals/dating and digital music, both segments
that Salon only has a minimal presence in. A market segment for online content
in which Salon does participate is in the general news category, in which the
OPA reported annual purchases of $88 million by consumers for 2004 and 2003. The
OPA report indicated that 79% of all subscription revenues in the general news
category were for monthly subscriptions. Almost all of the subscriptions to
Salon Premium are for an annual subscription, while subscriptions to The Well
online discussion forum are predominantly on a monthly basis.

     The OPA indicated that Websites such as CNN.com, NYTimes.com and the
Washingtonpost.com generate revenue from their content. What these Websites
offer for sale is primarily archived stories or video streaming of current news.
The New York Times recently announced that it would begin charging for some of
its editorial content. Other newspapers have begun to put current content
"behind a gate"


                                       7
<PAGE>

accessible only to paid subscribers in an attempt to stem a decline in
circulation. None of these factors lend themselves to why individuals subscribe
to Salon Premium. 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.

Revenue Sources

     When Salon first started conducting business, its primary source of revenue
was from the sale of promotional space on its Website that generates advertising
revenue. The dependence on one main source of revenue was detrimental during a
contracting economy when advertisers were either curtailing or reducing
marketing efforts. To lessen the dependence on advertising revenues, Salon began
Salon Premium, its subscription service in April 2001. Advertising revenues
comprised 81% of all revenues for the year ended March 31, 2001, but decreased
to 55% for the year ended March 31, 2002 while Salon Premium revenues increased
to 16% of all revenues during that year. For the year ended March 31, 2003,
advertising revenues were 43% of all revenues, while Premium revenues climbed to
32% of total revenues. This cycle continued onto the year ended March 31, 2004
which saw ad revenues comprising 39% of all revenues and Salon Premium revenues
increasing to 41% of all revenues. With the rebound in advertising, the trend
was reversed for the year ended March 31, 2005, as ad revenues comprised 54% of
all revenues and Salon Premium of 33% of all revenues.

     During the first quarter of the year ending March 31, 2006, Salon has
experienced a marginal decline in advertising sales compared to the same period
last year, while subscriptions to Salon Premium have declined. Salon cannot
estimate if these trends will continue for the remainder its year ending March
31, 2006.

     Most of the advertising campaigns are of short duration, generally less
than ninety days. Salon's obligations typically include the guarantee of a
minimum number of impressions, or views of an advertisement by a Website
visitor, a set number of "Site Pass" advertisement downloads by a Website
visitor, or a set number of days that a Site Pass advertisement will be 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 ten percent of either total revenue or
advertising revenue for the years ended March 31, 2005, March 31, 2004 or March
31, 2003.

     Salon began offering Salon Premium, a pay-for-online-content subscription
service, in April 2001. Subscription durations were originally for one-month,
one-year and two-years, with the two-year subscription plan suspended in
November 2002. Initially, some content was restricted to Salon Premium
subscribers only. In January 2003, Salon modified its business model by granting
site passes, which allows access to all of Salon's content to non Salon Premium
subscribers willing to view some form of advertisement. The annual subscription
rate for Salon Premium with no ads, the primary plan offered by Salon and
originally priced at $30, was increased in August 2003 to $35, with no
detrimental effects on subscriptions. Benefits of Salon Premium include
unrestrictive access to Salon's content with no banners, pop-ups or site pass
advertisements, and include 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, 2005, Salon received $2.3 million in
cash and recognized $2.2 million of revenue for this service from approximately
84,000 paid new and renewed subscriptions. For the year ended March 31, 2004,
Salon received $1.9 million in cash and recognized $1.8 million of revenue for


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this service from approximately 79,000 paid new and renewed subscriptions. For
the year ended March 31, 2003, Salon received $1.6 million in cash and
recognized $1.3 million of revenue for this service from approximately 70,000
paid new and renewed subscriptions. Salon had approximately 84,500 active
subscribers and a renewal rate for purchased subscriptions of 69 percent as of
March 31, 2005.

     Salon offers The Well on-line discussion forum. Revenue is recognized
ratably over the subscription period. The revenues recognized and the cash
received was $0.5 million for the year ended March 31, 2005, and $0.6 million
for the years ended March 31, 2004 and March 31, 2003.

     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 Website offers personals/dating services.

Sales and Marketing

     Salon has sales offices in New York City and San Francisco with seven
active advertising sales employees as of March 31, 2005, of which three actively
solicit orders. For most of the year ended March 31, 2005, Salon had one
employee engaged in marketing, with such position being eliminated by the end of
such year. Salon currently has two employees associated with Salon Premium
membership activities and a third person involved in general marketing support
efforts.

     During the year ended March 31, 2005, Salon incurred $0.5 million in
advertising costs to promote and attract viewers to its Website, compared to
$1.1 million for the year ended March 31, 2004 and $0.8 million for the year
ended March 31, 2003. The advertising costs of $0.5 million for the year ended
March 31, 2005 were primarily non-cash advertising credits. These credits
resulted from an investment in Salon by Rainbow Media Holdings in 1999 in the
form of prepaid advertising rights that provides advertising in various
television networks without the use of cash. Advertising costs for the years
ended March 31, 2004 and March 31, 2003 include the usage of approximately $1.1
million and $0.8 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 from a wide number of Internet
Websites, with the 50 largest companies attracting an estimated 94% of all the
advertising dollars. 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, 2005, Salon believes it has no competitors for its Salon
Premium subscription payment plan. Even though some Websites such as the Wall
Street Journal Online edition have online subscription plans, and others such as
the Washington Post charge for archive stories, 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.


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Salon's Strategy

Increasing Circulation

     Growing circulation is key to increasing Salon's revenues, as more readers
lead to higher potential advertising revenue and more potential Salon Premium
subscribers. With that in mind, Salon is exploring ways to widen its readership
and has made growing circulation a priority among its business goals. Since
Salon has limited cash resources, it has had to rely on partnerships and other
forms of outreach to bring Salon's unique, compelling and highly acclaimed
editorial content to a wider audience.

     Some of the strategies to grow circulation are as follows:

          o    Salon has entered into an editorial partnership with Rolling
               Stone Magazine, whereby Rolling Stone and Salon collaborate on
               special reports that are jointly published in Rolling Stone
               Magazine and Salon's Website. Salon's first special report,
               entitled "Bush's War on Gay Marriage" was jointly published in
               the March 18, 2004 edition of Rolling Stone, and since then 3
               other stories were published. Recently, a report entitled "Deadly
               Immunity" by Robert Kennedy, Jr. appeared in the June 30, 2005
               edition of Rolling Stone as well as on Salon's Website.

          o    Salon has initiated a redesign of the Salon Website, the first
               since 2000, which is described in more detail below. The redesign
               will enable readers to see and sample Salon's content more
               quickly, and add interactive features to keep readers coming back
               to the Website.

          o    Salon has added new content. In the last few months Salon added
               Audiofile, a daily music-download column, and the Daou Report,
               Salon's new blog about the growing blogosphere. More new features
               are planned.

          o    Salon is actively marketing reader signups for RSS feeds and
               newsletters.

          o    Salon has begun initiatives to increase awareness of our
               free-access "Site-Pass" feature, to encourage more linking by
               bloggers and by other media.

     Aside from the site-specific strategies and editorial strategies to grow
readership, Salon is also exploring collaboration and/or distribution agreements
with a major Internet site. Even though Salon is in discussions to further this
goal, prior efforts, such as with AOL approximately two years ago, did not
result in noticeable increases in circulation, if at all.

Increasing Interactivity & New Multi-Media Formats Through a Website Redesign

     Salon is in the process of redesigning its website, with new components of
the redesign anticipated to be testing publicly in July-September 2005. Several
goals of the redesign are to improve the navigation and accessibility of content
on the site, to increase user interactivity, add multimedia content and offer
members the opportunity to find and interact with one another. By undertaking
this redesign process, Salon should be well-positioned to take advantage of
three media trends:

          o    More people get their news on the Web - but they expect to talk
               back to it, and maybe even write about it themselves.
          o    They log on for entertainment, but they're not just there to
               consume media passively, they want to mix it up, get it when and
               how they want it, and create it as well.


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          o    Online remains a space to find likeminded people and interact,
               around hobbies, politics, research, romance.

Moving forward, Salon is developing new products and enhancing existing products
to improve the reader experience. These products and features include: user
comments and automatic posting of letters to the editor; User song lists and
other content, in Audiofile and other blogs; More multimedia features; Site
personalization and social networking features.

     Furthermore, in April 2005, Salon launched a service provided by Technorati
that posts links to active blogs that are following stories that Salon has
published. This is a first step toward linking Salon readers to the greater
blogosphere.

Continue To Promote Innovative Advertising Programs

     Salon has reinvigorated its advertising sales offering by striving to make
use of the interactivity and new technologies provided by the Internet. In
January 2003, Salon began to enable those readers who were not Salon Premium
subscribers to access all new content for free if they were willing to view some
form of rich media advertising "Site Pass." The performance matrices for the
Site Pass often exceed IAB banner standard performances. Salon has recently
experienced click-through-rates ranging from 5%-9% compared to an industry
average of 0.62% for all on-line ads as reported by CoubleClick's November 2004
ad serving Trend Report. Over the past two years, the Site Pass advertising unit
has increasingly been accepted by Salon's advertising clients, and now accounts
for the majority of Salon's advertising revenues.

     Salon's strategy is to continue to promote the benefits of this new "Site
Pass" format, and experiment with new technology to increase non-banner
advertising inventory. As an example, Salon has worked with advertisers to offer
streaming video clips of its TV advertisements as part of its "Site Pass"
offering. In the first half of calendar 2005, advertisers such as Target, Audi,
Cadillac, MGM, Home Box Office, and Microsoft have used this format to advertise
on Salon. Video streaming inventory commands a premium due to higher levels of
accountability and market scarcity. Another area of innovation is using blogs
and other viral messaging to generate interest for an advertiser. In this case,
Salon's upcoming Website redesign is intending to offer advertisers blogs and
other video streaming opportunities.

Expand Subscription-based Revenues

     Salon began its "Premium" subscription program in April 2001 when it
"gated" the majority of its content. In January 2003 Salon modified this
business model to require a user to either view an advertisement or become a
Salon Premium subscriber in order to get access to Salon's content. Salon's
subscriber base steadily increased to a high of approximately 89,000
subscribers, reached in December 2004. However, in part due to the strong
advertising market and the need to use Salon's inventory for advertising clients
rather then to promote Salon's subscription program, subscriber numbers has
since declined to approximately 81,000 as of June 20, 2005. To address this
decline in subscribers, Salon is reevaluating the Premium offering through
surveys and analysis of user data. Salon plans to launch new products and
promotions in order to begin again to grow its subscription base, as described
below.

     As part of Salon's site redesign process, Salon Premium intends to
transition its product from a subscription to a membership program. As a
membership product, Salon hopes to build out more interactivity for its readers,
including potentially its own letter to editor function, member chatrooms, and
member blogs, among others. Other new personalization and interactive features
for members may include making available "Most Read" or "Most e-mailed" stories
by members, or a story referral based


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on the behavior of other members. Lastly, Salon anticipates launching features
such as Personals and other forms of user-generated-content that are intended to
round out the membership offering.

     Lastly, Salon will continue to implement technology to track user behavior
and customize messaging based on the information gathered. Special messaging,
via pop-ups to frequent users, was implemented in 2004, as well as customized
messaging for lapsed members. Tracking and messaging actions are geared towards
increasing Salon Premium subscriptions, and helped successfully improve the 64
percent renewal rate for purchased subscriptions that Salon has experienced
through March 31, 2004 to 69 percent through March 31, 2005.

Infrastructure and Operations

     Salon has created a flexible publishing structure that enables it to
develop its content while responding quickly to news events and taking advantage
of the ease of distribution provided by the Internet. Salon content is developed
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.

     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 that provides bandwidth
on demand to meet the fluctuating needs of Salon's network. The third party
offers high-speed connections to the Internet, helping ensure fast serving and
delivery of Salon's Website, and monitors all servers via human or technical
means on a continuous basis. In May 2005, Salon relocated its servers in San
Francisco to a building capable of withstanding a major earthquake. Salon
follows password management procedures to protect access to its servers.
Uninterruptible power supplies for protection against power outages support all
of Salon's servers.

     Software to maintain and manage Salon Premium was created in-house. In May
2003, Salon re-developed and re-deployed its subscription sign-up system in
order to improve customer experience and level of customer support, and to
increase the flexibility of service offerings. During the year ended March 31,
2003, account and subscription management systems were re-engineered in order to
apply additional control mechanisms and to improve the level of performance
reporting related to the subscription service offering.

     Salon is currently in the process of updating its subscription management
system to comply with Section 404 of the Sarbanes-Oxley Act. Subsequent to March
31, 2005, Salon began to analyze the requirements to comply with the security
provisions of the Cardholder Information Security Program, required by all major
issuers of credit cards.

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.


                                       12
<PAGE>

     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, 2005, Salon has 55 full-time employees. Salon believes its
employee relations are good. None of Salon's employees 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.




                                       13
<PAGE>

Executive Officers of the Registrant

The following sets forth certain information of respect to executive officers as
of March 31, 2005:

Name                       Age   Position
------------------------  -----  -----------------------------------------------
David Talbot(1)             53   Chairman of the Board, Director
Elizabeth Hambrecht(1)      42   Chief Executive Officer and President, Director
Joan Walsh(1,2)             46   Editor-in-Chief
Conrad Lowry(1)             53   Chief Financial Officer and Secretary
Melissa Barron              47   Senior Vice President, Sales
Sidney Blumenthal(3)        56   Senior Vice President, Editorial Development
                                 (former)
Patrick Hurley(4)           43   Senior Vice President, Business Operations
                                 (former)
Scott Rosenberg(2)          45   Senior Vice President, Editorial Operations
                                 (former)

     (1)  On February 10, 2005 David Talbot resigned his position as Chief
          Executive Officer and Editor-in-Chief, and Elizabeth Hambrecht was
          appointed Chief Executive Officer, retained her position as President
          and resigned her position as Chief Financial Officer and Secretary.
          Joan Walsh, who had been serving as Senior Vice President, Editorial
          Operations since November 2004, was appointed Editor-in-Chief and
          Conrad Lowry, who had been serving as Controller since joining Salon
          in September, 2000, was appointed Chief Financial Officer and
          Secretary
     (2)  Joan Walsh was appointed in November 2004 to serve as Senior Vice
          President, Editorial Operations upon the resignation of Scott
          Rosenberg
     (3)  Ceased serving as an officer in January 2005.
     (4)  Employment with Salon ceased in February 2005


     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. 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.

     Melissa Barron has served as Salon's Senior Vice President, Sales since
October 2003. From 2001 to 2003, she served as Vice President, Western Region
Sales. Upon joining Salon in April 1999 to 2001 she served as a Senior Sales
Manager. From 1996 to 1997 she held various advertising positions with Conde
Nast Publications, Inc. and The New Yorker. From 1987 to 1996, she was initially
an


                                       14
<PAGE>

Advertising Account Manager and then Western Sales Manager for Fairchild
Publications. From 1984 to 1987 she was a buyer for Nordstrom, a retail
merchant. Ms. Barron holds a Bachelor of Science degree in environmental
planning and management from University of California, Davis.

     Joan Walsh was appointed Editor-in-Chief in February 2005. From November
2004 through February 2005 she held the position of Senior Vice President -
Editorial Operations. From November 2003 to November 2004 she served as Vice
President Co-Managing Editor. From October 1999 to November 2003 she served as
Vice President of News. Ms. Walsh served as Salon's News Editor from October
1998 to October 1999. Prior to joining Salon, Ms. Walsh was a freelance writer
for approximately ten years and was a consultant to national and regional
foundations including the Rockefeller Foundation, the Annie E Casey Foundation
and the James Irvine Foundation. Ms. Walsh is currently a Board 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 2003, 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 1987 to 1997 he served as Senior Accountant and Assistant Controller -
Finance 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.


ITEM 2. Properties

     On January 13, 2005, Salon entered into a lease for 8,623 square feet of
office space at 101 Spear Street, San Francisco, California. The lease term is
four years and commenced on March 1, 2005.

     Salon leases nominal office space at 41 East 11th Street, 11th Floor, New
York, NY. The lease terminated on May 31, 2005 and was renewed for an additional
one year term. Salon also leases nominal office space at 3409 1/2 M Street NW,
Washington, DC, with the lease terminating in May 2007.

     We believe that our existing properties are in good condition and are
suitable for the conduct of our 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, 2005.



                                       15
<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 2005 and 2004, based on sales
transactions reported by the OTC (Over-The-Counter) Bulletin Board, is provided
below:

                                Fiscal Year Ended      Fiscal Year Ended
                                 March 31, 2005         March 31, 2004
                               ------------------     ------------------
For the quarters ended           High      Low          High      Low
                               --------  --------     --------  --------
        June 30                  0.24      0.10         0.08      0.04
        September 30             0.24      0.10         0.10      0.02
        December 31              0.18      0.09         0.07      0.03
        March 31                 0.69      0.10         0.40      0.03


     There were 246 holders of record of Salon common stock as of June 16, 2005.
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 16, 2005 was
$0.19 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.



                                       16
<PAGE>

ITEM 6. Selected Consolidated Financial Data

<TABLE>
<CAPTION>
                                                 Dollar amounts in thousands, except per share
                                              ----------------------------------------------------
Year Ended March 31,                            2005       2004       2003       2002       2001
------------------------------------------    --------   --------   --------   --------   --------
<S>                                           <C>        <C>        <C>        <C>        <C>
Net revenues                                  $  6,628   $  4,499   $  4,003   $  3,619   $  7,202
Net loss (1)                                  $    518   $  6,046   $  5,597   $  8,000   $ 19,155
Net loss attributable to common
   stockholders (2)                           $    358   $  8,661   $  5,678   $ 11,286   $ 19,155
Basic and diluted net loss per share
   attributable to common stockholders        $   0.02   $   0.61   $   0.41   $   0.83   $   1.48
Weighted average common shares
   outstanding used in computing
   per share amounts                            14,390     14,099     13,938     13,547     12,962
Cash and cash equivalents                     $    686   $    696   $    162   $  1,542   $  3,047
Prepaid advertising rights                    $  3,970   $  4,430   $  5,480   $  6,266   $  7,075
Total assets                                  $  6,069   $  6,270   $  7,590   $ 11,342   $ 16,298
Capital leases - long-term portion            $      -   $      -   $     18   $     77   $    325
Total long-term liabilities (3)               $     82   $  2,621   $    569   $    229   $    601
</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. The net loss for the year ended March 31,
2001 includes a write-down of long-lived assets of $3,517 due to impairments.

(2) The net loss attributable to common stockholders for the fiscal year ended
March 31, 2005 includes a net preferred deemed dividend benefit of $160 that
includes 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 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 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.

(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-


                                       17
<PAGE>

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.





                                       18
<PAGE>

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
eight primary 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 included "rich media" streaming advertisements, as well as
traditional banner and pop-up advertisements.

     Salon began offering Salon Premium, a pay for online content subscription
service, in April 2001. Subscription durations were originally for one-month,
one-year and two-years, with the two-year subscription plan being suspended in
November 2002. Initially, some unabridged content on Salon's Website was
restricted to only Salon Premium subscribers. In January 2003, Salon modified
its restrictions to allow access to substantially all of its content to Salon
Premium subscribers or to non Salon Premium subscribers who would view some form
of advertisement in exchange for a time allotted "Site Pass." Salon Premium
revenue is recognized ratably over the period that services are provided. During
the years ended March 31, 2005 and 2004, Salon received $2.3 million and $1.8
million in cash and recognized $2.2 million and $1.8 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 and its Salon premium service, as well as advertising, promotional and
distribution costs and the amortization of prepaid advertising rights.

     Research and development 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.

     Salon has incurred significant net losses and negative cash flows from
operations since its inception. As of March 31, 2005, Salon had an accumulated
deficit of $91.3 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.
If certain advertising revenue goals are attained, Salon forecasts that it may
attain cash flow break-even from


                                       19
<PAGE>

operations for the year ending March 31, 2006. Concurrent with potentially
attaining this goal, Salon may incur periods of limited cash resources. Salon
anticipates issuing additional shares of Series D preferred stock to help fund
operations and to fund a Website redesign. However, there is no guarantee that
Salon will be successful in issuing additional securities.

     Salon has not recorded a provision for federal or state income taxes since
inception due to reoccurring operating losses. At March 31, 2005 Salon had net
operating loss carryforwards for federal income tax purposes of $62.8 million
that begin to expire in March 2015, and $31.9 million for California that begin
to expire in March 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 $0.6
million during the year ended March 31, 2005 to $24.8 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 54% and 39% of Salon's revenues for the years ended March 31,
2005 and 2004. 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 downloads, or a set number of days that
a Site Pass advertisement will run. To the extent minimum guaranteed amounts are
not provided for, 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.

     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


                                       20
<PAGE>

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 December 1999, 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, 2005, Salon has $5.8 million
advertising credits resulting from the transaction, valued at $4.0 million for
financial reporting purposes.

Results of Operations

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 reflects the success of Salon's site pass advertisement
format, which generates the majority of the ad revenue, in conjunction with
traditional advertising banners. This combination of advertisements has gained
wide 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.

     As advertising campaigns are normally short in duration and finalized
shortly before implementation, Salon cannot accurately predict full year
advertising sales. However, Salon estimates that for its quarter ending June 30,
2004 advertising revenues will be approximately $0.9 million.

     During the month of December 2004, based on visitor Website traffic that
month, Salon sold the maximum advertisement space on its Website that could be
generated. In order to increase this monthly threshold, Salon will have to
increase the number of unique visitors to its Website, either through
partnerships with other websites, marketing efforts, or other business
relationships, to draw additional traffic to its website, thereby increasing the
number of impressions potentially available to be sold to advertisers.

     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 reflects a greater number of individuals signing up
for this service, as new and renewed subscriptions during the year ended March
31, 2005 were approximately 84,000 compared to approximately 79,000 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.


                                       21
<PAGE>

     For the first time since inception, membership to Salon Premium decreased
during the year. The number of subscribers to Salon Premium at March 31, 2004
was approximately 72,000, and increased during the year to approximately 89,000
on December 31, 2004 and decreased to approximately 84,000 as of March 31, 2005.
As of June 20, 2005, the number of subscribers decreased further to
approximately 81,000. 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. Salon cannot predict if the reduction in
membership and the renewal rate will continue. Salon estimates that it will
recognize approximately $2.0 million of Salon Premium revenue for the year ended
March 31, 2006.

     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. This source of
revenue became uncertain during Salon's fourth quarter, and Salon cannot predict
if it will recognize much, if any, revenue from this source in its fiscal year
ending March 31, 2006.

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 or 4%. The 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 this year. 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.

     Salon does not anticipate production and content cash related expenditures
to vary significantly for the year ending March 31, 2006 from the current year
results.

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 this year versus last year, offset by a $0.1 million
charge from the value of warrants issued to a former employee. Salon anticipates
utilizing $0.4 - $0.7 million of advertising credits during the year ending
March 31, 2006, with overall expenses of approximately $1.7 - $2.0 million.

Research and Development Expenses

     Research and development expenses for the years ended March 31, 2005 and
March 31, 2004 were $0.6 million. Salon does not anticipate research and
development expenditures to vary significantly for the year ending March 31,
2006 from the current year results.


                                       22
<PAGE>

General and Administrative Expenses

     General and administrative expenses 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. Salon estimates that
general and administrative expenses will be approximately $0.9 - $1.0 million
for the year ending March 31, 2006.

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, 2005.

     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 includes $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.


                                       23
<PAGE>

Net Loss Attributable to Common Stockholders

     As a result of the above factors, Salon recorded a net loss attributable to
common stockholders of $0.4 million or $0.02 per share for the fiscal year ended
March 31, 2005 compared to a net loss of $8.7 million or $0.61 per share for the
fiscal year ended March 31, 2004.


Fiscal Years Ended March 31, 2004 and 2003

Net Revenues

     Salon's net revenue increased 12% to $4.5 million in the year ended March
31, 2004 from $4.0 million in the fiscal year ended March 31, 2003.

     Advertising revenues increased 3% to $1.8 million for the year ended March
31, 2004 from $1.7 million for the year ended March 31, 2003. The modest
increase in advertising revenues generally reflects an acceptance by advertisers
of Salon's Site Pass advertisement format with rich media that results in a more
favorable advertising experience than traditional banner advertising. Overall,
Salon was not able to capitalize on the industry wide 21% increase in Internet
advertising experienced in calendar year 2003 due to the relatively small number
of Website visitors that it generated and concerns about Salon's financial
viability.

     Salon Premium subscription revenues increased by 45% to $1.8 million for
the year ended March 31, 2004 from $1.3 million for the year ended March 31,
2003. Salon Premium revenues increased due to a growth in overall subscriptions,
as new and renewed subscriptions for the year ended March 31, 2004 were
approximately 79,000, versus approximately 70,000 for the year ended March 31,
2003. The approximate renewal rate as of March 31, 2004 for purchased one year
subscriptions was 64% versus 71% the prior year. The decline is attributable to
the January 2003 decision to make all of Salon's content available to non Salon
Premium subscribers as long as a Website visitor were willing to view a Site
Pass advertisement. The easing of access to Salon's content removed a major
inducement for a Website visitor to spend cash and subscribe to Salon Premium.
However, Salon has made up for this loss of cash by increasingly being able to
sell more Site Pass advertisement opportunities to advertisers.

     All other sources of revenue accounted for $0.9 million for the year ended
March 31, 2004 compared to $1.0 million for the year ended March 31, 2003. The
decrease of $0.1 is primarily attributable to a decrease in the licensing of
content which previously appeared in Salon's Website, as Salon did not actively
pursue this weak market during the second half of its year ended March 31, 2004.

Production and Content

     Production and content expenses during the year ended March 31, 2004 were
$4.6 million versus $4.4 million for the year ended March 31, 2003, an increase
of $0.2 million or 5%. The increase reflects a credit during the year ended
March 31, 2003 of $0.2 million from the reversal of previously accrued bonuses
that were not going to be paid and a non cash charge in the year ended March 31,
2004 of $0.2 million related to the value of warrants issued for editorial
collaboration with a print publisher, offset by a $0.1 million reduction of
Internet hosting costs and a $0.1 million reduction in general operating costs.

Sales and Marketing Expenses

     Sales and marketing expenses during the year ended March 31, 2004 were $2.4
million versus $2.3 million for the year ended March 31, 2003, an increase of
$0.1 million or 4%. The minor overall


                                       24
<PAGE>

increase reflects utilizing an additional $0.3 million of advertising credits
during the year ended March 31, 2004 compared to the amount used during the year
ended March 31, 2003, offset by reductions of $0.1 million in payroll related
costs from the elimination of three positions and $0.1 million from reduced
general operating costs during the year ended March 31, 2004.

Research and Development Expenses

     Research and development expenses for the years ended March 31, 2004 and
March 31, 2003 were $0.6 million.

General and Administrative Expenses

     General and administrative expenses for the years ended March 31, 2004 and
March 31, 2003 were $1.4 million. The March 31, 2003 results include a credit
from reversing a bonus accrual of $0.2 million. The March 31, 2004 results
included a charge of $0.1 million related to the issuance of warrants to a
former employee, as well as $0.1 million reduction in legal expenses from a
reduction in matters requiring outside counsel guidance and a $0.1 million
reduction in general operating costs.

Amortization of Intangibles

     Amortization of intangible expenses during the years ended March 31, 2004
and March 31, 2003 were $0.4 million. All intangible assets except for $0.2
million of goodwill were amortized as of March 31, 2004.

Write-down of Long-lived Assets

     In 1999, Salon entered into a ten-year lease for two floors of office space
in San Francisco. In February 2001, Salon began to sublease one of the two
floors with the sublease agreement terminating during the year ended March 31,
2003. Salon determined that the office space previously subleased would not be
utilized or subleased, and as a consequence, wrote-down the value of the assets
associated with the office space by $0.3 million during the year ended March 31,
2003. No comparable charge was incurred during the year ended March 31, 2004.

Interest and other income/ expense

     Net interest and other income/expense for the year ended March 31, 2004 was
a charge of $1.2 million versus a net charge of $0.1 million for the year ended
March 31, 2003.

     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.
The charge was required as Salon at the time had an insufficient number of
shares of common stock authorized to satisfy all obligations under convertible
instruments, warrant agreements and options. The year ended March 31, 2004
results also include a charge of $0.1 million from interest on convertible notes
then outstanding, and $0.3 million related to amortizing the initial value of
warrants issued to the holders of the 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 $0.1 million
of various other interest expense charges related to capital lease agreements
and a bank borrowing agreement. The $0.1 million charge for the year ending
March 31, 2003 includes nominal charges under capital leases, convertible note
interest and the value of warrants issued to convertible note holders.


                                       25
<PAGE>

     For the year ended March 31, 2004, Salon recognized $0.1 million of other
income from monies received by Salon to finance editorial content that was
completed during the period.

Preferred Deemed Dividend

     The non-cash preferred deemed dividend of $2.6 million for the year ended
March 31, 2004 includes $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 and warrants 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.

Net Loss Attributable to Common Stockholders

     As a result of the above factors, Salon recorded a net loss attributable to
common stockholders of $8.7 million or $0.61 per share for the fiscal year ended
March 31, 2004 compared to a net loss of $5.7 million or $0.41 per share for the
fiscal year ended March 31, 2003.

Liquidity and Capital Resources

     As of March 31, 2005, Salon has approximately $0.7 million in available
cash, which included $0.3 million from the issuance of Series D preferred stock
in February 2005.

     Net cash used in operations was $0.8 million for the year ended March 31,
2005, compared to $2.8 million for the year ended March 31, 2004. The principal
use of cash during the year ended March 31, 2005 was to fund the $0.5 million
net loss, the $0.3 million increase in accounts receivable and the $0.3 million
decrease in accounts payable offset partly by non-cash charges of $0.5 million.
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. The principal use of
cash during the year ended March 31, 2003 was to fund the $5.6 million net loss
for the period, offset partly by non-cash charges of $2.2 million and changes in
assets and liabilities of $0.5 million.

     Net cash used in investing activities was $0.2 million for the year ended
March 31, 2005 to fund the acquisition of computer related hardware and
software, and for leasehold improvements. Net cash used in investing activities
was immaterial for the years ended March 31, 2004 and March 31, 2003. Salon
anticipates capital expenditures of $0.2 million during the year ending March
31, 2006 for computer related equipment and to redesign its Website.

     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. For the year ended March 31, 2003, net cash
from financing activities was $1.5 million, which was comprised of $1.7 million
from the issuance of notes payable, offset by $0.2 million from nominal payments
for capital lease obligations.

     In October 2002, Salon entered into an Accounts Receivable Purchase
Agreement with a bank. As Salon determined that the agreement was no longer
required to meet short-term cash needs, the


                                       26
<PAGE>

agreement was allowed to expire in January 2004. Salon has no immediate plans to
implement a similar agreement.

     Salon, as permitted under Delaware law and in accordance with its Bylaws,
indemnifies its officers, key employees 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, key employee'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, 2005, Salon has no outstanding capital leases and does not
anticipate entering into similar debt instruments during its year ending March
31, 2006. The following summarizes Salon's contractual obligations as of March
31, 2005, and which are in effect subsequent to March 31, 2005 for a renewed
office lease agreement, and the effect these contractual obligations are
expected to have on Salon's liquidity and cash flows in future periods (in
thousands):

                                       Payments Due By Period
                      ---------------------------------------------------------
                                        1 Year                       More than
                          Total         or Less     1 - 3 Years       3 Years
                      ------------   ------------   ------------   ------------
Operating leases      $      1,046   $        319   $        498   $        229
                      ------------   ------------   ------------   ------------
       Total          $      1,046   $        319   $        498   $        229
                      ============   ============   ============   ============

     On January 13, 2005, Salon entered into a four year lease for 8,623 square
feet of office space in San Francisco, California. Under the lease agreement,
which commenced on March 1, 2005, Salon does not have to make lease payments for
the first four months, and thereafter is to make lease payments of $18,683 per
month for the remainder of the first year, $19,402 per month for the second
year, $20,120 per month for the third year and $20,839 per month on the fourth
year. As part of the agreement, Salon provided to the landlord a cash deposit of
$98,805 and the landlord provided a leasehold improvement incentive of
approximately $65,000. Salon utilized the entire incentive for tenant
improvements to the office space. The lease agreement does not provide for a
renewal period.

     Salon's accounting treatment for office leases is to: 1) record rent
holidays as a long term liability as incurred, 2) capitalize utilized leasehold
improvement incentives as a component of fixed costs, with the offset amount
recorded as a long term liability and 3) aggregate all monthly rent payments to
be made, the value of rent holidays, and landlord provided incentives to a
composite monthly rate, which is then charged to operations. Amounts capitalized
as a fixed cost are depreciated over the initial lease term.

     PricewaterhouseCoopers LLP, Salon's independent accountants through
November 13, 2003 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 an
accumulated deficit for the for the year ended March 31, 2003. Salon's current
independent accountants, Burr, Pilger & Mayer LLP make the same assertions in
their report for Salon's years ended March 31, 2004 and March 31, 2005.

     Salon believes that it can accurately predict its cash position two months
in advance, and forecasts its cash position for future periods. Based on Salon's
cash on hand as of the date of this filing and projected cash flows from
operations, Salon believes that it will have sufficient cash to meet operating
needs through approximately August 2005. Even though Salon projects that it will
have


                                       27
<PAGE>

sufficient cash through August 2005, Salon may experience periods of very
limited cash resources. Salon can not accurately predict the amount of cash that
it will have on hand after that point, or the amount of cash to be generated
from operations, due to the unpredictability in securing advertising campaigns
and the attrition being experienced in membership to Salon's subscription
services. Securing advertising campaigns has been hindered as of June 1, 2005
when Salon's Senior Vice President - Sales recused herself on a medical leave of
absence for an undetermined length of time, leaving only two individuals to
actively pursue advertising campaigns.

     Since Salon implemented its Salon Premium subscription service in April
2001, the number of subscribers has steadily grown, to a peak of approximately
89,100 on December 31, 2004. Since that date, Salon has experienced erosion in
the number of subscriptions, which declined to approximately 84,500 as of March
31, 2005, and declined further to 81,000 as of June 20, 2005. Commensurate with
the reduction in subscribers, Salon has experienced a decline in the renewal
rate for one year paid subscriptions, which declined from approximately 73% as
of December 31, 2004 to 69% as of March 31, 2005. There is no guarantee that
such trends will continue.

     Under "The Purchase Agreement" 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," Salon is allowed
to sell and issue an additional 1,251 shares of Series D preferred stock, for
which Salon could receive approximately $1.5 million in cash. As Salon forecasts
periods of limited cash resources through August 2005, and is unable to
accurately project cash to be generated from operations subsequent to August
2005, Salon anticipates that it will seek purchasers for some or all of the
remaining 1,251 shares of Series D preferred stock. There is no guarantee that
Salon will be successful in finding buyers for these securities.

Off-Balance Sheet Arrangements

     Salon has no off-balance sheet arrangements.

Reverse Stock Split

     In November 2004, 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
2005 Annual Meeting of Stockholders or December 31, 2005. Currently, 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
Standard Financial Accounting Standard (SFAS) No. 123R (revised 2004),
"Share-Based Payment" (SFAS 123R). In annual periods beginning after June 15,
2005, as amended by the Securities and Exchange Commission (SEC), SFAS 123R
would eliminate the ability to account for equity-based compensation using the
intrinsic value-based method under Accounting Principles Board (APB) Opinion No.
25. SFAS 123R requires companies' to calculate equity-based compensation expense
for stock compensation awards based on the fair value of the equity instrument
at the time of grant. Salon currently uses, and will upon adoption of SFAS 123R,
utilize 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 three
alternative transition methods: the Modified Prospective Application, which
allows for the adoption of SFAS 123R without


                                       28
<PAGE>

restatement of prior interim periods in the year of adoption; the Modified
Prospective Application with restatement of prior interim periods in the year of
adoption; and the Modified Retrospective Application which allows companies to
restate prior financial statements. Salon expects to adopt SFAS 123R beginning
in the first quarter of fiscal year 2007, as required, using the Modified
Prospective method, and will not restate prior periods for the adoption of SFAS
123R.

     Currently, Salon discloses pro forma net income (loss) and related pro
forma net income (loss) per share in accordance with SFAS 123 and SFAS 148
"Accounting for Stock-Based Compensation-Transition and Disclosure - An
Amendment of FASB Statement No. 123". Under SFAS 123R, equity-based compensation
expense is required to be recognized in companies' financial statements. For the
years ended March 31, 2005, 2004 and 2003, had SFAS 123R been effective, Salon
would have recognized additional non-cash equity-based compensation expense of
$1,561, $219, and $737, respectively, applying the provisions of SFAS 123R.

     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, based on 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.


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

Salon's projected cash flows may not meet expectations

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

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

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

     The certificate of designation and preferences and rights of the Series D
preferred stock stipulates that the Series D conversion price will be equal to
70% of the average closing sales price of Salon's common stock for the thirty
days prior to the date the issue of Series D preferred stock is called by Salon.
Such a discount may trigger a non-cash preferred deemed dividend charge. The
June 2004 issuance of 417 shares of Series D-1 preferred stock resulted in a
$0.2 million preferred deemed dividend charge to Salon's results of operations
and the February 2, 2005 issuance of 209 shares of Series D-2 resulted in a $0.1
million preferred deemed dividend charge to Salon's results of operations.
However, the issuance of Series D-2 in September 30, 2004 resulted in a
negligible $23,000 preferred deemed dividend charge to Salon's results of
operations. Salon cannot predict to what extent it may incur preferred deemed
dividend charges for subsequent issuances of Series D preferred stock, if any.


                                       29
<PAGE>

Salon has relied on related parties for significant investment capital

     Salon has been relying on cash infusions from related parties to fund
operations. The related parties are primarily John Warnock, a Director of Salon,
and William Hambrecht. William Hambrecht is the father of Salon's President and
Chief Executive Officer. Out of a total of $4.2 million of cash received by
Salon from the issuance of convertible notes payable, approximately $3.5 million
was from related parties. In addition, of the $0.9 million received from the
issuance of Series C preferred stock in December 2003 and February 2004, $0.5
million was from Salon Director John Warnock and $0.2 million was from William
Hambrecht. Of the $0.5 million received in the June 2004 issuance of Series D-1
preferred stock, $249,600 was from Salon Director John Warnock and $225,600 was
either directly or indirectly from William Hambrecht. Salon also received from
Director John Warnock approximately $250,000 on September 30, 2004 from the
issuance of Series D-2 preferred stock. On February 2, 2005, Salon received
approximately $251,000 either directly or indirectly from William Hambrecht,
with one of the entities, HAMCO Capital Corporation, being indirectly held by
Elizabeth Hambrecht, Salon's President and Chief Executive Officer. Curtailment
of cash investments by related parties could detrimentally impact Salon's cash
availability and its ability to fund its operations.

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

     The holders of Salon's Series A, B, C and D preferred stock collectively
own approximately 95% of all voting securities as of March 31, 2005. These
stockholders therefore own a controlling interest in Salon. Of this amount,
approximately 69% is held by related parties, of which approximately 21% is
controlled directly or indirectly by William Hambrecht and approximately 41% by
Director John Warnock. Therefore, related parties by themselves own a
controlling interest in Salon.

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


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

     Salon's Series A, B, C and D preferred stockholders have liquidation
preferences to common stockholders of the first approximately $20.7 million in
potential sales proceeds as of March 31, 2005, which includes the effect of
undeclared dividends of $1.6 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 $20.7 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 $20.7 million and if preferred stock dividends were to be
declared, the holders of preferred stock would be entitled to receive a
relatively large 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 for its fiscal year ending March 31, 2006 and potentially in future
years. Once Salon attains profitability, it may not be able to sustain or
increase profitability on a quarterly or annual basis in the future. If revenues
grow


                                       30
<PAGE>

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 year ended March 31, 2004 and March 31, 2005, included a
"going-concern" audit opinion on the consolidated financial statements for those
years. PricewaterhouseCoopers LLP, Salon's independent registered public
accounting firm for the year ended March 31, 2003 included a "going-concern"
audit opinion on the consolidated financial statements for that year. The audit
opinions report substantial doubt about Salon's ability to continue as a going
concern, citing issues such as the history of losses and absence of current
profitability. As a result of the "going-concern" opinions, Salon's stock price
and investment prospects have been and will continue to be adversely affected,
thus limiting financing choices and raising concerns about the realization of
value on assets and operations.

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

     Salon is under severe budgetary constraints to limit expenditures. These
constraints affect editorial staffing levels and the purchase of content from
freelance writers. These constraints affect the amount and quality of content
published on Salon's Website and consequently, the positive experience of
Website visitors. The positive experience leads to reoccurring Website visits,
new subscriptions to Salon Premium, and corresponding high renewal rates of
Salon Premium subscribers. As of March 31, 2005 Salon's renewal rate for
one-year paid subscription to Salon Premium was approximately 69%. Salon cannot
predict if this rate will continue in the future or how many new Salon Premium
subscriptions it will acquire.

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

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

     o    successfully sell and market its Website Site Pass advertisements;

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

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

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

     o    successfully sell and market it network to advertisers;

     o    increase the amount of the advertising order it receives;

     o    increase awareness of the Salon brand;


                                       31
<PAGE>

     o    improve the technology for serving advertising on our Website;

     o    handle temporary high volume traffic spikes to its Website;

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

     o    attract and retain key sales personnel.

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

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

Complying with the Data Security Standard known as the Payment Card Industry
Data Security Standard is likely to cause our general and administrative
expenses and other operating expenses to increase and potential financial harm
to Salon for non-compliance in the event of a breach in credit card data
security

     Salon, as a merchant who conducts business with credit card data, must
comply with the Data Security Standard known as the Payment Card Industry Data
Security Standard as promulgated by all major issuers of credit cards. The
deadline for compliance of June 30, 2005 will not be met by Salon, which could
cause severe harm to Salon if a breach in credit card data were to occur before
Salon attains compliance. Salon is taking steps to comply with this directive
and to minimize its exposure to unauthorized access to credit card data.
Complying with the directive could materially increase the expenses that we
report under generally accepted accounting principles and adversely affect our
operating results.

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

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


                                       32
<PAGE>

The length of Salon's sales cycle is uncertain and variable and may lead to
shortfalls in revenues and fluctuations in its operating results

     Salon's dependence on advertising subjects it to the risk of revenue
shortfalls because the sales cycles for advertising vary significantly, and
during these cycles Salon may expend substantial funds and management resources
while not obtaining advertising revenues. If sales are delayed or do not occur,
Salon's financial results for a particular period may be harmed. The time
between the date of initial contact with a potential customer and the signing of
an advertising order may range from as little as one week to up to several
months. Sales of advertising are subject to factors over which Salon has little
or no control, including:

     o    advertisers' budgets;

     o    the acceptability of the Website Site Pass and other forms of rich
          media advertisements;

     o    internal acceptance reviews by advertisers and their agencies;

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

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

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

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

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

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

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

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


                                       33
<PAGE>

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

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

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

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

     o    the economic and business cycle and the recovery speed;

     o    the level of Internet usage;

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

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

     o    the amount and timing of operating costs.

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

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

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

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

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


                                       34
<PAGE>

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

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

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

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

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

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

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

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


                                       35
<PAGE>

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

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

Acceptance and effectiveness of Internet advertising is evolving and, to the
extent it does not grow, Salon's market may not develop adequately and its
business could be harmed

     Salon's success is highly dependent on an increase in the use of the
Internet. If the markets for Internet advertising or electronic commerce do not
continue to develop, its business may be severely harmed.

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

Advertising product offerings continue to change and this creates additional
effort and uncertainty about this revenue stream

     Advertisers continue to be attracted by new products, promotional vehicles
and offerings delivered via the Internet. This interest in new products requires
that Salon identify advertiser interests, develop and launch new advertising
products or formats, create appropriate pricing schedules, train the sales force
in the use and sale of new products, manage the obsolescence of earlier
products, and restructure the Salon.com Website to effectively deliver, track
and report new products. New product design, development and launch involve
creativity, expense, technology modifications and learning processes. While
Salon has integrated this activity into its existing operations, the rate of
change could create an environment where Salon is unable to effectively develop,
deliver or track the delivery of products acceptable to the market.

     Advertisers are increasingly selecting shorter campaign lengths with less
lead-time until launch. These campaigns have less flexibility in delivery
requirements and limit the ability of Salon to precisely identify future
revenues.

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

     It is important to Salon's advertisers that Salon accurately presents the
demographics of its user base and the delivery of advertisements on its Website.
Salon depends on third parties to provide certain of the advertiser-requested
services. If they were unable to provide these services in the future, Salon
would need to perform this function itself or obtain them from another provider,
if available. This could cause Salon to incur additional costs or lose revenue
due to a lower level of service. Companies may choose to


                                       36
<PAGE>

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

If use of the Internet does not grow, Salon's business could be harmed

     Salon's success is highly dependent upon continued growth in the use of the
Internet generally and in particular as a medium for content, advertising and
electronic commerce. If Internet usage does not grow, it may not be able to
increase revenues from advertising and subscriptions, and this may harm Salon's
business. A number of factors may inhibit the growth of Internet usage,
including the following. If these or any other factors cause use of the Internet
to slow or decline, its results of operations could be harmed.

     o    inadequate network infrastructure;

     o    security concerns;

     o    charging for content;

     o    inconsistent quality of service; and

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

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

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

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

     As a publisher and distributor of content over the Internet, including
user-generated content on Salon's online communities and links to third party
Websites that may be accessible through Salon.com, 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


                                       37
<PAGE>

links to sexually explicit Websites. Although Salon carries general liability
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 we use to protect
customer transaction data may occur. A compromise of Salon's security could
severely harm its business. A party who is able to circumvent our security
measures could misappropriate proprietary information, including customer credit
card information, or cause interruptions in the operation of its Website.

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

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

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

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

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

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


                                       38
<PAGE>

experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to its systems.
Any of these system failures could harm its business.

Privacy concerns could impair Salon's business

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

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

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

Provisions in Delaware law and our 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


                                       39
<PAGE>

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

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

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

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

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

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

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

     In addition, offer letters with executive officers, though none are in
effect as of March 31, 2005, may provide for the payment of severance and
acceleration of options upon the termination of these executive officers
following a change of control of Salon. These provisions in offer letters could
have the effect of discouraging potential takeover attempts.


ITEM 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.



                                       40
<PAGE>

ITEM 8. Consolidated Financial Statements and Supplementary Data
                                                                            Page

Reports of Independent Registered Public Accounting Firms  .................. 42

Consolidated Balance Sheets as of March 31, 2005 and 2004.................... 44

Consolidated Statements of Operations for the years ended March 31,
     2005, 2004, and 2003.................................................... 45

Consolidated Statements of Stockholders' Equity for the years ended
     March 31, 2005, 2004, and 2003.......................................... 46

Consolidated Statements of Cash Flows for the years ended March 31,
     2005, 2004, and 2003.................................................... 47

Notes to Consolidated Financial Statements................................... 48


Selected Quarterly Financial Data  (unaudited)............................... 72




                                       41
<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. as of March 31, 2005 and 2004, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. 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. as of March 31, 2005 and 2004, and the results of its operations and its
cash flows for the years then ended 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 $91.3
million at March 31, 2005. 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 16, 2005


                                       42
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

     In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the results of
operations and cash flows of Salon Media Group, Inc. and its subsidiaries for
the year ended March 31, 2003 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements 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
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     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 at
March 31, 2003 of $82.3 million that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


/s/ PricewaterhouseCoopers LLP
San Jose, California
June 27, 2003


                                       43
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                             March 31,
                                                                                    ----------------------------
                                                                                        2005            2004
                                                                                    ------------    ------------
<S>                                                                                 <C>             <C>
Assets
     Current assets:
          Cash and cash equivalents                                                 $        686    $        696
          Accounts receivable, net                                                           623             306
          Prepaid expenses and other current assets                                          232             432
                                                                                    ------------    ------------
          Total current assets                                                             1,541           1,434

     Property and equipment, net                                                             191              89
     Prepaid advertising rights                                                            3,970           4,430
     Goodwill, net                                                                           200             200
     Other assets                                                                            167             117
                                                                                    ------------    ------------
          Total assets                                                              $      6,069    $      6,270
                                                                                    ============    ============
Liabilities and stockholders' equity
     Current liabilities:
          Accounts payable and accrued liabilities                                  $        788    $      1,125
          Deferred revenue                                                                 1,047           1,107
          Capital lease obligations, current                                                   -              18
                                                                                    ------------    ------------
          Total current liabilities                                                        1,835           2,250

     Warrants payable                                                                          -           2,621
     Other long-term liabilities                                                              82               -
                                                                                    ------------    ------------

          Total liabilities                                                                1,917           4,871
                                                                                    ------------    ------------
Commitments and Contingencies (Note 8)

Stockholders' equity:
     Preferred stock, $0.001 par value, 5,000,000 shares authorized, 8,386
        shares issued and outstanding at March 31, 2005 and 7,552 shares
        issued and outstanding at March 31, 2004 (aggregate liquidation
        preference of $20,686 at March 31, 2005 and
        $18,926 at March 31, 2004)                                                             -               -

     Common stock, $0.001 par value, 600,000,000 shares authorized, 14,970,622
        shares issued and outstanding at March 31, 2005 and 14,155,276 shares
        issued and outstanding at March 31, 2004                                              15              14
     Additional paid-in capital                                                           95,430          92,320
     Accumulated deficit                                                                 (91,293)        (90,935)
                                                                                    ------------    ------------
          Total stockholders' equity                                                       4,152           1,399
                                                                                    ------------    ------------
          Total liabilities and stockholders' equity                                $      6,069    $      6,270
                                                                                    ============    ============
</TABLE>

           See accompanying notes to Consolidated Financial Statements


                                       44
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   Year Ended March 31,
                                                           --------------------------------------
                                                              2005          2004          2003
                                                           ----------    ----------    ----------
<S>                                                        <C>           <C>           <C>
Net revenues                                               $    6,628    $    4,499    $    4,003
                                                           ----------    ----------    ----------

Operating expenses:
     Production and content                                     4,446         4,647         4,425
     Sales and marketing                                        1,891         2,393         2,305
     Research and development                                     617           614           626
     General and administrative                                   766         1,386         1,354
     Amortization of intangibles                                    -           353           412
     Write-down of long-lived assets                                -             -           345
                                                           ----------    ----------    ----------
         Total operating expenses                               7,720         9,393         9,467

Loss from operations                                           (1,092)       (4,894)       (5,464)


Interest and other income                                         159           119            13

Interest and other income (expense)                               415        (1,271)         (146)
                                                           ----------    ----------    ----------
         Net loss                                                (518)       (6,046)       (5,597)
Preferred deemed dividend                                         160        (2,615)          (81)
                                                           ----------    ----------    ----------
Net loss attributable to common stockholders               $     (358)   $   (8,661)   $   (5,678)
                                                           ==========    ==========    ==========

Basic and diluted net loss per share attributable to
     common stockholders                                   $    (0.02)   $    (0.61)   $    (0.41)

Weighted average shares used in computing basic
     and diluted net loss per share attributable
     to common stockholders                                    14,390        14,099        13,938
</TABLE>


           See accompanying notes to Consolidated Financial Statements


                                       45
<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, 2002                         934   $      -     14,155   $     14   $ 85,416    $    (57)   $(76,596)   $  8,777

Amortization of unearned compensation             -          -          -          -          -          57           -          57
Value of contingent shares issued in
  conjunction with acquisition                    -          -          -          -         42           -           -          42
Preferred deemed dividend                         -          -          -          -          -           -         (81)        (81)
Reclassification of warrants to
  liabilities - see Note 14                       -          -          -          -       (175)          -           -        (175)
Net loss                                          -          -          -          -          -           -      (5,597)     (5,597)
                                           -----------------------------------------------------------------------------------------
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 - see Notes 11 and 14               -          -          -          -       (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 in conjunction
  with severance agreement                        -          -          -          -        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 14                                         -          -          -          -      1,707           -           -       1,707
Net loss                                          -          -          -          -          -           -        (518)       (518)
                                           -----------------------------------------------------------------------------------------
Balance, March 31, 2005                       8,386          -     14,971   $     15   $ 95,430           -    $(91,293)   $  4,152
</TABLE>


           See accompanying notes to Consolidated Financial Statements


                                       46
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                           Year Ended March 31,
                                                                                   --------------------------------------
                                                                                      2005          2004          2003
                                                                                   ----------    ----------    ----------
<S>                                                                                <C>           <C>           <C>
Cash flows from operating activities:
 Net loss                                                                          $     (518)   $   (6,046)   $   (5,597)
 Adjustments to reconcile net loss to net cash used in operating activities:
     Write-down of long lived assets                                                        -             -           345
     Loss from retirement of assets                                                         -            43             2
     Stock-based compensation                                                               -             -            57
     Warrant re-valuation                                                                (541)        1,037            33
     Depreciation and amortization                                                        495         1,285           962
     Allowance for (recovery of) doubtful accounts                                          2           (10)           46
     Operating lease incentives                                                            65             -             -
     Gain on issuance of common stock for trade payable                                   (25)            -             -
     Prepaid advertising rights usage                                                     460         1,050           786
     Changes in assets and liabilities:
         Accounts receivable                                                             (319)          (69)           53
         Prepaid expenses, other current assets and other assets                         (130)          (59)          326
         Accounts payable, accrued liabilities and other long-term liabilities           (254)         (180)         (226)
         Deferred revenue                                                                 (60)          189           355
                                                                                   ----------    ----------    ----------
            Net cash used in operating activities                                        (825)       (2,760)       (2,858)
                                                                                   ----------    ----------    ----------
Cash flows from investing activities:
 Purchase of property and equipment                                                      (217)          (35)           (4)
 Proceeds from asset sales                                                                  -            15             -
                                                                                   ----------    ----------    ----------
            Net cash used in investing activities                                        (217)          (20)           (4)
                                                                                   ----------    ----------    ----------
Cash flows from financing activities:
 Proceeds from issuance of preferred stock, net                                           995           892             -
 Proceeds from issuance of common stock, net                                               55             -             -
 Proceeds from bank borrowings                                                              -           182            82
 Repayment of short-term borrowings                                                         -          (182)          (82)
 Proceeds from issuance of notes payable, net                                               -         2,513         1,694
 Principal payments under capital leases                                                  (18)          (91)         (212)
                                                                                   ----------    ----------    ----------
            Net cash provided by financing activities                                   1,032         3,314         1,482
                                                                                   ----------    ----------    ----------
Net increase (decrease) in cash and cash equivalents                                      (10)          534        (1,380)
Cash and cash equivalents at beginning of period                                          696           162         1,542
                                                                                   ----------    ----------    ----------
Cash and cash equivalents at end of period                                         $      686    $      696    $      162
                                                                                   ==========    ==========    ==========

Amount paid for interest                                                           $        -    $        6    $       35
Supplemental schedule of non-cash investing and financing activities:
 Adjustment in value of assets purchased under capital lease                       $        -    $        -    $       17
 Warrants issued in connection with issuance of convertible notes payable                   -           263            65
 Issuance of stock and warrants in connection with acquisition                              -             5            42
 Issuance of warrants in connection with agreements                                       100           100             3
 Preferred deemed dividends                                                              (160)        2,615            81
 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


                                       47
<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 eight primary subject-specific sections and two online
communities. One of the sections provides audio streaming. Salon was originally
incorporated in July 1995 in the State of California and reincorporated in
Delaware in June 1999. Salon operates in one business segment.


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, 2005 of $91,293. These
factors raise substantial doubt about Salon's ability to continue as a going
concern.

     Salon has reduced expenses, and may reduce them further, to match
anticipated revenues to reach cash flow breakeven. There can be no assurance
that a further cost cutting exercise would be successful in completely
eliminating the difference between expenditures and revenues or that such
actions would not have a harmful effect on Salon's business and results of
operations. Until cash flow breakeven is reached on a consistent basis, Salon
may have to rely on additional investment capital or other financing activities.
There can be no assurance that Salon will be able to obtain additional capital
on terms that are favorable, or at all. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

Reclassifications

     Certain reclassifications have been made to prior year's balances in order
to conform to the current year's presentation.

Principles of consolidation

     The consolidated financial statements include the accounts of Salon and its
wholly owned subsidiaries, which are in-active. All material intercompany
accounts and transactions have been eliminated in the consolidated financial
statements.

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.


                                       48
<PAGE>

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

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 in January 2010.

Intangible assets

     Goodwill and other purchased intangibles are carried at cost less
accumulated amortization. Through March 31, 2002 amortization of goodwill was
computed on a straight-line basis over five years. As of April 1, 2002, goodwill
is no longer being amortized and is assessed on an annual basis for impairment
by applying a fair value based test.

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.

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.


                                       49
<PAGE>

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


     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
downloaded 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
has offered Salon Premium subscriptions for periods of one month, one year and
two years. In November 2002, Salon suspended offering two-year subscriptions.
Well subscriptions are generally only for one month.

Advertising costs

     Salon expenses advertising costs as they are incurred. Advertising expense
was $471, $1,056, and $772, for the fiscal years ended March 31, 2005, 2004, and
2003.

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, 2005, 2004 and 2003 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 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.


                                       50
<PAGE>

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

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. Two customers accounted for
19% and 15% respectively, of total trade accounts receivable at March 31, 2005
and two customers accounted for 20% and 12%, respectively, of total trade
accounts receivable at March 31, 2004.

     No customer accounted for 10% or more of total revenue for the fiscal years
ended March 31, 2005, 2004 and 2003.

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) 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 upon adoption of SFAS 123R,
utilize 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 three
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; the Modified Prospective Application with
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. For the years ended March 31, 2005, 2004 and
2003, had SFAS 123R been effective, Salon would have recognized additional
non-cash equity-based compensation expense of $1,561, $219, and $737,
respectively, applying the provisions of SFAS 123R.

     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, based on 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.


                                       51
<PAGE>

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

Stock-based compensation

     Salon accounts for stock-based employee compensation arrangements in
accordance with the provisions of APB 25 and 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 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,
                                                                            --------------------------------------
                                                                               2005          2004          2003
                                                                            ----------    ----------    ----------
<S>                                                                         <C>           <C>           <C>
Net loss attributable to common stockholders:
     As reported                                                            $     (358)   $   (8,661)   $   (5,678)

     Add back: stock-based employee compensation
     expense included in reported net loss                                           -             -            57

     Deduct: total stock-based compensation expense
     determined under the fair value based method, net
     of related tax                                                             (1,561)         (219)         (737)
                                                                            ----------    ----------    ----------
     Pro forma net loss attributable to common stockholders                 $   (1,919)   $   (8,880)   $   (6,358)
                                                                            ==========    ==========    ==========

Basic and diluted net loss per share attributable
common stockholders:
     As reported                                                            $    (0.02)   $    (0.61)   $    (0.41)
     Pro forma net loss per share                                           $    (0.13)   $    (0.63)   $    (0.46)
</TABLE>


                                       52
<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. As 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, 2005, and 2003, using the following
assumptions:

                                           Year Ended March 31,
                                   ------------------------------------
                                      2005        2004         2003
                                   ----------  ----------  ------------
Risk-free interest rates             3.40%         N/A     3.25 - 4.38%
Expected lives (in years)              4           N/A           4
Expected volatility                   120%         N/A         120.0%
Dividend yield                        0.0%         N/A          0.0%

     The weighted average grant date fair value per share of options granted
during the years ended March 31, 2005, 2004, and 2003 was $0.11, none, and
$0.08, 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,
                                                                -----------------------------------------------
                                                                     2005             2004             2003
                                                                -------------    -------------    -------------
<S>                                                             <C>              <C>              <C>
Numerator:
      Net loss attributable to common stockholders              $        (358)   $      (8,661)   $      (5,678)
                                                                =============    =============    =============

Denominator:
      Weighted average shares outstanding                          14,390,000       14,155,000       14,155,000
      Weighted average shares held in escrow                                           (56,000)        (217,000)
                                                                -------------    -------------    -------------
      Weighted average shares used in computing basic
          and diluted net loss per share attributable to
          common stockholders                                      14,390,000       14,099,000       13,938,000
                                                                =============    =============    =============
      Basic and diluted net loss per share attributable to
          common stockholders                                   $       (0.02)   $       (0.61)   $       (0.41)
                                                                =============    =============    =============

      Antidilutive securities including options, warrants
          and convertible preferred stock not included
          in loss per share calculation                           232,006,000      199,312,000       33,214,000
                                                                =============    =============    =============
</TABLE>


                                       53
<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,
                                                       ------------------------
                                                          2005          2004
                                                       ----------    ----------
Accounts receivable, net:
     Accounts receivable                               $      653    $      336
     Less: allowance for doubtful accounts                    (30)          (30)
                                                       ----------    ----------
                                                       $      623    $      306
                                                       ==========    ==========
Prepaid expenses and other current assets
     Prepaid lease termination fees                    $        -    $      192
     Receivable from employees                                 89            92
     Prepaid expenses                                          88            79
     Short term deposits                                       54            49
     Other receivables                                          1            20
                                                       ----------    ----------
                                                       $      232    $      432
                                                       ==========    ==========
Property and equipment, net
     Computer hardware and software                    $    1,316    $    1,392
     Leasehold improvements                                    67            34
     Furniture and office equipment                           243           258
                                                       ----------    ----------
                                                            1,626         1,684
     Less accumulated depreciation and amortization        (1,435)       (1,595)
                                                       ----------    ----------
                                                       $      191    $       89
                                                       ==========    ==========

Other assets
     Long-term deposits                                $      167    $       65
     Other                                                      -            52
                                                       ----------    ----------
                                                       $      167    $      117
                                                       ==========    ==========

Accounts payable and accrued liabilities
     Accounts payable                                  $      216    $      348
     Salaries and wages payable                               270           162
     Accrued services                                          92            68
     Reserve for claims                                       151           181
     Rent expense normalization                                 -           302
     Other accrued expenses                                    59            64
                                                       ----------    ----------
                                                       $      788    $    1,125
                                                       ==========    ==========

     Depreciation expense for the years ended March 31, 2005, 2004 and 2003 was
$115, $347, and $513, respectively.

     Included in computer hardware and software, and furniture and office
equipment as of March 31, 2004, are assets under capital leases amounting to
$165, with accumulated depreciation of $156. As of March 31, 2005, Salon has no
fixed assets under capital lease agreements.


                                       54
<PAGE>

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

     During the year ended March 31, 2004, Salon forfeited $420 of restricted
cash to a landlord in order to reduce the remaining term of a lease from 6.75
years to two years, reduced its office space by approximately half and reduced
monthly lease payments by seventy-two percent. The resulting decrease in rent
payments exceeded the balance of the forfeited deposit, which accordingly, was
expensed over the revised lease term, which expired in February 2005. The
unamortized balance of the forfeited amount was $192 as of March 31, 2004.

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 percent of the fair
market value of shares on either the first day or the last day of the designated
payroll deduction period (the Offering Period), as chosen by the Board of
Directors at its discretion, whichever is lower.

     The ESPP operation was suspended on March 1, 2001. 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,
2005.

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


                                       55
<PAGE>

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

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. As of March 31, 2005, the loan and
associated interest total $89 and is included as a component of "Prepaid
expenses and other current assets" in Salon's Consolidated Balance Sheets. In
addition, $7 of interest has been paid as of March 31, 2005.

     In October 2001, Salon entered into a month-to-month sublease agreement
with WR Hambrecht + Co., LLC for office space in New York, NY and received $57
in rent income during the year ended March 31, 2003. Elizabeth Hambrecht,
Salon's Chief Executive Officer and President, is the daughter of investor
William Hambrecht, the Chairman and Chief Executive Officer of WR Hambrecht +
Co., LLC.

     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 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:

<TABLE>
<CAPTION>
                                                  Promissory                     Series C
                                                     Note         Warrants        Shares
Name                                                Amount         Issued         Issued
--------------------------------------------     ------------   ------------   ------------
<S>                                              <C>               <C>                <C>
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
                                                 ============   ============   ============
</TABLE>

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, a Director of Salon,
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.


                                       56
<PAGE>

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

     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 2,000,000
shares of common stock as part of an editorial collaboration agreement. Salon
director Jann Wenner is the Chairman and President of Wenner Media LLC. During
the year ended March 31, 2005, Salon received $17 from Wenner Media for
editorial collaboration.

     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:

<TABLE>
<CAPTION>
                                                 Series D
                                                  Shares        Warrants       Purchase
Name                                              Issued         Issued         Price
------------------------------------------     ------------   ------------   ------------
<S>                                            <C>               <C>                  <C>
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
                                               ============   ============   ============
</TABLE>


Note 8. Commitments and Contingencies

     Salon had a non-cancelable operating lease agreement for its prior office
space in San Francisco, CA that expired in February 2005, a new non-cancelable
operating lease agreement for its current office space in San Francisco, CA that
expires in February 2009, for its current office in New York, NY that expires in
May 2005, for a former office in New York, NY that expired in December 2004, for
its current office in Washington, D.C. that expires in May 2007, and for minimal
office equipment. Rent expense under these operating lease agreements was $634,
$625, and $1,306, for the years ended March 31, 2005, 2004, and 2003,
respectively. Subsequent to March 31, 2005, Salon extended its lease agreement
for its office in New York to expire in May 2006.

     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.


                                       57
<PAGE>

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

     Salon has no capital leases as of March 31, 2005. Total future minimum
rental payments under capital leases and non-cancelable operating leases in
effect at March 31, 2003 are as follows:

                                                       Operating
         Year Ending March 31,                           Leases
         ---------------------                        ----------
                2006                                  $      188
                2007                                         253
                2008                                         245
                2009                                         229
                                                      ----------
                    Total lease payments                     915
                                                      ==========

     Salon has entered into various agreements in which it subleases office
space. Rental income resulting from these agreements paid directly to Salon was
$0, $0 and $530 for the year ended March 31, 2005, 2004 and 2003, respectively.
The income was recorded as an offset against rent expense.

     Salon, as permitted under Delaware law and in accordance with our Bylaws,
indemnifies its officers, key employees 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, key employee'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, 2005 and March 31, 2004 was $200 and has
been found not to be impaired.

     The following table sets forth information concerning Salon's intangible
assets as of March 31, 2005 and 2004:

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

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


                                       58
<PAGE>

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

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, 2005, Salon has net operating loss carry-forwards of $62,834 and $31,937 for
Federal and California purposes, respectively, available to reduce future
taxable income, if any. The carry forwards begin to expire in March 31, 2006 for
California purposes and in March 31, 2016 for federal purposes if not utilized
beforehand. At March 31, 2005, 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 had 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,
                                                       ------------------------
                                                          2005          2004
                                                       ----------    ----------
Net operating losses                                   $   23,274    $   22,496
Other                                                       1,483         1,702
                                                       ----------    ----------
Total deferred tax assets                                  24,757        24,198
Valuation allowance                                       (24,757)      (24,198)
                                                       ----------    ----------
Net deferred tax asset                                 $        -    $        -
                                                       ==========    ==========

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

                                                  Year Ended March 31,
                                         --------------------------------------
                                            2005          2004          2003
                                         ----------    ----------    ----------
Statutory tax benefit                    $     (122)   $   (2,945)   $   (1,930)
State taxes, net of federal benefit             (21)         (505)         (331)
Permanent differences                          (244)        1,608           105
Other                                          (172)          330          (805)
                                         ----------    ----------    ----------
Total                                          (559)       (1,512)       (2,961)
Change in valuation allowance                   559         1,512         2,961
                                         ----------    ----------    ----------
                                         $        -    $        -    $        -
                                         ==========    ==========    ==========


                                       59
<PAGE>

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

Note 11. Promissory and Convertible Promissory Notes Payable

     From July 2002 through December 2003, Salon issued a total of $4,227 of
promissory and convertible promissory notes payable, which in December 2003 were
converted to shares of Series C preferred stock. The following is a recap of the
notes issued and corresponding warrants that were simultaneously issued:

<TABLE>
<CAPTION>
                 Note                                  Warrants                            Investors
-------------------------------------  -----------------------------------------   ------------------------
                                                       Exercise price per share
                                          Number      --------------------------
        Issue Date           Amount       Issued       Original       Revised(*)     Number        Ref.
------------------------   ----------  ------------   -----------    -----------   ---------    -----------
<S>                        <C>            <C>         <C>            <C>               <C>      <C>
         7/24/2002         $      714       357,021   $    0.2100    $    0.0898       11       1,2,4,7,8,9
         10/3/2002                200             -                                     1            2
        12/18/2002                200       300,000        0.0575         0.0451        1            1
         1/26/2003                100       150,000        0.0575         0.0451        1            2
         2/11/2003                100       300,000        0.0575         0.0451        1            6
         3/12/2003                100       300,000        0.0460         0.0417        1            6
         3/18/2003                100       300,000        0.0460         0.0417        1            2
         3/25/2003                200       600,000        0.0460         0.0417        2           2,6
                           ----------  ------------
 Total as of 3/31/2003          1,714     2,307,021
                           ----------  ------------

         4/10/2003                200       600,000        0.0460         0.0417        2           2,6
         4/29/2003                200       600,000        0.0575         0.0451        2           2,6
         5/28/2003                300       900,000        0.0575         0.0451        1            2
         6/12/2003                100       300,000        0.0575         0.0451        1            4
         6/26/2003                100       300,000        0.0575         0.0451        1            1
         7/10/2003                248       744,015        0.0460         0.0417        3          1,2,5
         7/30/2003                100       300,000        0.0345         0.0345        1            2
         8/29/2003                165       495,000        0.0345         0.0345        3          1,2,3
         9/12/2003                100       300,000        0.0575         0.0451        1            2
         9/29/2003                100       300,000        0.0805         0.5181        1            2
         10/6/2003                100       300,000        0.0805         0.5181        1            6
        10/10/2003                100       300,000        0.0575         0.0451        1            2
        10/30/2003                150       450,000        0.0575         0.0451        2           2,6
        11/12/2003                100       300,000        0.0690         0.0484        1            2
        11/24/2003                150       450,000        0.0575         0.0451        2           2,5
        12/10/2003                200       600,000        0.0575         0.0451        1           10
        12/11/2003                100       300,000        0.0575         0.0451        1            2
                           ----------  ------------
     Total all issued      $    4,227     9,846,036
                           ==========  ============
</TABLE>


                                       60
<PAGE>

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

*Exercise prices revised as of March 31, 2005 pursuant to an anti-dilution
provision in applicable warrant Investor References for table in prior page:
     1.   Non-related party investor.
     2.   Investment by John Warnock, Director of Salon.
     3.   Investment by Salon's President, Chief Financial Officer, and
          Secretary.
     4.   Investment by the father of Salon's President, Chief Financial
          Officer, and Secretary.
     5.   Investment by entity that Salon's President, Chief Financial Officer,
          and Secretary and father have an ownership interest in.
     6.   Investment by entity that the father of Salon's President, Chief
          Financial Officer, and Secretary has an ownership interest in.
     7.   Investment by Robert McKay, Director of Salon
     8.   Investment by Brian Dougherty, former Director of Salon
     9.   Investment by outside legal counsel of Salon
     10.  Investment by Wenner Media LLC, which included an additional issuance
          of 2,000,000 warrants for editorial collaboration between Wenner Media
          LLC and Salon. On January 15, 2004, the President of Wenner Media LLC
          joined Salon's Board of Directors.

     On December 31, 2003, Salon issued Salon Director John Warnock warrants to
purchase 300,000 shares of common stock at $0.0345 per share for the promissory
note issued on October 3, 2002 for which no warrants had previously been issued.

     The notes, of which those issued through August 29, 2003 were amended
effective September 12, 2003 and September 22, 2003 to conform to the terms of
those issued subsequent to that date, could be converted into financing
securities or Salon's common stock and accrued interest on the unpaid principal
at 6.0% per year with such interest and principal due on or before December 31,
2003. The notes were to automatically convert upon the closing of Salon's first
sale of its preferred or common stock with aggregate gross proceeds to Salon of
at least $2,000 (including the conversion of the outstanding principal of the
notes and other converted indebtedness of Salon). In the event that Salon issued
new financing securities by December 31, 2003, the number of shares of the
financing securities to be issued upon conversion of the notes were to equal the
aggregate amount of the Notes and accrued interest divided by the price per
share of the financing securities issued and sold.

     On December 30, 2003 Salon converted $4,227 of notes, which represented all
amounts then owed under various note agreements, $167 of accrued interest on
such notes, and $500 in cash from a Director of Salon, to 6,118 shares of
Salon's Series C preferred stock, based on a purchase price of $800 per share.
The gross proceeds of $500, less $8 of legal were used for working capital and
other general corporate purposes. In addition, warrants to purchase 1,500,000
shares of Salon's common stocks, at an exercise price of $0.0345 per share, were
issued to the Director and valued at $31. As Salon had at the time an
insufficient number of authorized shares of common stock to satisfy all security
instruments, the value of these warrants was reclassified to a component of
warrants payable in Salon's consolidated balance sheet as of March 31, 2004.

Note 12. Subsequent Events

     On May 16, 2005 Salon's Board of Directors issued options to purchase
7,641,000 shares of common stock under the Salon Media Group, Inc. 2004 Stock
Plan. The exercise price of the options was $0.26 per share, with 50% vesting on
the date of grant and the other 50% vesting on February 7, 2006.


                                       61
<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 $1,763 using the Black-Scholes option-pricing
model, applying an estimated life of 4 years, a weighted average risk-free
interest rate of 3.80%, an expected dividend yield of zero percent, a volatility
of 120%, a deemed fair value of common stock of $0.26.

Note 13. Employee Stock Option Plan

     Salon has two stock option plans approved by shareholders, the Salon
Internet, Inc. 1995 Stock Option Plan and the Salon Media Group, Inc. 2004 Stock
Plan (the Plans). Under the Plans, 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, of the 20,910,250 options granted on February 7, 2005, half vested on
the date of grant, and the remaining half are to vest after one year of service.
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, 2005, 2004, and 2003, Salon had 13,089,000, 3,336,000, and
1,151,000 shares, respectively, authorized and available for grants under the
Plans. Even though the Salon Internet, Inc. 1995 Stock Option Plan as of March
31, 2005 has 3,999,000 shares authorized and available for grants, the plan does
not qualify for grants in various states in which Salon would like to make
grants, and as such, Salon does not intend to make further grants under the
plan, which is to expire on December 12, 2005. Of the 30,000,000 shares
authorized to be issued under the Salon Media Group, Inc. 2004 Stock Plan,
9,089,750 are available to be granted subsequent to March 31, 2005.

     The following table summarizes activity under Salon's Plans from March 31,
2002 through March 31, 2005:

                                                                      Weighted
                                                                      Average
                                                       Number of      Exercise
                                                        shares         Price
                                                     -----------    -----------
Balance March 31, 2002                                 6,728,000    $      1.61
Options granted                                           69,000    $      0.10
Options terminated                                      (661,000)   $      1.36
Options exercised                                              -    $         -
                                                     -----------
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    $      1.50
                                                     ===========


                                       62
<PAGE>

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


The following table summarizes information about stock options outstanding at
March 31, 2005:

<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            7.5         $    0.06                5,000       $   0.06
   $0.11 - $ 0.14          23,250,000            9.6              0.14           11,059,000           0.14
   $0.20 - $ 0.20             190,000            2.1              0.20              190,000           0.20
   $0.32 - $ 0.37             532,000            5.8              0.36              532,000           0.36
   $0.52 - $ 0.52              28,000            3.5              0.52               28,000           0.52
   $1.38 - $ 2.00             305,000            5.4              1.86              305,000           1.86
   $2.92 - $ 3.63              77,000            4.2              3.01               77,000           3.01
   $5.06 - $ 5.25              30,000            4.6              5.22               30,000           5.22
   $8.50 - $10.06             379,000            4.4              9.60              379,000           9.60
                        ----------------                                     ----------------
                           24,799,000            9.3         $    0.33           12,605,000       $   0.51
                        ================                                     ================
</TABLE>

     At March 31, 2004 and 2003 options to purchase 3,061,000 and 3,589,000
shares of common stock, respectively, were exercisable.

Note 14. Stockholders' Equity

Preferred stock

     Salon has 5,000,000 shares of preferred stock authorized, whose
preferences, rights and privileges are to be decided by the Board of Directors,
authorized in April 1999.


                                       63
<PAGE>

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

     A summary of shares of preferred stock that Salon has issued, corresponding
warrants issued, and common stock equivalents, is as follows:

<TABLE>
<CAPTION>
                                                                    Warrants Issued      Conversion      Common
              Transaction   Shares    Price per    Gross                      Exercise     Rate to     Equivalent
  Series         Date       Issued      Share    Proceeds(4)      Number      Price(1)    Common (2)     Shares
-----------  ------------ ---------  ---------- ------------  ------------  ----------   -----------  ------------
<S>            <C>            <C>       <C>        <C>          <C>           <C>          <C>         <C>
     A          8/9/2001        621     $4,000      $2,484       4,968,000    $0.10942     0.09957      24,947,520
     A         9/13/2001        188     $4,000        $752       1,504,000    $0.10942     0.09957       7,552,550
                          ---------             ----------    ------------                            ------------
                                809                 $3,236       6,472,000                              32,500,070

     B          3/7/2002        125     $4,000        $500       1,414,827    $0.08980     0.08003       6,247,750

     C(3)     12/30/2003      6,118       $800      $4,894       1,500,000    $0.03450     0.04000     122,360,000
     C         2/10/2004        500       $800        $400       1,200,000    $0.03450     0.04000      10,000,000
                          ---------             ----------    ------------                            ------------
                              6,618                 $5,294       2,700,000                             132,360,000

     D          6/4/2004        417     $1,200        $500         807,095    $0.13742     0.09300       5,380,642
     D         9/30/2004        208     $1,200        $249         340,363    $0.12650     0.11000       2,269,090
     D          2/2/2005        209     $1,200        $251         341,999    $0.16100     0.11000       2,279,999
                          ---------             ----------    ------------                            ------------
                                834                 $1,000       1,489,457                               9,929,731

                          ---------             ----------    ------------                            ------------
                              8,386                $10,030      12,076,284                             181,037,551
                          =========             ==========    ============                            ============
</TABLE>

(1)  Exercise Prices of underlying security has been adjusted as of March 31,
     2005 pursuant to an antidilution provision of the underlying security
     issued in conjunction with issuance of Series A and B preferred stock.
(2)  Rates of conversion to common stock of the Series A and B preferred stock
     has been adjusted as of March 31, 2005 pursuant to an antidilution
     provision of the underlying security.
(3)  The gross proceeds of the Series C preferred stock issued on December 30,
     2003 consisted of $4,227 from conversion of previously issued convertible
     notes, $167 of accrued interest on such notes and $500 in cash.
(4)  The net cash proceeds from issuance were: for Series A - $3,205, Series B -
     $466, Series C - $892, Series D - $995.

     As of March 31, 2005, the Purchase Agreement and the Certificate of
Designation of Preferences and Rights of the Series D preferred stock allows the
sale and issuance of an additional 1,251 shares of Series D preferred stock and
stipulate 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 is called.

     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, 2005, no cash dividend has
been declared or paid.

     In event of a liquidation event, 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


                                       64
<PAGE>

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

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 90% 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. The preferred stockholders as a group control approximately 95% of
all voting securities of Salon.

     The aggregate liquidation preferences of all preferred stockholders as of
March 31, 2005, was $19,062 excluding the effect of undeclared dividends and
$20,686 including the effect of undeclared dividends. The aggregate liquidation
preferences of all preferred stockholders as of March 31, 2004, was $18,061
excluding the effect of undeclared dividends and $18,926 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.


                                       65
<PAGE>

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

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, 2005, no shares of
preferred stock have been converted to common stock.

     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, 2005, 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 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, 2005, has been 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 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 $310 preferred deemed dividend charge during its year
ended March 31, 2005 from the issuance of Series D 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.

     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.

Expired stock warrants

     In July 1998, Salon issued a warrant to purchase 79,000 shares of Pre-IPO
Series B preferred stock at an exercise price of $3.16 per share in connection
with an online distribution agreement. Salon valued the warrant at $217 using
the Black-Scholes option pricing model and amortized this amount to sales and
marketing expense through its fiscal year ended March 31, 2000 in its
Consolidated Statement of Operations. 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 warrant
expired in July 2003 without being exercised.

     In April 1999, Salon issued warrants to purchase 148,000 shares of Pre-IPO
Series C preferred stock at an exercise price of $3.88 per share. Salon valued
the warrants using the Black-Scholes option pricing model, applying an expected
life of 5 years, a weighted average risk-free interest rate of 5.14%, an
expected dividend yield of zero percent, a volatility of 107% and a deemed fair
value of common stock of $10.80. The fair market value of the warrants of $1.4
million was netted against the proceeds from Salon's initial public offering.
Upon completion of the initial public offering, the warrants were converted into
the right to purchase an equivalent number of shares of Salon's common stock at
the same exercise price per share. The warrants expired in April 2004 without
being exercised.


                                       66
<PAGE>

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


     In April 1999, Salon issued warrants to purchase 26,000 shares of Pre-IPO C
preferred stock at an exercise price of $3.88 per share. Salon valued the
warrant using the Black-Scholes option pricing model, applying a contractual
life of 5 years, a weighted average risk-free interest rate of 5.14%, an
expected dividends yield of zero percent, a volatility of 107% and a deemed fair
value of common stock of $10.80. The fair market value of the warrants of $244
was amortized through Salon's fiscal year ending March 31, 2002 as a component
of sales and marketing expense in the Consolidated Statement of Operations. Upon
completion of Salon's initial public offering, the warrants were converted into
the right to purchase an equivalent number of shares of Salon's common stock at
the same exercise price per share. The warrants expired in April 2004 without
being exercised.

     In June 1999, Salon issued warrants to purchase 6,000 shares of common
stock at an exercise price of $10.06 per share in return for marketing
consulting work. Salon valued the warrants using the Black-Scholes
option-pricing model, applying a contractual life of 5 years, a weighted average
risk-free interest rate of 5.5%, an expected dividend yield of zero percent, a
volatility of 107% and a deemed fair value of common stock of $10.06. The fair
market value of the warrants of $47 was amortized through Salon's fiscal year
ending March 31, 2002 as a component of sales and marketing expense in the
Consolidated Statement of Operations. The warrants had a five-year life and
expired in June 2004 without being exercised.

     In conjunction with the May 2000 acquisition of MP3Lit.com, Salon issued
warrants to purchase 100,000 shares of common stock at an exercise price of
$10.50 per share with a five-year life. The warrants were valued at $185 using
the Black-Scholes option-pricing model, applying an expected life of five years,
a weighted average risk-free rate of 6.73%, an expected dividend yield of 0%, a
volatility of 90% and a deemed fair value of common stock of $1.85. Subsequent
to March 31, 2005, the warrants expired without being exercised.

Outstanding 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. Salon valued the
warrants at $615 using the Black-Scholes option-pricing model and applied the
amount to additional paid-in capital. The allocation of proceeds between
convertible preferred stock and warrants resulted in a beneficial conversion
feature in the amount of $271 that was reflected as a preferred deemed dividend
in the Consolidated Statement of Operations for the fiscal year ended March 31,
1999. 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, 2005,
warrants to purchase 172,529 shares of common stock were exercisable.

     In August 2001 and September 2001, Salon issued warrants to purchase
6,472,000 shares of common stock in conjunction with the issuance of Series A
preferred stock. Salon valued the warrants issued using the Black-Scholes
option-pricing model, applying a contractual life of 5 years, a weighted average
risk-free interest rate of 4.5%, an expected dividend yield of zero percent, a
volatility of 100%, an exercise price of $0.2875 and a deemed fair value of
common stock of $0.44 for the warrants issued in August 2001, and $0.34 for the
warrants issued in September 2001. The fair market value of the warrants was
incorporated as a preferred deemed dividend in the consolidated statements of
operations for the year


                                       67
<PAGE>

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

ended March 31, 2002. The warrants may be exercised at any time within five
years after issuance with 4,968,000 expiring in August 2006 and 1,504 expiring
in September 2006. Due to an anti-dilution provision of the warrant, the
exercise price of the warrant has been reduced to $0.10942 as of March 31, 2005.
No warrant was exercised as of March 31, 2005. A warrant to purchase 200,000
shares of common stock was exercised subsequent to March 31, 2005 on a
conversion method in which Salon did not receive any cash in the transaction.

     In January 2002, Salon issued warrants to purchase 30,000 shares of common
stock at an exercise price of $0.15 per share in return for marketing consulting
work. Salon valued the warrants using the Black-Scholes option-pricing model,
applying a contractual life of 5 years, a weighted average risk-free interest
rate of 4.15%, an expected dividend yield of zero percent, a volatility of 100%
and a deemed fair value of common stock of $0.12. The fair market value of the
warrants of $3 was amortized through Salon's fiscal year ending March 31, 2002
as a component of sales and marketing expense in the Consolidated Statement of
Operations. The warrants may be exercised at any time within five years after
issuance and expire in June 2007. The warrants have not been exercised as of
March 31, 2005.

     In March 2002, Salon issued warrants to purchase 1,414,827 shares of common
stock in conjunction with the issuance of Series B preferred stock. The warrants
may be exercised at any time within five years and have not been exercised as of
March 31, 2005. 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, 2005.

     In October 2002, Salon issued warrants to purchase 37,500 shares of common
stock at an exercise price of $0.05 per share to secure an account receivable
purchase agreement with a bank. Salon valued the warrants using the
Black-Scholes option-pricing model, applying a contractual life of 7 years, a
weighted average risk-free interest rate of 3.0%, an expected dividend yield of
zero percent, a volatility of 120% and a deemed fair value of common stock of
$0.07. The immaterial fair market value of the warrants was amortized through
Salon's fiscal year ending March 31, 2003 as a component of interest and other
expense in the Consolidated Statement of Operations. The 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 warrants may be exercised at any time within seven years after
issuance and expire in October 2009. The warrants have not been exercised as of
March 31, 2005.

     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 warrants 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 zero percent, a
volatility of 120% and a deemed fair value of common stock of $0.05. The fair
market value of the warrants 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. The warrants may be exercised at any
time within two years after issuance and expire in October 2005. The warrants
have not been exercised as of March 31, 2005.

     In December 2003, Salon issued warrants to purchase 2,000,000 shares of
common stock at an initial exercise price of $0.0575 per share as part of an
editorial collaboration agreement with a publisher. 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 2.375%, an expected
dividend yield of zero percent, a


                                       68
<PAGE>

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

volatility of 120% and a deemed fair value of common stock of $0.05. The fair
market value of the warrants of $69 was amortized as a component of production
and content in the consolidated statement of operations, of which $17 was
amortized for the fiscal year ended March 31, 2004 and $52 was amortized for the
fiscal year ended March 31, 2005. The warrants may be exercised at any time
within three years after issuance and expires in December 2006. The warrants
have not been exercised as of March 31, 2005.

     In December 2003, Salon issued warrants 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 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. As the issuance
of the 625 shares of preferred stock resulted in a $2,040 preferred deemed
dividend in Salon's consolidated statement of operations for the year ended
March 31, 2004, 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 2.375%, an expected dividend yield of zero percent, a
volatility of 120% and a deemed fair value of common stock of $0.24. As Salon at
the time had an insufficient number of authorized shares of common stock to
satisfy all security instrument obligations, the resulting warrant value of $263
was reclassified to a component of warrants payable in Salon's consolidated
balance sheet as of March 31, 2004. The warrants may be exercised at any time
within three years after issuance and expires in December 2006 and February
2007. The warrants have not been exercised as of March 31, 2005.

     In June 2004, Salon issued warrants to purchase 807,095 shares of common
stock in conjunction with the issuance of 417 shares Series D 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 zero percent, a volatility of 120%, a
deemed fair value of common stock of $0.12 and an exercise price of $0.138 per
share. In September 2004, Salon issued warrants to purchase 340,363 shares of
common stock in conjunction with the issuance of an additional 208 shares of
Series D 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 zero percent, a
volatility of 120%, a deemed fair value of common stock of $0.11 and an exercise
price of $0.1265 per share. In February 2005, Salon issued warrants to purchase
341,999 shares of common stock in conjunction with the issuance of an additional
209 shares of Series D preferred stock. 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 zero percent, a
volatility of 120%, a deemed fair value of common stock of $0.14 and an exercise
price of $0.161 per share. None of the warrants have been exercised as of March
31, 2005.

     In March 2005, Salon issued warrants 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


                                       69
<PAGE>

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

average risk-free interest rate of 3.75%, an expected dividend yield of zero
percent, 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 expire in March 2007. The warrants
have not been exercised as of March 31, 2005.

     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, as follows, with the exercise
prices in effect as of March 31, 2005:

           Issue        Expiration        Warrant        Exercise
           Date            Date            Shares         Price
      --------------  --------------  --------------  -------------
         Jul 2002        Jul 2005         357,021        $0.0898
         Dec 2002        Dec 2005         300,000        $0.0451
         Jan 2003        Jan 2006         150,000        $0.0451
         Feb 2003        Feb 2006         300,000        $0.0451
         Mar 2003        Mar 2006       1,200,000        $0.0417
         Apr 2003        Apr 2006         600,000        $0.0417
         Apr 2003        Apr 2006         600,000        $0.0451
         May 2003        May 2006         900,000        $0.0451
         Jun 2003        Jun 2006         600,000        $0.0451
         Jul 2003        Jul 2006         744,015        $0.0417
         Jul 2003        Jul 2006         300,000        $0.0345
         Aug 2003        Aug 2006         495,000        $0.0345
         Sep 2003        Sep 2006         300,000        $0.0451
         Sep 2003        Sep 2006         300,000        $0.0518
         Oct 2003        Oct 2006         750,000        $0.0451
         Oct 2003        Oct 2006         300,000        $0.0518
         Nov 2003        Nov 2006         450,000        $0.0451
         Nov 2003        Nov 2006         300,000        $0.0484
         Dec 2003        Dec 2006         300,000        $0.0345
         Dec 2003        Dec 2006         900,000        $0.0451
                                     ------------
                                       10,146,036
                                     ============

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 zero percent, a
volatility of 120% and a deemed fair value of common stock ranging from $0.03 to
$0.07. 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. No
warrants were exercised as of March 31, 2005. Subsequent to March 31,


                                       70
<PAGE>

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


2005, warrants for 239,587 shares of common stock were exercised, of which
113,637 were conversions from warrant shares to common stock shares.

Convertible securities issued in excess of 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 for a lack in a sufficient number of
authorized shares of common stock. Since that day, at each measurement period
(the last day of each fiscal quarter), through November 22, 2004, Salon has
re-measured the value of its outstanding warrants.

     For the year ended March 31, 2003, the re-measurement of warrants resulted
in a charge of $114, of which $81 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. 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
$6,026 of advertising and promotion time.



                                       71
<PAGE>

Selected Quarterly Financial Data (unaudited)
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                  First         Second          Third          Fourth
                                                 Quarter        Quarter        Quarter        Quarter
                                               -----------    -----------    -----------    -----------
<S>                                            <C>            <C>            <C>            <C>
2005:
Net revenue                                    $     1,733    $     1,256    $     2,150    $     1,489
Gross margin                                           533            252          1,019            378
Net income (loss) attributable to                   (1,164)         1,018            395           (607)
   common stockholders
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

2004:
Net revenue                                    $     1,045    $     1,086    $     1,273    $     1,095
Gross margin                                          (144)           130            204           (338)
Net income (loss) attributable to
   common stockholders                              (1,320)        (1,198)        (1,187)        (4,956)
Basic net income (loss) per share
   attributable to common stockholders               (0.09)         (0.09)         (0.08)         (0.35)
Diluted net income (loss) per share
   attributable to common stockholders               (0.09)         (0.09)         (0.08)         (0.35)
Shares used in per share calculation
   Basic                                            13,997         14,090         14,155         14,155
   Diluted                                          13,997         14,090         14,155         14,155
</TABLE>


                                       72
<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

     On November 17, 2004, the stockholders of Salon approved the Salon Media
Group, Inc. 2004 Stock Plan (the "Plan") filed herewith as Exhibit 10.29. On
February 7, 2005, the Board of Directors of Salon granted the below named
executive officers and directors options to purchase common stock pursuant to
the Plan per the form of the Salon Media Group, Inc. Notice of Grant of Stock
Option and Stock Option Agreement filed herewith as Exhibit 10.30. The options
were granted at $0.14 per share, which was the closing price of Salon's common
stock on the date of grant. In addition, the Board of Directors approved a
special vesting schedule stating that fifty (50) percent of the shares subject
to the option vested on the date of grant and fifty (50) percent of the shares
subject to the option vests on February 7, 2006, as long as the named individual
continues to provide services as an employee, consultant or director until such
date.

--------------------------------------------------------------------------------
                                                                    Number of
Name                     Title                                   Options Granted
--------------------------------------------------------------------------------
David Talbot             Chairman, Chief Executive Officer,
                         Editor-in-Chief and Director               4,000,000
--------------------------------------------------------------------------------
Elizabeth Hambrecht      President, Chief Financial Officer,
                         Secretary and Director                     2,500,000
--------------------------------------------------------------------------------
Joan Walsh               Senior Vice President, Editorial
                         Operations                                 2,000,000
--------------------------------------------------------------------------------
Conrad Lowry             Controller                                 1,500,000
--------------------------------------------------------------------------------
Melissa Barron           Senior Vice President, Sales               1,000,000
--------------------------------------------------------------------------------
Deepak Desai             Director                                     500,000
--------------------------------------------------------------------------------
Robert Ellis             Director                                     500,000
--------------------------------------------------------------------------------
Robert McKay             Director                                     500,000
--------------------------------------------------------------------------------
John Warnock             Director                                     500,000
--------------------------------------------------------------------------------


                                       73
<PAGE>

     On February 7, 2005 the Board of Directors of Salon granted to David
Talbot, Salon's then Chairman, Chief Executive Officer, Editor-in-Chief, and
Director, an option to purchase 1,000,000 shares of Salon's common stock. The
option was granted pursuant to a non-plan stock option agreement attached
herewith as Exhibit 10.31. This non-plan stock option agreement was not approved
by the stockholders of Salon. The option was granted at $0.14 per share, which
was the closing price of Salon's common stock on the date of grant. In addition,
the Board of Directors approved a special vesting schedule stating that fifty
(50) percent of the shares subject to the option vested on the date of grant and
fifty (50) percent of the shares subject to the option vests on February 7,
2006, as long as the named individual continues to provide services as an
employee, consultant or director until such date.

     The above list of named executive officers and directors is as of February
7, 2005. On February 10, 2005, David Talbot resigned his position as Chief
Executive Officer and Editor-in-Chief, and Elizabeth Hambrecht was appointed
Chief Executive Officer, retained her position as President and resigned her
position as Chief Financial Officer and Secretary. Joan Walsh, who had been
serving as Senior Vice President, Editorial Operations since November 2004, was
appointed Editor-in-Chief and Conrad Lowry, who had been serving as Controller
since joining Salon in September, 2000, was appointed Chief Financial Officer
and Secretary.

     On May 16, 2005, the Board of Directors of Salon granted the below named
directors options to purchase common stock pursuant to the plan per the form of
the Salon Media Group, Inc. Notice of Grant of Stock Option and Stock Option
Agreement. The options were granted at $0.26 per share, which was the closing
price of Salon's common stock on the date of grant. In addition, the Board of
Directors approved a special vesting schedule stating that fifty (50) percent of
the shares subject to the option vested on the date of grant and fifty (50)
percent of the shares subject to the option vests on February 7, 2006, as long
as the named individual continues to provide services as an employee, consultant
or director until such date.

--------------------------------------------------------------------------------
Name                        Title                Number of Options Granted
--------------------------------------------------------------------------------
George Hirsch               Director                      650,000
--------------------------------------------------------------------------------
James Rosenfield            Director                      650,000
--------------------------------------------------------------------------------
Jann Wenner                 Director                      650,000
--------------------------------------------------------------------------------



PART III


ITEM 10. Directors and Executive Officers of The Registrant

The information concerning Salon's directors and compliance with Section 16 of
the Securities and Exchange Act of 1934 required by this item are incorporated
by reference to Salon's Proxy statement.

The information concerning Salon's executive officers required by this item is
incorporated by reference herein to the section of this report in Part I,
entitled "Executive Officers of the Registrant."

ITEM 11. Executive Compensation

     The information required by this item is incorporated by reference to
Salon's Proxy Statement.


                                       74
<PAGE>

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

     The information required by this item is incorporated by reference to
Salon's Proxy Statement.

ITEM 13. Certain Relationships and Related Transactions

     The information required by this item is incorporated by reference to
Salon's Proxy Statement.

ITEM 14. Principal Accountant Fees and Services

     The information required by this item is incorporated by reference to
Salon's Proxy Statement.


PART IV


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

1.   Financial Statements

     The information concerning Salon's financial statements, the Report of
PricewaterhouseCoopers LLP, Salon's Independent Auditors through November 13,
2003, the Report of Burr, Pilger & Mayer LLP, Salon's Independent Auditors
subsequent to November 13, 2003, 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(43)  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


                                       75
<PAGE>

   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(37)  Certificate of Designation of Preferences and Rights of the
              Series C Preferred Stock, dated as of December 23, 2003

   3.4.3(39)  Certificate of Designation of Preferences and Rights of the
              Series D-1 Preferred Stock, Series D-2 Preferred Stock, Series
              D-3 Preferred Stock, Series D-4 Preferred Stock and Series D-5
              Preferred Stock dated as of June 1, 2004

    4.1(1)    Third Amended and Restated Rights Agreement dated April 14, 1999.

    4.1(8)    Fourth Amended and Restated Rights Agreement dated January 12,
              2000

    4.2(1)    Second Amended and Restated Voting Agreement dated April 14,
              1999.

    4.2(5)    Bylaws of the Company are incorporated by reference to Exhibit
              3.4 to the Company's Registration Statement on Form S-1

   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.


                                       76
<PAGE>

  4.2.16(15)  Form of Common Stock Purchase Warrant, dated December 18, 2002
              issued by Salon Media Group, Inc.

  4.2.17(16)  Note and Warrant Purchase Agreement dated as of January 26, 2003

  4.2.18(16)  Form of Convertible Promissory Note, dated January 26, 2003
              issued by Salon Media Group, Inc.

  4.2.19(16)  Form of Common Stock Purchase Warrant, dated January 26, 2003
              issued by Salon Media Group, Inc.

  4.2.20(17)  Note and Warrant Purchase Agreement dated as of February 11, 2003

  4.2.21(17)  Form of Convertible Promissory Note, dated February 11, 2003
              issued by Salon Media Group, Inc.

  4.2.22(17)  Form of Common Stock Purchase Warrant, dated February 11, 2003
              issued by Salon Media Group, Inc.

  4.2.23(18)  Form of Note and Warrant Purchase Agreement used during March
              2003

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

  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(26)  Note and Warrant Purchase Agreement dated July 10, 2003

  4.2.42(26)  Convertible Promissory Note dated July 10, 2003 by Salon Media
              Group, Inc.

  4.2.43(26)  Common Stock Purchase Warrant dated July 10, 2003 by Salon Media
              Group, Inc.

  4.2.44(27)  Note and Warrant Purchase Agreement dated July 30, 2003

  4.2.45(27)  Convertible Promissory Note dated July 30, 2003 by Salon Media
              Group, Inc.

  4.2.46(27)  Common Stock Purchase Warrant dated July 30, 2003 by Salon Media
              Group, Inc.

  4.2.47(28)  Note and Warrant Purchase Agreement dated September 12, 2003

  4.2.48(28)  Convertible Promissory Note dated September 12, 2003 by Salon
              Media Group, Inc.


                                       77
<PAGE>

  4.2.49(28)  Common Stock Purchase Warrant dated September 12, 2003 by Salon
              Media Group, Inc.

  4.2.50(29)  Note and Warrant Purchase Agreement dated September 29, 2003

  4.2.51(29)  Convertible Promissory Note dated September 29, 2003 by Salon
              Media Group, Inc.

  4.2.52(29)  Common Stock Purchase Warrant dated September 29, 2003 by Salon
              Media Group, Inc.

  4.2.53(29)  Note and Warrant Purchase Agreement dated October 6, 2003

  4.2.54(29)  Convertible Promissory Note dated October 6, 2003 by Salon Media
              Group, Inc.

  4.2.55(29)  Common Stock Purchase Warrant dated October 6, 2003 by Salon
              Media Group, Inc.

  4.2.56(30)  Note and Warrant Purchase Agreement dated October 10, 2003

  4.2.57(30)  Convertible Promissory Note dated October 10, 2003 by Salon Media
              Group, Inc.

  4.2.58(30)  Common Stock Purchase Warrant dated October 10, 2003 by Salon
              Media Group, Inc.

  4.2.59(31)  Note and Warrant Purchase Agreement dated October 30, 2003

  4.2.60(31)  Convertible Promissory Note dated October 30, 2003 by Salon Media
              Group, Inc. with Ironstone Group, Inc.

  4.2.61(31)  Common Stock Purchase Warrant dated October 30, 2003 by Salon
              Media Group, Inc. with Ironstone Group, Inc.

  4.2.62(31)  Convertible Promissory Note dated October 30, 2003 by Salon Media
              Group, Inc. with John Warnock

  4.2.63(31)  Common Stock Purchase Warrant dated October 30, 2003 by Salon
              Media Group, Inc. with John Warnock

  4.2.64(31)  Note and Warrant Purchase Agreement dated November 12, 2003

  4.2.65(31)  Convertible Promissory Note dated November 12, 2003 by Salon
              Media Group, Inc.

  4.2.66(31)  Common Stock Purchase Warrant dated November 12, 2003 by Salon
              Media Group, Inc

  4.2.67(32)  Note and Warrant Purchase Agreement dated November 24, 2003

  4.2.68(32)  Convertible Promissory Note dated November 24, 2003 by Salon
              Media Group, Inc. and John Warnock

  4.2.69(32)  Common Stock Purchase Warrant dated November 24, 2003 by Salon
              Media Group, Inc.for John Warnock

  4.2.70(32)  Convertible Promissory Note dated November 24, 2003 by Salon
              Media Group, Inc. and HAMCO Capital Corporation

  4.2.71(32)  Common Stock Purchase Warrant dated November 24, 2003 by Salon
              Media Group, Inc. for HAMCO Capital Corporation

  4.2.72(33)  Note and Warrant Purchase Agreement dated December 10, 2003

  4.2.73(33)  Convertible Promissory Note dated December 10, 2003 by Salon
              Media Group, Inc. and Wenner Media LLC

  4.2.74(33)  Common Stock Purchase Warrant dated December 10, 2003 by Salon
              Media Group, Inc. for Wenner Media LLC

  4.2.75(33)  Note and Warrant Purchase Agreement dated December 11, 2003

  4.2.76(33)  Convertible Promissory Note dated December 10, 2003 by Salon
              Media Group, Inc. and John Warnock

  4.2.77(33)  Common Stock Purchase Warrant dated December 10, 2003 by Salon
              Media Group, Inc. for John Warnock

  4.2.78(37)  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


                                       78
<PAGE>

  4.2.79(37)  Form of Common Stock Purchase Warrant dated December 30, 2003
              issued by Salon Media Group, Inc.

  4.2.80(38)  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(38)  Form of Common Stock Purchase Warrant dated February 10, 2004
              issued by Salon Media Group, Inc.

  4.2.82(39)  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(39)  Form of Common Stock Purchase Warrant dated June 4, 2004 issued
              by Salon Media Group, Inc.

  4.2.84(41)  Amendment No. 1 to Securities Purchase Agreement dated as of
              September 30, 2004

  4.2.85(41)  Common Stock Purchase Warrant dated September 30, 2004 issued by
              Salon Media Group, Inc.

  4.2.86(46)  Amendment No. 2 to Securities Purchase Agreement dated as of
              February 2, 2005

  4.2.87(46)  Form of Common Stock Purchase Warrant dated February 2, 2005
              issued by Salon Media Group, Inc.

    5.0(44)   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 9th, 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.


                                       79
<PAGE>

   10.16(2)   Warrant to Purchase Stock issued to Daiwa Securities America Inc.
              dated April 14, 1999.

   10.17(2)   Warrant to Purchase Stock issued to ACT III Communications dated
              April 14, 1999.

   10.18(9)   Amendment No. 2 To Anchor Tenant Agreement between America
              Online, Inc. and Salon.

   10.19(1)   Series A Preferred Stock Purchase Agreement dated December 22,
              1995.

   10.20(1)   First Amendment to the Series A Preferred Stock Purchase
              Agreement dated August 2, 1996.

   10.21(1)   Second Amendment to the Series A Preferred Stock Purchase
              Agreement dated February 6, 1997.

   10.22(1)   Series B Preferred Stock Purchase Agreement dated November 28,
              1997.

   10.23(1)   Series C Preferred Stock Purchase Agreement dated September 18,
              1998.

   10.24(1)   Series C Preferred Stock Purchase Agreement dated April 14, 1999.

   10.25(2)   Warrant to Purchase Stock issued to Chatsworth Securities LLC
              dated April 14, 1999.

   10.26(24)  Amended Office Lease between Salon's San Francisco landlord and
              Salon dated June 24, 2003.

   10.27(34)  Amended Office Lease between Salon's San Francisco landlord and
              Salon dated December 31, 2003.

   10.28(45)  Office Lease between BRE/Rincon II Leasehold L.L.C. and Salon
              Media Group, Inc. dated January 13, 2005.

     10.29    Salon Media Group, Inc. 2004 Stock Plan

     10.30    Form of the Salon Media Group, Inc. Notice of Grant of Stock
              Option and Stock Option Agreement

     10.31    Salon Media Group, Inc. Non-Plan Stock Option Agreement

   16.1(35)   Letter from PricewaterhouseCoopers LLP to the Securities and
              Exchange Commission

   16.2(36)   Letter from PricewaterhouseCoopers LLP to the Securities and
              Exchange Commission

    21.1(8)   Subsidiaries of Salon

   23.2(44)   Consent of PricewaterhouseCoopers LLP, Independent Registered
              Public Accounting Firm dated January 13, 2005

   23.3(44)   Consent of Burr, Pilger & Mayer LLP, Independent Registered
              Public Accounting Firm dated January 12, 2005

     23.4     Consent of PricewaterhouseCoopers LLP, Independent Registered
              Public Accounting Firm dated June 28, 2005

     23.5     Consent of Burr, Pilger & Mayer LLP, Independent Registered
              Public Accounting Firm dated June 23, 2005

    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


                                       80
<PAGE>

     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

   99.1(40)   Press release dated August 5, 2004 by Salon Media Group, Inc.

   99.2(42)   Press release dated November 12, 2004, 2004 by Salon Media Group,
              Inc.

   99.3(47)   Press release dated February 10, 2005 by Salon Media Group, Inc.



  Footnote     Footnote Description
  --------     --------------------

       1       Incorporated by reference to the exhibit filed with Salon's
               Registration Statement report on Form S-1 filed on April 19,
               1999.

       2       Incorporated by reference to the exhibit filed with Salon's
               Registration Statement report on Form S-1/A filed on May 27,
               1999.

       3       Incorporated by reference to the exhibit filed with Salon's
               Registration Statement report on Form S-1/A filed on June 18,
               1999.

       4       Incorporated by reference to the exhibit filed with Salon's
               Quarterly Report on Form 10-Q filed on August 16, 1999

       5       Incorporated by reference to the exhibit filed with Salon's
               Registration Statement report on Form S-8 filed on September 8,
               1999.

       6       Incorporated by reference to the exhibit filed with Salon's
               Quarterly Report on Form 10-Q filed on February 14, 2000

       7       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on May 22, 2000

       8       Incorporated by reference to the exhibits filed with Salon's
               Annual Report on Form 10-K405 filed on June 30, 2000

       9       Incorporated by reference to the exhibit filed with Salon's
               Quarterly Report on Form 10-Q filed on November 13, 2000.

      10       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on August 20, 2001

      11       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on September 25, 2001

      12       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on March 13, 2002

      13       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on July 29, 2002

      14       Incorporated by reference to the exhibits 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


                                       81
<PAGE>

      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 3, 2003

      26       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on July 25, 2003

      27       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on August 7, 2003

      28       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on September 29, 2003

      29       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on October 14, 2003

      30       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on October 27, 2003

      31       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on November 14, 2003

      32       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on December 9, 2003

      33       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on December 24, 2003

      34       Incorporated by reference to the exhibit filed with Salon's
               Quarterly Report on Form 10-Q filed on February 6, 2004

      35       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on November 17, 2003

      36       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on November 26, 2003

      37       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on January 14, 2004


                                       82
<PAGE>

      38       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on February 25, 2004

      39       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on June 16, 2004

      40       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on August 5, 2004

      41       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on October 6, 2004

      42       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on November 12, 2004

      43       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on December 13, 2004

      44       Incorporated by reference to the exhibits filed with Salon's
               Registration Statement on Form S-8 filed on January 14, 2005

      45       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on January 19, 2005

      46       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on February 4, 2005

      47       Incorporated by reference to the exhibits filed with Salon's
               Current Report on Form 8-K filed on February 11, 2005




                                       83
<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 Michael O'Donnell and 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 29, 2005
---------------------------   Officer, and Director
    Elizabeth Hambrecht       (Principal Executive Officer)

      /s/ Conrad Lowry        Chief Financial Officer and         June 29, 2005
---------------------------   Secretary
        Conrad Lowry          (Principal Financial Officer)

      /s/ David Talbot        Chairman of the Board, Director     June 29, 2005
---------------------------
        David Talbot


                                       84
<PAGE>

      /s/ Deepak Desai        Director                            June 29, 2005
---------------------------
        Deepak Desai

      /s/ Robert Ellis        Director                            June 29, 2005
---------------------------
        Robert Ellis

     /s/ George Hirsch        Director                            June 29, 2005
---------------------------
       George Hirsch

      /s/ Robert McKay        Director                            June 29, 2005
---------------------------
        Robert McKay

  /s/ James H. Rosenfield     Director                            June 29, 2005
---------------------------
    James H. Rosenfield

      /s/ Jann Wenner         Director                            June 29, 2005
---------------------------
        Jann Wenner

      /s/ John Warnock        Director                            June 29, 2005
---------------------------
        John Warnock




                                       85