================================================================================
                       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, 2003

                                       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)

                          22 FOURTH STREET, 16TH FLOOR
                             SAN FRANCISCO, CA 94103
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                ----------------

                                 (415) 645-9200
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                         COMMON STOCK, $0.001 PAR VALUE
                                (TITLE OF CLASS)

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing sale price of the registrant's common stock on
September 30, 2002 was approximately $560,000. 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 9, 2003 was 14,155,276 shares.

Parts of the definitive proxy statement for Registrant's 2003 Annual Meeting of
Stockholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Report are
incorporated by reference into Part III of this Report.
================================================================================
<PAGE>


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

                                                                           PAGE
PART I                                                                    NUMBER

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

ITEM 2.    Properties.....................................................   12

ITEM 3.    Legal Proceedings..............................................   12

ITEM 4.    Submission of Matters to a Vote of Security Holders............   12

PART II

ITEM 5.    Market for Registrant's Common Equity and Related Stockholder
           Matters........................................................   13

ITEM 6.    Selected Consolidated Financial Data...........................   14

ITEM 7.    Management's Discussion and Analysis of Financial Condition
           and Result of Operations.......................................   15

ITEM 7A.   Quantitative and Qualitative Disclosures about Market Risk.....   38

ITEM 8.    Consolidated Financial Statements and Supplementary Data.......   39

ITEM 9.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosures......................................   65

PART III

ITEM 10.   Directors and Executive Officers of the Registrant.............   66

ITEM 11.   Executive Compensation.........................................   66

ITEM 12.   Security Ownership of Certain Beneficial Owners and
           Management and Related Stockholder Matters.....................   66

ITEM 13.   Certain Relationships and Related Transactions.................   66

ITEM 14.   Controls and Procedures........................................   66

PART IV

ITEM 15.   Exhibits, Financial Statement Schedules and Reports on
           Form 8-K.......................................................   67

SIGNATURES ...............................................................   72

                                       2
<PAGE>

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



Certifications............................................................   74

Consent of Independent Accountants........................................   76

Exhibits..................................................................   77

































                                       3
<PAGE>


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

         Salon Media Group, Inc. is an Internet media company that provides
online news and information. An online pioneer, Salon offers award-winning
journalism from breaking news and in-depth analysis to provocative commentary on
politics, technology, culture and entertainment. Salon also offers an audio
streaming Website, and hosts two online communities -Table Talk and The Well.
Salon believes that its network of Websites combines the thoughtfulness of
print, the timeliness of television and the interactivity of talk radio.

         Salon was originally incorporated in July 1995 in the state of
California and reincorporated in Delaware in June 1999. On June 22, 1999, Salon
had its initial public offering, with its common stock quoted on the NASDAQ
National Market under the symbol SALN. Effective May 16, 2001 Salon adopted the
name Salon Media Group, Inc. Due to Salon's inability to meet the continued
listing requirements of the NASDAQ Market, on November 21, 2002 Salon's common
stock began trading in the OTC (Over-The-Counter) Bulletin Board marketplace
under the symbol SALN.OB.

WEBSITES

         The main entry and navigation point to Salon's nine primary
subject-specific Websites is Salon's home page at www.salon.com. Salon's content
provides a continuously updated array of news, features,

                                       4
<PAGE>


interviews and regular columnists and include the following:

News & Politics         Salon News & Politics features breaking stories,
                        investigative journalism and commentary, as well as
                        interviews with newsmakers, politicians and pundits.

Opinion                 Provocative commentary daily from Joe Conason and weekly
                        from Tina Brown and Andrew Sullivan. In addition, author
                        and broadcaster Arianna Huffington contributes regularly
                        to the Website.

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. Technology & Business offers daily feature
                        stories and reviews of books, hardware, software and
                        Websites.

Arts &                  Arts & Entertainment features movie, music and
Entertainment           television reviews and interviews. The Website includes
                        frequent television features; extended film coverage
                        including actor and director interviews; Real Life Rock
                        Top 10, Greil Marcus' weekly music column; and
                        Masterpiece, a weekly spotlight on a great work of art,
                        from pop culture to opera.

Life                    Life features articles by thought-provoking writers
                        about family life, motherhood and women's lives and
                        issues. Includes the weekly "Mothers Who Think" feature
                        and a biweekly column by Anne Lamott.

Books                   Books include ahead-of-the-curve daily book reviews and
                        interviews with today's most interesting writers.

Comics                  The Website features the works of comic luminaries Tom
                        Tomorrow, Ruben Bolling, Carol Lay and Keith Knight.

Sex                     This site hosts articles about sex, society and culture,
                        and features "Since You Asked," the advice column of
                        Cary Tennis.

Salon Audio             Salon Audio offers hundreds of free recordings of short
                        stories, novel excerpts, poems, essays, and interviews.
                        Authors include such American legends as Ernest
                        Hemingway and Edgar Allen Poe, plus contemporary
                        favorites such as John Grisham, Michael Crichton, Anne
                        Rice, Tom Wolfe, John Updike, Maya Angelou, Henry
                        Rollins and many more.

         Salon has two online subscription communities, The Well and Table Talk,
which allow users to discuss Salon content and interact with other users and
Salon's editorial staff. Salon frequently arranges for featured guests,
including well-known commentators and writers, to join discussions on The Well.
The Well is a member-only discussion community while Table Talk is available for
all Internet users to read, but only subscribers may post. The two online
communities had a total of approximately 4,300 paying subscribers as of March
31, 2003.

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

                                       5
<PAGE>

consumers online.  Web awards that Salon has won since 2000 include:

2003
  "Top 100 Classics - News and Entertainment Categories" - PC Magazine

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

         The number of unique visitors to a Website is used as a measure of it
vitality and popularity. Salon analyzes its server log files to determine this
metric. As defined by Salon, a unique visitor is an individual (non-duplicated)
visitor to its network of Websites. Salon's unique visitors stayed constant at
approximately 3.5-3.8 million per month during the years ended March 31, 2002
and March 31, 2001. However, during the year ended March 31, 2003, the number of
unique visitors declined as evidenced by the 2.6-3.0 million per month unique
visitors experienced during the last six months of the year. The decline in
unique visitors is largely attributable to the reduction of daily content and
the launch of a new business model that requires that readers subscribe or view
an ad before gaining access to full text of articles.

         Salon believes its viewers are attractive to advertisers and brand
campaigns. According to a Spring 2003 survey by @Plan, an independent research
firm, Salon's user base has the following characteristics: (a) 62% are between
the ages of 25 and 49; (b) an average household income of $82,700; (c) 74% have
earned a college degree and 41% have earned a post-graduate degree; (d) 41% have
professional or managerial positions; (e) 96% shop online; and (f) 71% are
online every day.


INTERNET ADVERTISING

         The Internet was originally thought to be a unique medium for
advertisers because it would allow more flexibility, interactivity and
measurement capabilities than traditional media, such as newspapers, magazines,
television and radio, while providing users with immediate access to information
about advertisers and their products. It was hoped that the Internet would allow
advertisers to gather demographic information about users and to deliver
targeted messages and products to specific consumer groups. Advertisers
purchased advertising on Websites based on revenues anticipated to be generated
from "click-throughs" and registrations by individuals. Today, many advertisers
continue to purchase adverting based on this short-term criteria. Salon strives
not to sell space on its Websites on a click-

                                       6
<PAGE>

through basis as it has found this type of advertising not to be profitable and
instead, markets its space to advertisers forging brand loyalty.

         Jupiter Research estimated that calendar year 2002 Internet advertising
was $5.6 billion and expects 10% growth to $6.2 billion in calendar year 2003.
Internet advertising is projected to grow to $14 billion by 2007. Most of the
growth in Internet advertising experienced in the industry during calendar year
2002 was centered on the largest Websites. The Online Publishers Association
(OPA), which represents the largest media Websites such as Knight Ridder Digital
and New York Times Digital, reported that advertising revenues grew on average
36 percent from October 2002 to December 2002 as compared to the comparable
period in the prior year, and grew on average 41 percent from January 2003 to
March 2003 as compared to the comparable period in the prior year. In both time
periods, Salon's advertising revenues declined reflecting the fact that the
majority of advertisers direct their spending to the largest Websites, as well
an apprehension by advertisers to place orders with Salon given Salon's going
concern uncertainty and corresponding uncertainty of Salon's ability to fulfill
an order.

PAY FOR ONLINE CONTENT

         When activity first surged on the Internet, access to content was not
restricted and free of charge. A few Websites, notably the Wall Street Journal's
online edition, realized that to be profitable, they had to charge for access to
content. This initiative was originally viewed with skepticism by other Internet
media companies, but is now more widely adopted. The OPA has reported, based on
a study by comScore Networks, that U.S. consumers spent $1.3 billion for online
content in calendar year 2002, representing one in ten online users, a 95%
increase over calendar year 2001. However, personals/dating, business/investment
and entertainment/lifestyle pay for content Websites accounted for approximately
$0.8 billion of the spending during calendar year 2002, while Salon's category,
general news, was estimated to have generated $70 million of the total. The
general news category of Websites against which Salon competes for subscription
dollars includes Websites such as CNN.com, NYTimes.com and USAToday.com. Salon's
niche in this category is its independence and award winning content.

REVENUE SOURCES

         Salon's revenue sources are advertising, subscriptions services, which
include Salon Premium and The Well/Table Talk, and syndication of content that
has previously appeared on Salon's Websites.

         Advertising revenues, which are derived from the sale of promotional
space on its Websites, are the primary source of revenue for Salon. Services
that have been offered range from short-term advertisements to long-term
arrangements and have included the development of co-branded, integrated
Websites. During the years ended March 31, 2003 and March 31, 2002, most
advertisements were of short duration, generally less than ninety days, and did
not include any co-branded, integrated Websites. Barter revenue, in which Salon
exchanges advertising space on its Websites for reciprocal advertising space on
other Websites, has not been a source of revenue for the years ending March 31,
2003 and 2002, and represented only 0.9% of revenues for the year ended March
31, 2001.

         Salon's advertising obligations typically include the guarantee of a
minimum number of impressions, or times that an advertisement appears in pages
viewed by users of Salon's Websites. To the extent the minimum guaranteed
impressions are not delivered, Salon defers recognition of the corresponding
revenue until the remaining guaranteed impression levels are achieved. No
customer accounted for over ten percent of either total revenue or advertising
revenue for the year ended March 31, 2003. One customer, Lexus, accounted for
13% of advertising revenue and 8% of total revenue for the year ended March 31,
2002. One customer, Ask Jeeves, accounted for 11% of advertising revenue and 10%
of total revenue for the year ended March 31, 2001.

                                       7
<PAGE>

         Salon began offering Salon Premium, a paid subscription service, in
April 2001. Salon Premium's initial rates were $6 for a one-month subscription,
$30 for a one-year subscription and $50 for a two-year subscription. The
two-year subscription option was suspended in November 2002. Benefits of Salon
Premium included access to exclusive new content; the option to view Salon
content without advertising banners, pop-ups or other forms of advertisements;
access to all content and the ability to easily download content in text format,
a convenience that enables readers to view additional Salon articles when not
connected to the Internet. From the onset of Salon Premium, non Salon Premium
visitors to Salon's Websites could access abridged versions of text. Access to
unabridged text was reduced in October 2001 when the then distinct News and
Politics Websites were made available exclusively to Salon Premium members. In
September 2002, Salon began to offer access to Salon's content for $18.50 per
year to individuals willing to view advertisements. In January 2003, Salon began
to restrict access to substantially all of its content to Salon Premium
subscribers or to non Salon Premium subscribers willing to view some form of
advertisement. Current rates for annual subscriptions are $30 without ads and
$18.50 with advertisements.

         Salon Premium revenue is recognized ratably over the period that
services are provided. 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 subscription sales. For the year ended March 31, 2002, in
which Salon Premium operated for approximately eleven months, Salon received
$1.1 million in cash and recognized $0.6 million of revenue from approximately
35,100 subscription sales. Salon had approximately 62,000 active subscribers and
a renewal rate of 71 percent as of March 31, 2003.

         Salon offers The Well and Table Talk, monthly subscription services,
for access to on-line discussion forums. Revenue is recognized ratably over the
subscription period. For the year ended March 31, 2003, Salon received for this
service $0.6 million in cash and recognized a like amount of revenue with 4,300
active members as of March 31, 2003.

           Salon generates nominal revenue from the licensing of content that
previously appeared in Salon's Websites and for providing links to a third
party's Website. The third party offers personals/dating services.

SALES AND MARKETING

         Salon has sales offices in New York City and San Francisco with seven
active sales employees as of March 31, 2003, down from ten employees as of March
31, 2002. In addition, Salon has two employees engaged in marketing based in its
San Francisco office.

         During the year ended March 31, 2003, Salon incurred $0.8 million in
advertising costs to promote and attract viewers to its network of Websites
compared to $0.7 million for the year ended March 31, 2002. During the year
ended March 31, 2001, Salon incurred $1.2 million in advertising costs.
Advertising costs for each of the years ended March 31, 2003, March 31, 2002 and
March 31, 2001 include the use of approximately $0.8 million of non-cash
advertising credits, which resulted from an investment in Salon by Rainbow Media
Holdings in the form of prepaid advertising rights that provides advertising in
various television networks without the use of cash. During the year ended March
31, 2003, Rainbow Media Holdings transferred an obligation to provide Salon with
approximately $5.0 million of advertising credits to NBC's Bravo channel, while
still retaining an obligation to provide Salon with approximately $3.0 million
of advertising credits.

           Salon has determined that the optimum utilization of these rights is
not to use them to promote Salon's Websites, but instead, market them to third
parties in an effort to generate working capital. If the

                                       8
<PAGE>

rights are not sold, Salon estimates that it will use approximately $0.8 million
of the rights to promote Salon during the year ended March 31, 2004. Due to
efforts to conserve working capital, Salon does not anticipate any cash related
marketing expenditures during the year ending March 31, 2004.

COMPETITION

         Salon competes for advertising revenues from the major portals such as
Yahoo.com, major search engines such as Google and major online media
publications such as CNN.com. These major Websites attract the majority of
advertising dollars, leaving a small percentage of advertising dollars to all
the remaining Websites. Some of Salon's competitors provide cross platform
advertising mediums such as print and Internet advertising. These competitors
enjoy substantial competitive advantages over Salon since advertisers sometimes
look for cross platforms to advertise their goods and services. These
competitive factors, as well reluctance by advertisers to place orders with
Salon given Salon's going concern uncertainty and corresponding uncertainty of
Salon's ability to fulfill an order, have led to a decline in advertising
revenues.

         Salon competes for pay for online content, or subscriptions, with the
major Internet media Websites such as CNN.com, NYTimes.com and USAToday.com.
Salon's pricing for its annual subscriptions of $30 without advertisements and
$18.50 with advertisements, are under the 2002 average of approximately $49 as
reported by the OPA, which Salon feels allows it to compete with the major media
Websites. Salon believes that its award winning content and independence attract
individuals to Salon's Websites, and to ultimately subscribe to its Salon
Premium pay for online content service.

SALON'S STRATEGY

INCREASING CIRCULATION

         Salon has limited cash resources to market its Websites in order to
increase circulation. However, Salon does have unique, compelling and highly
acclaimed editorial content desirable by major portals and ISP's searching for
content for their Websites. Salon has entered into an agreement with AOL to
provide content to the news portion of its Website. AOL is to republish one
Salon article per week on its news channel and provide links back to 2-3
additional news articles on the Salon.com Websites. It is hoped that this
agreement will increase circulation. Salon will attempt to secure similar
agreements with other ISP's during the coming year.

CONTINUE TO ESTABLISH INNOVATIVE ADVERTISING PROGRAMS

         In January 2003, Salon began to enable those readers who were not Salon
Premium subscribers' to access all new content if they were willing to view some
form of rich media advertising which Salon refers to as an "Ultramercial." In
May 2003, Salon implemented a new ad format to non Salon Premium subscribers who
visited Salon's home page, which requires Website visitors to view a rich media
"Ultramercial" before gaining access to Salon's content. The new format results
in a Website visitor actually interacting with an advertisement for
approximately 30 seconds and in return is given a pass to access the site for
12-18 hours. Salon's strategy is to continue to promote the benefits of this new
ad format.

EXPAND SUBSCRIPTION-BASED REVENUES

         Salon began to encourage Website visitors to subscribe to Salon Premium
with its launch in April 2001. Subscriptions increased in December 2001 with
the implementation of $6.00 monthly plan, and increased further in September
2002 with the implementation of an $18.50 annual plan that enabled

                                       9
<PAGE>

access to Salon content for individuals willing to view some form of
advertisement (the original $30 plan enabled readers to view Salon content
without banners and pop-ups). Inducements to join Salon Premium have included
bundling in magazine subscriptions and other related promotions. Salon intends
on increasing and/or modifying these promotional programs. Subsequent to March
31, 2003, Salon rolled out three new benefits including enabling subscribers at
the $30 level to receive a one year subscription to "Wired" magazine and to
access Salon content from one's PDA and cell phone. The current and planned
features to increase subscribers to Salon Premium are also geared to maximize
the 71 percent renewal rate Salon has experienced through March 31, 2003.

         In order to increase Salon Premium revenue, Salon has entered into two
agreements in which third parties will aggregate Salon's content with other
content providers. The combined content is to be sold to individuals for a
monthly charge. Salon estimates that one of the third parties will initiate this
service in July 2003 and is uncertain when the other third party will initiate
its service. Salon is unable to predict how successful this strategy will be.

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.

         Salons Websites are 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 Salons network. The third party
offers high-speed connections to the Internet, helping ensure fast serving and
delivery of Salon's Websites, and monitors all servers via human or technical
means on a continuous basis. 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.

PROPRIETARY RIGHTS

         Salon's success and ability to compete is dependent in part on the
goodwill associated with our trademarks, trade names, service marks and other
proprietary rights and on our ability to use U.S. laws to protect our
intellectual property, including our original content, content provided by third
parties, and content provided by columnists. Salon also claims common law
protection on certain names and marks that it has used in connection with
business activities.

         Salon owns the Internet address WWW.SALON.COM. Because WWW.SALON.COM is
the address of the main home page to Salon's network of Websites and
incorporates Salon's company name, it is a vital part

                                       10
<PAGE>

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, 2003, Salon had 4 part-time and 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.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following sets forth certain information with respect to executive officers
of Salon as of March 31, 2003:

Name                       Age  Position
------------------------- ----- ------------------------------------------------
David Talbot                51  Chairman of the Board, Editor-in-Chief
Michael O'Donnell           39  Chief Executive Officer, President
Elizabeth Hambrecht         40  Chief Financial Officer, Treasurer and Secretary
Scott Rosenberg             43  Senior Vice President, Editorial Operations
Patrick Hurley              41  Senior Vice President, Business Operations

         DAVID TALBOT co-founded Salon in 1995. He has served as Editor-in-Chief
since Salon's incorporation. He served as Chief Executive Officer from Salon's
incorporation through April 1999. He became Chairman of the Board in April 1999.
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.

         MICHAEL O'DONNELL has served as Salon's President since December 1996.
He became Chief Executive Officer in April 1999. In 1996, he served as Vice
President of Sales and Merchandising at SegaSoft, Inc., a consumer software
publisher. From 1995 to 1996, Mr. O'Donnell was Vice President of Worldwide
Sales at Rocket Science Games, Inc., a consumer software publisher. From 1993 to
1995, he served as Vice President of Retail Sales at Mindscape, Inc., a consumer
software publisher. Mr. O'Donnell holds a Bachelor of Arts degree in political
science from the University of California at Berkeley.

         ELIZABETH HAMBRECHT has served as Salon's Chief Financial Officer,
Treasurer and Secretary since April 2003. From 1999 to March 2003, she was the
co-founder and Director of Asiacontent.com. From 1997 to 2000 she was the
co-founder, Chief Financial Officer and Director of Boom.com. 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.

         SCOTT ROSENBERG has served as Salon's Senior Vice President, Editorial
Operations since October 2000. From January 1999 until then, he served as Vice
President of Website Development. He also serves as Salon's managing editor and
has held that position since June 1999. Previous to that, he served as Senior
Editor/Technology, a position he held from the founding of Salon in 1995. Before
joining

                                       11
<PAGE>

Salon, he was the San Francisco Examiner's movie and theater critic for nearly
10 years. Mr. Rosenberg holds a Bachelor of Arts degree from Harvard University.

         PATRICK HURLEY has served as Salon's Senior Vice President, Business
Operations since October 2000. From March 1999 to October 2000 he served as Vice
President of Marketing. From 1998 to 1999, he served as Salon's Marketing
Director. From 1996 to 1998, he was management supervisor at Hal Riney &
Partners, an advertising agency. From 1994 to 1996, he served as account
supervisor for the J. Walter Thompson advertising agency. Mr. Hurley holds a
Bachelor of Arts degree in journalism from Marquette University.

ITEM 2.  PROPERTIES

         As of March 31, 2003, Salon leases the 15th and 16th floors at 22
Fourth Street, San Francisco, California, representing approximately 20,800
square feet of office space at approximately $70,000 per month, with the lease
expiring in December 2009.

         On March 27, 2003, Salon received a "Verified Complaint for Damages"
for failure to make rental payments as stipulated in its lease agreement for its
office space in San Francisco. On June 20, 2003, the landlord filed a "Notice of
Entry of Default" with the Superior Court of the State of California for the
County of San Francisco whereby the landlord made a demand for damages of
approximately $300,000. On June 27, 2003, Salon and its landlord amended the
lease agreement, for which Salon will only lease the 16th floor, to terminate on
February 28, 2005 and a monthly rent of approximately $21,000. In return, Salon
will forfeit a $0.4 million deposit held by the landlord. The amended lease
agreement will cure the "Notice of Entry of Default."

         Salon leases approximately 7,000 square feet of space at 126 Fifth
Avenue, New York, New York. The rent for this space currently is approximately
$18,000 per month, and the lease expires in December 2004. Subsequent to March
31, 2003, Salon subleased the premises at approximately $11,000 per month for
the duration of the original lease.

         Salon leases nominal office space at 41 East 11th Street, 11th Floor,
New York, NY for approximately $9,000 per month with the lease terminating on
May 31, 2004.

ITEM 3.   LEGAL PROCEEDINGS

         Except as described in Item 2; "Properties," 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, 2003.










                                       12
<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 market prices
for Salon's common stock for its fiscal years 2003 and 2002, based on sales
transactions reported by NASDAQ and in the OTC (Over-The-Counter) Bulletin
Board, is provided below:

<TABLE><CAPTION>
                                    FISCAL YEAR ENDED                   FISCAL YEAR ENDED
                                     MARCH 31, 2003                       MARCH 31, 2002
                             --------------------------------     -------------------------------
FOR THE QUARTERS ENDED            HIGH             LOW                  HIGH            LOW
                             ---------------- ---------------     -------------------------------
<S>                               <C>              <C>                  <C>            <C>
      June 30                     0.17             0.02                 0.59           0.18
      September 30                0.14             0.04                 0.65           0.12
      December 31                 0.09             0.01                 0.26           0.10
      March 31                    0.08             0.04                 0.21           0.12
</TABLE>

         There were 241 holders of record of Salon common stock as of June 9,
2003. The closing price of Salon's common stock on June 9, 2003 was $0.06 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.
















                                       13
<PAGE>

ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE><CAPTION>
                                                    Dollar amounts in thousands, except per share
                                         -----------------------------------------------------------------
Year Ended March 31,                        2003          2002          2001          2000          1999
-------------------------------------    ---------     ---------     ---------     ---------     ---------
<S>                                      <C>           <C>           <C>           <C>           <C>
Net revenues                             $   4,003     $   3,619     $   7,202     $   8,002     $   2,921
Net loss (1)                             $   5,597     $   8,000     $  19,155     $  21,890     $   6,233
Net loss attributable to common
       stockholders (2)                  $   5,678     $  11,286     $  19,155     $  33,405     $   6,504
Basic and diluted net loss per share
attributable to common stockholders      $    0.41     $    0.83     $    1.48     $    3.63     $   16.63
Weighted average common shares
     outstanding used in computing
     per share amounts                      13,938        13,547        12,962         9,204           391
Cash and cash equivalents                $     162     $   1,542     $   3,047     $  17,982     $     754
Prepaid advertising rights               $   5,480     $   6,266     $   7,075     $   7,884     $    --
Total assets (3)                         $   7,590     $  11,342     $  16,298     $  35,284     $   7,808
Capital leases - long-term portion       $      18     $      77     $     325     $     324     $    --
Total long-term liabilities              $     569     $     229     $     601     $     473     $      75
</TABLE>

(1) Net loss for 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) Net loss attributable to common stockholders for 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. The net loss attributable to common stockholders for fiscal
year ended March 31, 2000 includes a preferred deemed dividend of $11,515 that
was the difference between the offering price of Salon's then Series C preferred
stock sold in April 1999 and the deemed fair value of Salon's common stock on
the date of the transaction. The net loss attributable to common stockholders
for fiscal year ended March 31, 1999 includes a preferred deemed dividend of
$271 that represents the difference between the offering price of Salon's then
Series C preferred stock sold in September 1998 and the deemed fair value of
Salon's common stock on the date of the transaction

(3) Amounts for the years ended March 31, 2000 and 2001 reflect adoption of
Emerging Issues Task Force Issue 00-18, "Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than Employees" for
that year.




                                       14
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS

OVERVIEW

         Salon Media Group, Inc. is an Internet media company that produces a
total network of nine primary subject-specific Websites, and two online
communities - The Well and Table Talk. Salon was incorporated in July 1995 and
launched its initial Websites in November 1995.

         A significant portion of Salon's revenues is advertising revenues,
derived from the sale of promotional space on its Websites. Services that have
been offered range from short-term advertisements to long-term arrangements and
may have included the development of co-branded, integrated Websites. During the
years ended March 31, 2003 and March 31, 2002, most advertisements were of short
duration, generally less than ninety days, and did not include any co-branded,
integrated Websites. Barter revenue, in which Salon exchanges advertising space
on its Websites for reciprocal advertising space on other Websites, has not been
a source of revenue for the years ending March 31, 2003 and 2002, and
represented only 0.9% of revenues for the year ended March 31, 2001.

         Salon began offering Salon Premium, a pay for online content
subscription service, in April 2001. Salon Premium's rates are $6 for a
one-month subscription, $30 for a one-year subscription without ads, $18.50 for
a one-year subscription with ads and $50 for a two-year subscription. The
two-year subscription option was suspended in November 2002. Benefits of Salon
Premium include unrestricted access to new content; the option to view Salon
content without advertising banners, pop-ups or other forms of advertisements
(with the exception of the $18.50 plan); access to all content and the ability
to easily download content in text format, a convenience that enables readers to
view additional Salon articles when not connected to the Internet. From the
onset of Salon Premium, non Salon Premium visitors to Salon's Websites could
access abridged versions of text. Access to unabridged text was reduced in
October 2001 when the then distinct News and Politics Websites were made
available exclusively to Salon Premium members. In January 2003, Salon began to
restrict access to substantially all of its content to Salon Premium subscribers
or to non Salon Premium subscribers willing to view some form of advertisement.
Salon Premium revenue is recognized ratably over the period that services are
provided. During the year ended March 31, 2003, Salon received $1.6 million in
cash and recognized $1.3 million of revenue for this service.

         Salon offers The Well and Table Talk, monthly subscription services,
for access to on-line discussion forums. Revenue is recognized ratably over the
subscription period. Salon generates nominal revenue from the licensing of
content that previously appeared in Salon's Websites 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, audio and production staffs,
online communities staff, payments to freelance writers and artists, and
telecommunications and computer related expenses for the support and delivery of
Salon's Websites and online communities.

         Sales and marketing expenses consist primarily of salaries, commissions
and related personnel costs, travel, and other costs associated with Salon's
sales force, as well as advertising, promotional and distribution costs and the
amortization of advertising credits.

         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 Websites,

                                       15
<PAGE>

and to maintain and enhance the software utilized in managing Salon Premium, as
well as supporting marketing and sales efforts.

          During the year ended March 31, 2001, Salon capitalized $0.7 million
of costs related to enhancing Salon's Website management software. During the
year ended March 31, 2002 Salon discontinued all direct effort to market and
sell this software to focus its efforts on its core content, production and
maintenance efforts. Accordingly, Salon determined that this asset was impaired
and recorded an impairment charge of $0.7 million. Prior to June 2000, Salon
expensed all costs related to enhancing its Websites, and since then, has not
incurred any material costs for enhancement or to add substantial additional
functionality on its Websites.

         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.

         The acquisition of The Well LLC in March 1999 and MP3Lit.com (MP3Lit)
in May 2000 resulted in Salon recording goodwill and other intangible assets.
Through March 31, 2001 amortization of such assets was being amortized ratably
over the estimated useful lives of the respective assets, generally five years.
During the fiscal year ended March 31, 2001 Salon determined The Well LLC asset
was partially impaired and recorded an impairment charge of $1.8 million.

         In May 2000, Salon acquired MP3Lit, a Website dedicated to offering
spoken word and audio literature recordings in the MP3 format and recorded $1.9
million of goodwill. During the year ended March 31, 2001 Salon determined that
no significant income could be generated in the foreseeable future from the sale
of digital downloadable spoken word recordings that was Salon's original intent
in acquiring MP3Lit. Accordingly, Salon determined that this asset was impaired
and recorded an impairment charge of $1.7 million during the year ended March
31, 2001, net of $0.2 million amortization previously recorded. The acquisition
of MP3Lit included contingently issuable common stock. In May 2001, Salon issued
317,000 such shares, valued at $0.1 million that resulted in additional purchase
consideration classified as goodwill. As Salon had determined that all goodwill
associated with the acquisition was impaired, the goodwill resulting from this
additional stock award was written off and included as a component of write-down
of long-lived assets in Salon's results of operations for the year ended March
31, 2002. Additional contingent shares of 412,100 were issued in May 2002, were
valued at an immaterial amount, determined to be additional goodwill, and
expensed as a component of amortization of intangibles in Salon's results of
operations for the year ended March 31, 2003. The remaining contingent shares of
158,500 are expected to be issued in July 2003 and Salon cannot predict their
financial impact at this time.

           Salon has incurred significant net losses and negative cash flows
from operations since its inception. As of March 31, 2003, Salon had an
accumulated deficit of $82.3 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 recently, from the issuance of $1.7
million in convertible notes payable. Salon believes that it will incur negative
cash flows from operations for the year ending March 31, 2004.

         Salon has not recorded a provision for federal or state income taxes
for any period since inception due to reoccurring operating losses. At March 31,
2003 Salon had net operating loss carryforwards for federal income tax purposes
of $56.0 million, which expire in the years March 31, 2011 through March 31,
2022. Salon also has net operating loss carryforwards for California state
income tax purposes of $28.2 million that will begin to expire in 2004.
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

                                       16
<PAGE>

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 $3.0 million during the year ended March 31, 2003
to $22.7 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,
assumptions or change in conditions.

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.

         Nearly half of Salon's revenues for the year ended March 31, 2003 are
advertising revenues, derived from the sale of promotional space on its
Websites. 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, or number of
times that an advertisement appears in pages viewed by users of Salon's
Websites. To the extent the minimum guaranteed impressions are not delivered,
Salon defers recognition of the corresponding revenue until the remaining
guaranteed impression levels 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 began offering Salon Premium, a paid subscription service, in
April 2001. Salon Premium's rates are $6 for a one-month subscription, $30 for a
one-year subscription without ads, and $18.50 for a one-year subscription with
ads. A $50 subscription for a two-year subscription implemented in April 2001
was suspended in November 2002. Benefits of Salon Premium include the option to
view Salon content without advertising banners, pop-ups or other forms of
advertising (except for the $18.50 subscription plan); unrestricted access to
content, and the ability to easily download content in text format, a
convenience that enables readers to view additional Salon articles when not
connected to the Internet. Revenue is recognized ratably over the subscription
period.

         Salon offers The Well and Table Talk, monthly subscription services,
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. The credits

                                       17
<PAGE>

were valued at $8.1 million, based on the price of Salon's stock on the date the
transaction was finalized. As of March 31, 2003, Salon has $8.0 million
advertising credits resulting from the transaction, valued at $5.5 million,
which Salon is attempting to sell to generate working capital. The sale of these
rights will most likely result in a charge to operations. Salon cannot determine
the amount that the credits could be sold as some proposals have been for
minimal all-cash up-front proposals, while others have encompassed larger
amounts over time. Salon cannot determine if the transaction will in fact take
place, as a potential transaction will involve Salon, NBC, which must agree to
the transfer of rights to a third party, and a third party willing to acquire
the rights.

RESULTS OF OPERATIONS

FISCAL YEARS ENDED MARCH 31, 2003 AND 2002

NET REVENUES

         Salon's net revenue increased 11% to $4.0 million in the year ended
March 31, 2003 from $3.6 million in the fiscal year ended March 31, 2002.

         Advertising revenues decreased 13% to $1.7 million for the year ended
March 31, 2003 from $1.9 million for the year ended March 31, 2002. The decrease
in advertising revenues reflected an apprehension by advertisers to place orders
with Salon given Salon's going concern uncertainty and corresponding uncertainty
of Salon's ability to fulfill an order. In addition, the decrease reflects the
majority of advertising dollars being allocated by advertisers to the largest
Websites and not to Websites of Salon's size. Salon cannot predict what
advertising revenues will be generated during the year ending March 31, 2004.

          Subscription revenues increased 60% to $1.9 million for the year ended
March 31, 2003 from $1.2 million for the year ended March 31, 2002. The increase
is attributable largely to Salon Premium, a pay for online content subscription
service launched in late April 2001, which generated $1.3 million in revenue
during the year versus $0.6 million last year, its inaugural year in which it
operated for eleven months. Salon estimates it will generate between $1.5
million and $2.0 million of Salon Premium revenue for the year ending March 31,
2004.

         All other sources of revenue accounted for $0.4 million for the year
ended March 31, 2003 compared to $0.3 million for the year ended March 31, 2002.
The increase of $0.1 million was primarily due to an increase in revenue from a
third party for which Salon provides links to its Website.

PRODUCTION AND CONTENT

         Production and content expenses during the year ended March 31, 2003
was $4.4 million versus $5.0 million for the year ended March 31, 2002, a
decline of $0.6 million or 12%. The decrease primarily reflects reducing
approximately eighteen positions during the year ended March 31, 2002, to a
staffing level that stayed relatively constant throughout the year ended March
31, 2003, and the reversal of previously accrued bonuses that resulted in salary
related costs decreasing by $0.4 million. In addition, during the year ended
March 31, 2003, Internet hosting costs were reduced by $0.1 million as Salon
found a new provider for this service, depreciation expense declined by $0.1
million as assets became more fully depreciated and general operating costs were
reduced by $0.1 million. These reductions were offset by a $0.1 million increase
in freelance expenditures. Salon does not anticipate production and content
expenditures to vary significantly for the year ending March 31, 2004 from the
current year results.

                                       18
<PAGE>

SALES AND MARKETING EXPENSES

         Sales and marketing expenses during the year ended March 31, 2003 were
$2.3 million versus $2.7 million for the year ended March 31, 2002, a decline of
$0.4 million or 16%. The decrease primarily reflects reducing approximately six
positions during the year ended March 31, 2002, and then reducing an additional
three positions during the year ended March 31, 2003, resulting in salary
related costs decreasing by $0.2 million. A general reduction in expenditures in
order to preserve Salon's limited cash resources resulted in general
expenditures decreasing by $0.2 million.

         Sales and marketing expenses have included a charge for the use of
advertising credits from the sale of common stock to Rainbow Media Holdings,
Inc. since Salon's year ended March 31, 2000. For the years ending March 31,
2003 and March 31, 2002 Salon used $0.8 million of such credits. Salon has
determined that the best use of its advertising credits would be to market
actively the credits in order to generate working capital. These credits may be
sold during Salon's year ending March 31, 2004. Consequently, excluding the
amortization of advertising credits, Salon anticipates that sales and marketing
expenses will be approximately $1.6 million for the year ending March 31, 2004.

RESEARCH AND DEVELOPMENT EXPENSES

         Research and development expenses during the year ended March 31, 2003
were $0.6 million versus $0.7 million for the year ended March 31, 2002, a
decline of $0.1 million or 11%. The decrease primarily reflects reducing
approximately three positions during the year ended March 31, 2002, to a
staffing level that stayed relatively constant throughout the year ended March
31, 2003, resulting in salary related costs decreasing by $0.1 million. Salon
does not anticipate research and development expenditures to vary significantly
for the year ending March 31, 2004 from the current year results.

GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses during the year ended March 31,
2003 were $1.4 million versus $1.9 million for the year ended March 31, 2002, a
decline of $0.5 million or 30%. The decrease is attributable to reversing $0.2
million in previously accrued bonuses. In addition, March 31, 2002 results
include $0.3 million of bad debt expense, with this year's results only
reflecting marginal bad debt expense. Salon estimates that general and
administrative expenses will be approximately $1.4 million for the year ending
March 31, 2004.

AMORTIZATION OF INTANGIBLES

         Amortization of intangible expenses during the year ended March 31,
2003 was $0.4 million versus $0.5 million for the year ended March 31, 2002, a
decline of $0.1 million or 13%. The decrease is attributable to the suspension
in amortizing goodwill in accordance with the April 1, 2002 adoption of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standard No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). Salon
estimates that amortization of intangibles will be approximately $0.4 million
for the year ending 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 has determined that the office space previously subleased

                                       19
<PAGE>

will 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.

       The results for Salon's year ending March 31, 2002 includes a write-down
of long-lived assets of $0.7 million associated with the discontinuance in
marketing proprietary software to manage Websites and $0.1 million of goodwill
associated with issuing 317,000 shares of common stock stipulated in the May
2000 acquisition agreement of MP3Lit.com by Salon.

INTEREST EXPENSE

         Interest expense for both years ended March 31, 2003 and 2002 was $0.1
million. The interest expense for the year ended March 31, 2002 was primarily
related to lease obligations of Salon, while the interest expense for the year
ended March 31, 2003 primarily relates to the bridge notes issued during the
year.

PREFERRED DEEMED DIVIDEND

         The preferred deemed dividend of $3.2 million for the year ended March
31, 2002 represents a non-cash charge resulting from the difference between the
offering price of Salon's Series A redeemable convertible preferred stock sold
in August and September 2001 and the fair value of Salon's common stock into
which the preferred stock was convertible on the dates of the transactions, as
well as the effect of an immediate redemption right of the preferred stock
issued, after allocating the proceeds between preferred stock and warrants.

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

         As a result of the above factors, Salon recorded a net loss
attributable to common stockholders of $5.7 million or $0.41 per share for the
fiscal year ended March 31, 2003 compared to a net loss of $11.3 million or
$0.83 per share for the fiscal year ended March 31, 2002.


FISCAL YEARS ENDED MARCH 31, 2002 AND 2001

NET REVENUES

         Salon's net revenue decreased 50% to $3.6 million in the year ended
March 31, 2002 from $7.2 million in the fiscal year ended March 31, 2001.

         Advertising revenues decreased 68% to $1.9 million for the year ended
March 31, 2002 from $6.2 million for the year ended March 31, 2001. The decrease
in advertising revenue was attributable to an overall contraction in the United
States economy, e-commerce or Internet businesses reducing advertising without
compensating increases from more established advertisers, most advertisers
choosing to place advertisements in the largest Websites, the September 11, 2001
terrorist acts, and advertisers' concern with Salon's financial viability. Salon
did not record any barter sales for the year ended March 31, 2002 and $0.1
million of barter sales during the year ended March 31, 2001.

          Subscription revenues increased 121% to $1.2 million for the year
ended March 31, 2002 from $0.5 million for the year ended March 31, 2001. The
increase is attributable to Salon Premium, a paid subscription service launched
in late April 2001, which generated $0.6 million in revenue during its
approximately eleven months of operation.

                                       20
<PAGE>

         Salon recognized $0.2 million of Website management software sales
during the year ended March 31, 2002 and no comparable amounts in prior years.

         All other sources of revenue accounted for $0.3 million for the year
ended March 31, 2002 compared to $0.5 million for the year ended March 31, 2001.
The decrease of $0.2 million was primarily due to a decline in licensing
revenues.

PRODUCTION AND CONTENT

Production and content expenses during the year ended March 31, 2002 were $5.0
million versus $9.8 million for the year ended March 31, 2001, a decline of $4.8
million or 49%. The decrease is primarily due to an elimination of approximately
forty positions between April 1, 2000 and March 31, 2002, and the effect of a
15% salary reduction initiated April 1, 2001, which combined to reduce expenses
by $2.8 million. Reduced purchases of freelance articles yielded additional
savings of $0.9 million and curtailment of travel activities reduced expenses an
additional $0.3 million.

SALES AND MARKETING EXPENSES

         Sales and marketing expenses during the year ended March 31, 2002 were
$2.7 million versus $7.2 million for the year ended March 31, 2001, a decline of
$4.5 million or 62%. The decrease in sales and marketing expenses is primarily
attributable to an elimination of approximately thirty positions between April
1, 2000 and March 31, 2002, and the effect of a 15% salary reduction initiated
April 1, 2001, which combined reduced expenses by $2.4 million. Curtailment of
non-essential advertising, marketing and distribution expenditures resulted in
savings of $1.3 million, and a reduction in travel reduced expenses by $0.2
million.

         Included in sales and marketing expenses are non-cash advertising
expenses related to an investment in Salon by Rainbow Media Holdings, Inc. in
the form of prepaid advertising rights valued at $8.1 million which is being
expensed as it is used. Amounts used were $0.8 million for each of the years
ended March 31, 2002 and 2001.

RESEARCH AND DEVELOPMENT EXPENSES

         Research and development expenses during the year ended March 31, 2002
were $0.7 million versus $1.6 million for the year ended March 31, 2001, a
decline of $0.9 million or 56%. Of the decrease, $0.5 million is attributable to
an elimination of approximately fourteen positions between April 1, 2000 and
March 31, 2002 and the effect of a 15% salary reduction initiated April 1, 2001,
while $0.4 million is due to a general contraction in spending.

GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses during the year ended March 31,
2002 were $1.9 million versus $3.5 million for the year ended March 31, 2001, a
decline of $1.6 million or 45%. Of the decrease, $0.5 million is attributable to
an elimination of approximately five positions between April 1, 2000 and March
31, 2002 and the effect of a 15% salary reduction initiated April 1, 2001, and a
decline in general corporate expenses, which was partially offset by an increase
in bad debt expense due to the write-off of a $0.2 million long-term note
receivable. The results for the year ended March 31, 2001 included $0.6 million
of administrative expenses related to attempts to seek venture capital financing
and to market and sell Salon's proprietary software used to manage content on
Websites. No comparable expenses were incurred during the year ended March 31,
2002 as Salon discontinued such efforts.

                                       21
<PAGE>

AMORTIZATION OF INTANGIBLES

         Amortization of intangible expenses during the year ended March 31,
2002 was $0.5 million versus $1.2 million for the year ended March 31, 2001, a
decline of $0.7 million or 61%. During the year ended March 31, 2001 goodwill
resulting from the acquisition of The Well and MP3Lit.com was written-off as
impaired. The resulting reduction in these components of intangible assets
resulted in the $0.7 million decline in amortization expense.

WRITE-DOWN OF LONG-LIVED ASSETS

         During the year ended March 31, 2001, Salon capitalized $0.7 million of
expenditures to enhance Salon's proprietary software in an effort to market and
sell the product. During the quarter ended June 30, 2001, Salon discontinued all
development and dedicated internal marketing efforts to focus on its core
publishing business. Accordingly, Salon determined that this asset was impaired
and recorded an impairment charge of $0.7 million during the year ended March
31, 2002.

         In May 2000, Salon acquired MP3Lit.com in a transaction that included
contingently issuable common stock. As a consequence, Salon issued 317,000
shares of common stock valued at $0.1 million in May 2001 resulting in
additional purchase consideration classified as goodwill. As determined during
the fiscal year ended March 31, 2001, all the goodwill associated with the
acquisition was impaired, and as a result, the goodwill resulting from this
additional stock award was written off during the year ended March 31, 2002.
Contingent shares of 412,100 were issued subsequent to March 31, 2002 with the
value being immaterial. Additional contingent shares of 158,500 are expected to
be issued in July 2003 and Salon cannot predict their financial impact at this
time.

INTEREST INCOME

         Interest income during the year ended March 31, 2002 was $0.1 million
versus $0.6 million for the year ended March 31, 2001, a decline of $0.5 million
or 86%. The decrease is primarily attributable to falling cash balances, as
Salon has been utilizing its cash to fund operations.

PREFERRED DEEMED DIVIDEND

         The preferred deemed dividend of $3.2 million for the year ended March
31, 2002 represents a non-cash charge resulting from the difference between the
offering price of Salon's Series A redeemable convertible preferred stock sold
in August and September 2001 and the fair value of Salon's common stock into
which the preferred stock is convertible on the dates of the transactions, as
well as the effect of an immediate redemption right of the preferred stock
issued, after allocating the proceeds between preferred stock and warrants.

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

         As a result of the above factors, Salon recorded a net loss
attributable to common stockholders of $11.3 million or $0.83 per share for the
fiscal year ended March 31, 2002 compared to a net loss of $19.2 million or
$1.48 per share for the fiscal year ended March 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

         As of March 31, 2003, Salon had approximately $0.2 million in available
cash from the issuance of notes payable in March 2003. The notes payable issued
were to related parties, one of which is a

                                       22
<PAGE>

Director of Salon, are expected to be converted to equity securities in
September 2003. Salon also had $0.4 million of restricted cash held as deposit
for a lease arrangement for office space in San Francisco.

         Net cash used in operations was $2.9 million for the year ended March
31, 2003, compared to $5.0 million for the year ended March 31, 2002. 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. The principal use
of cash during the year ended March 31, 2002 was to fund the $8.0 million net
loss for the period and a $0.8 million decrease in liabilities, partly offset by
non-cash charges of $3.3 million and an increase in deferred revenues of $0.3
million. The principal use of cash during the year ended March 31, 2001 was to
fund the $19.2 million net loss for the period and a $1.8 million decrease in
liabilities, offset partly by non-cash charges of $6.9 million and a decrease of
$1.7 million in receivables.

         Net cash used in investing activities was immaterial for the years
ended March 31, 2003 and March 31, 2002. During the year ended March 31, 2001,
net cash used for investing activities consisted of $0.4 million for an
acquisition and $1.0 million for the purchase of property and equipment. Salon
does not anticipate significant purchases of property and equipment for the year
ending March 31, 2004.

         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. For the year ended March 31, 2002, net cash from financing
activities consisted of $3.7 million from the issuance of preferred stock,
offset by $0.2 million from nominal payments for capital lease obligations. For
the year ended March 31, 2001, net cash from financing activities consisted of
$0.1 million from the issuance of common stock, offset primarily by $0.2 million
of nominal capital lease obligation payments.

         In October 2002, Salon entered into an Accounts Receivable Purchase
Agreement with a bank. Under the terms of the agreement, the bank can 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 cannot exceed $1.0 million, however the amount
is capped at $0.3 million until such time as Salon has $2.5 million of
unrestricted cash. Amounts advanced under this agreement accrue interest at
prime plus 1% per annum on the average daily balance outstanding and are 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 is 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 $2 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. Salon borrowed and repaid $0.1 million during the
year ending March 31, 2003 and has no amounts outstanding under this agreement
as of March 31, 2003. Subsequent to March 31, 2003, Salon has borrowed
approximately $0.1 million under the agreement.

         Salon, as permitted under Delaware law and in accordance with our
Bylaws, indemnifies its officers and directors for certain events or
occurrences, subject to certain limits, while the officer is or was serving at
Salon's request in such capacity. The term of the indemnification period is for
the officer's or director's lifetime. The maximum amount of potential future
indemnification is unlimited; however, the 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.

                                       23
<PAGE>

         The following summarizes Salon's contractual obligations as of March
31, 2003, as amended and in effect subsequent to March 31, 2003, and the effect
these contractual obligations are expected to have on our liquidity and cash
flows in future periods (in thousands):

<TABLE><CAPTION>
                                               Payments Due By Period
                     ---------------------------------------------------------------------------
                          Total           1 Year or Less       1 - 3 Years        After 3 Years
                     ---------------     ---------------     ---------------     ---------------
<S>                  <C>                 <C>                 <C>                 <C>
Operating leases     $         1,012     $           582     $           430     $          --
Capital leases                   115                  96                  19                --
                     ---------------     ---------------     ---------------     ---------------
     Total           $         1,127     $           678     $           449     $          --
                     ===============     ===============     ===============     ===============
</TABLE>

         Salon's auditors have included a paragraph in their report indicating
that substantial doubt exists as to Salon's ability to continue as a going
concern because it has recurring operating losses and negative cash flows, and
an accumulated deficit. Salon has eliminated various positions, not filled
positions opened by attrition, implemented a wage reduction of 15% effective
April 1, 2001, and has cut discretionary spending, but due to limited visibility
of advertising activity, it is unable to predict accurately if and when it will
reach cash-flow break even.

         As of March 31, 2003, Salon's available cash resources were sufficient
to meet working capital needs for approximately one month. Subsequent to March
31, 2003, Salon received $0.9 million from the issuance of various notes
payable, all of which has been utilized to fund operations. The notes payable
issued were to related parties, one of which is a Director of Salon, are
expected to be converted to equity securities in September 2003.

          Salon is attempting to secure additional funds from the issuance of
equity securities or instruments that convert into equity securities. If Salon
raises additional funds by selling equity securities, or instruments that
convert into equity securities, the percentage ownership of Salon's current
stockholders will be reduced and its stockholders will most likely experience
additional dilution. Given Salon's recent low stock price, any dilution will
likely be substantial for existing stockholders.

         Salon is attempting to sell its prepaid advertising rights to generate
additional working capital. Salon cannot accurately predict how much they may be
sold as some proposals have been for minimal all-cash up-front proposals, while
others have encompassed larger amounts over time. Salon believes that any sale
of its prepaid advertising rights will most likely result in a charge to
operating results. Salon cannot determine if a transaction will in fact take
place, as a potential transaction will involve Salon, NBC, which must agree to
the transfer of rights to a third party, and a third party willing to acquire
the rights.

         If Salon does not secure additional funds from the issuance of equity
securities and instruments that convert into equity securities, or from the sale
of advertising credits, Salon may be unable to continue as a going concern and
cease operations. Salon cannot determine at this time whether or not, or to what
extent, it will be successful in securing additional cash resources during its
second quarter of its fiscal year ending March 31, 2004 to meet operating
requirements.

         As of March 31, 2003, Salon has an operating lease for two floors of
office space in San Francisco that terminates in December 2009 for approximately
$70,000 per month. From December 2002 to February 2003 Salon suspended lease
payments in an attempt to reduce this lease commitment. In March 2003, Salon
commenced making reduced payments pending an amended lease agreement. On March
27, 2003, Salon received a "Verified Complaint for Damages" for failure to make
rental payments as stipulated in its lease agreement for its office space in San
Francisco. On June 20, 2003, the landlord

                                       24
<PAGE>

filed a "Notice of Entry of Default" with the Superior Court of the State of
California for the County of San Francisco whereby the landlord made a demand
for damages of approximately $300,000. On June 27, 2003, Salon and its landlord
amended the lease agreement, for which Salon will only lease the 16th floor, to
terminate on February 28, 2005 and a monthly rent of approximately $21,000. In
return, Salon will forfeit a $0.4 million deposit held by the landlord. The
amended lease agreement will cure the "Notice of Entry of Default."

RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2002, the FASB issued Statement of Financial Accounting
Standard (SFAS) No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" (SFAS No. 146). SFAS No. 146 nullifies the guidance of the Emerging
Issues Task Force (EITF) in EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". Under EITF Issue No.
94-3, an entity recognized a liability for an exit cost on the date that the
entity committed itself to an exit plan. In SFAS 146, the Board acknowledges
that an entity's commitment to a plan does not, by itself, create a present
obligation to other parties that meets the definition of a liability and
requires that a liability for a cost that is associated with an exit or disposal
activity be recognized when the liability is incurred. It also establishes that
fair value is the objective for the initial measurement of the liability. SFAS
No. 146 has been effective for exit or disposal activities that are initiated
after December 31, 2002. The adoption of this standard had no material impact on
Salon's financial statements.

         In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a
liability be recorded in the guarantor's balance sheet upon issuance of a
guarantee. In addition, FIN 45 requires disclosures about the guarantees that an
entity has issued, including a reconciliation of changes in the entity's product
warranty liabilities. The initial recognition and initial measurement provisions
of FIN 45 are applicable on a prospective basis to guarantees issued or modified
after December 31, 2002, irrespective of the guarantor's fiscal year-end. The
disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. The adoption of this
standard had no material impact on Salon's financial statements.

         In November 2002, the EITF reached a consensus on Issue No. 00-21
"Accounting for Revenue Arrangements With Multiple Deliverables" which provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The
provisions of EITF No. 00-21 will apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. Salon is currently evaluating the
effect that the adoption of EITF No. 00-21 will have on its financial position
and results of operations.

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. For
nonpublic entities, mandatorily redeemable financial instruments are subject to
the provisions of this Statement for the first period beginning after December
15, 2003. It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial

                                       25
<PAGE>

instruments created before the issuance date of the statement and still existing
at the beginning of the interim period of adoption. Salon has not determined the
impact that the adoption of SFAS No. 150 will have on its financial position or
results of operations.

FACTORS THAT MAY AFFECT SALON'S FUTURE RESULTS AND MARKET PRICE OF STOCK

SALON WILL VERY LIKELY CEASE OPERATIONS IN ITS CURRENT FORM IF IT IS UNABLE TO
RAISE ADDITIONAL CASH RESOURCES

         Salon has received $0.9 million from the issuance of notes payable
subsequent to March 31, 2003. These funds, in conjunction with collections of
accounts receivable and Salon Premium subscriptions, have been used to fund
operations as of this filing. Salon needs to secure additional cash resources in
order to continue as a going concern. Salon is attempting to secure additional
funds from the issuance of equity securities and instruments that convert into
equity securities and from the sale of its prepaid advertising rights.

         If Salon does not secure additional funds from the issuance of equity
securities and instruments that convert into equity securities, or from the sale
of advertising rights, Salon may be unable to continue as a going concern and
cease operations. Salon cannot determine at this time whether or not, or to what
extent, it will be successful in securing additional cash resources during its
second quarter of its year ending March 31, 2004 to meet operating requirements
until it reaches cash flow breakeven.

SALON LACKS SIGNIFICANT REVENUES AND HAS A HISTORY OF LOSSES

         Salon has a history of significant losses and expects to incur
operating losses in the near future. For the year ended March 31, 2003, Salon
had net losses attributable to common stockholders of $5.7 million and had an
accumulated deficit of $82.3 million. If and when Salon does achieve
profitability, Salon may not be able to sustain or increase profitability on a
quarterly or annual basis in the future. If revenues grow more slowly 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.

         Salon's independent accountants provided a "going-concern" audit
opinion on the consolidated financial statements for the years ended March 31,
2003, 2002 and 2001. The audit opinion reported 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"
opinion Salon's stock price and investment prospects may be adversely affected,
thus limiting financing choices and raising concerns about the realization of
value on assets and operations.

SALON MAY OR MAY NOT BE SUCCESSFUL IN SELLING ITS PREPAID ADVERTISING RIGHTS

         As of March 31, 2003, Salon has approximately $8.0 million of prepaid
advertising rights valued at $5.5 million. The rights resulted from the December
1999 sale of 1,125,000 of shares of Salon's common stock to Rainbow Media
Holdings, Inc., a subsidiary of Cablevision Systems Corporation. At the time of
the transaction, Rainbow Media Holdings, Inc. owned the Bravo television
network. On December 9, 2002 Cablevision Systems Corporation concluded a sale of
its Bravo network to NBC and as a result, NBC acquired an obligation to provide
Salon with approximately $5.0 million in advertising.

                                       26
<PAGE>

Salon is negotiating with NBC for their approval to sell these rights to a third
party. Salon cannot accurately predict if it will acquire the approval from NBC
to sell the rights, or how much they may be sold to a third party. Proposals
from a third party for the purchases of rights have included minimal all-cash
upfront proposals, while others have encompassed larger amounts over time. Salon
believes that any sale of its prepaid advertising rights will most likely result
in a charge to operating results. Any proceeds from the sale of these prepaid
rights will be used to fund Salon's operations.

         Approximate $3.0 million in rights are still owed by Cablevision
Systems Corporation. Salon does not know to what extent Cablevision Systems will
facilitate the transfer and sale of these rights to a third party.

IN JANUARY 2003 AND AGAIN IN MAY 2003 SALON INSTITUTED WEBSITE ACCESS CHANGES,
AND MAY MAKE OTHER CHANGES IN THE FUTURE, THAT MAY AFFECT ITS REVENUE

         In January 2003, Salon began to restrict access to substantially all of
its new content to Salon Premium subscribers or to non Salon Premium subscribers
willing to view some form of advertising or "Ultramercial." In May 2003, Salon
instituted a new form of advertising in which non Salon Premium visitors to
Salon's home page were automatically subjected to an "Ultramercial"
advertisement. Salon has not noticed a significant change in the number of
unique visitors to its Websites from the restrictions implemented in January
2003. The changes implemented in May 2003 are still too recent to signal
significant changes in Website traffic, and therefore, Salon cannot forecast
what affects, if any, these change will have in future months. It is possible
that the number of unique visitors to Salon's Websites may decrease, resulting
in a corresponding decrease in page views. The decrease in page views could
equate to a decrease in the number of impressions available to sell to general
advertisers and adversely affect advertising revenues.

         Offsetting the potential drop of impressions available to sell are new
advertising revenues from rich media presentations that create a time sensitive
pass to view Salon's Websites, and a potential increase in Salon Premium
subscriptions from individuals who do not want to be subjected to
advertisements. Salon cannot estimate the affect Website restrictions will have
on its ability to generate revenues.

SALON HAS ENTERED INTO THIRD-PARTY SUBSCRIPTION BUNDLING SERVICES

         Subsequent to March 31, 2003 Salon entered into two agreements with
third parties who are to combine Salon's content with other content providers
and sell the bundled content to individuals for a set monthly fee. Under these
agreements, anticipated to begin in July 2003, Salon is to receive a nominal
amount per subscriber per month. Salon cannot reasonably estimate how much
revenue may be generated from these agreements.

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 Websites 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,

                                       27
<PAGE>

2003 Salon has experienced a renewal rate for one-year subscription to Salon
Premium of approximately seventy-one percent. 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

         Salon has historically depended on the sale of advertising for the
majority of its revenue. The January and May 2003 Website changes will change
the mix of revenue, lowering traditional forms of advertising, increasing new
forms of advertising and changing subscription patterns. The net effect is
currently unknown and could be negative or positive.

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

         o  successfully sell and market it new content access 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 site visitors and
            corresponding significant reach of Internet users;

         o  maintain a significant number of sellable impressions available to
            advertisers;

         o  grow the number of $18.50 Salon Premium plan subscribers willing to
            view Website advertisements

         o  successfully sell and market it network to advertisers;

         o  increase the amount of revenues it receives per advertisement;

         o  increase awareness of the Salon brand;

         o  target advertisements and electronic commerce opportunities to users
            with appropriate interests;

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

         o  retain sales personnel.

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

                                       28
<PAGE>

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 "access passes" and "Ultramercials" to
            advertisers;

         o  internal acceptance reviews by advertisers and their agencies;

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

         OUR 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, and the market prices of the securities of Internet companies have
been especially volatile. 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, our
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.

IF OUR SHARE PRICE IS VOLATILE, WE 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 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 WILL AFFECT THE VALUE OF THEIR INVESTMENT

         Salon has four directors, one of which is associated with a company
that has an investment in Salon, that in the aggregate, own a significant
percentage of the voting rights granted by ownership of common stock, preferred
stock and convertible debt as of March 31, 2003 and convertible debt issued
subsequent to March 31, 2003. If Salon were to aggregate this class of ownership
with all other 5 percent and greater shareholders, this combined group of
shareholders would most likely own a majority of the voting rights granted by
ownership of common and preferred stock as of March 31, 2003. If the principal
stockholders were to act together, these stockholders would be able to exercise
control over most matters requiring approval by other stockholders, including
the election of directors and approval of significant corporate transactions.
These actions may be taken even if principal stockholders oppose non-principal
stockholders. This concentration of ownership may also have the effect of
delaying or preventing a change in control of Salon, which could cause Salon's
stock price to decline.

                                       29
<PAGE>

SALON'S QUARTERLY OPERATING RESULTS ARE VOLATILE AND MAY ADVERSELY AFFECT ITS
COMMON STOCK PRICE

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

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

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

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

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

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

         o  the economic and business cycle and the recovery speed;

         o  the level of Internet usage;

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

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

         o  the impact of national economic and diplomatic concerns on the
            advertising and news business; and,

         o  the amount and timing of operating costs.

         In order to attract and maintain Salon's user base, Salon may incur
expenditures on sales and marketing, content development, technology and
infrastructure. These types of expenditures are planned or committed in advance
and in anticipation of future revenues. If Salon's revenues in a particular
quarter are lower than it anticipates, Salon may be unable to reduce spending in
that quarter. As a result, any shortfall in revenues would likely harm its
quarterly operating results.

         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.

SALON MUST CONTINUALLY DEVELOP COMPELLING CONTENT TO ATTRACT INTERNET USERS

     Salon's success depends upon its ability to attract and retain a large
number of users by delivering original and compelling Internet content and
services. If Salon is unable to develop content and services that allow it to
attract, retain and expand a loyal user base possessing high-value demographic
characteristics, Salon will be unable to generate advertising or subscription
revenues, and its revenues and operating results will be severely harmed. The
content and services Salon provides on its Websites may

                                       30
<PAGE>

not appeal to a sufficient number of Internet users to generate advertising or
subscription revenues. Salon's ability to develop compelling content depends on
several factors, including:

         o  the quality and number of writers and artists who create content for
            Salon;

         o  the quality of Salon's editorial staff;

         o  the technical expertise of Salon's production staff; and

         o  working capital constraints of Salon.

         Consumer tastes and preferences change rapidly and Salon may not be
able to anticipate, monitor, and successfully respond to these changes to
attract and retain a sufficient number of users for Salon's network of Websites.
Internet users can freely navigate and instantly switch among a large number of
Websites, many of which offer content and services that compete with Salon. In
addition, many Websites offer very specific, highly targeted content that could
have greater appeal than Salon's network to particular subsets of its target
user base.

THE CONTROVERSIAL CONTENT OF SALON'S WEBSITES MAY LIMIT ITS REVENUES

         Many of our Websites contain, and will continue to contain, content
that is politically and culturally controversial. As a result of this content,
current and potential advertisers and Salon Premium subscribers 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 a 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 its brand. Any change in the focus of its operations creates a risk
of diluting its brand, confusing consumers and decreasing the value of its user
base to advertisers. If Salon is unable to maintain or increase the Salon brand,
its business could be severely harmed.

SALON NEEDS TO HIRE, INTEGRATE AND/OR RETAIN QUALIFIED PERSONNEL BECAUSE THESE
INDIVIDUALS ARE IMPORTANT TO ITS GROWTH

         Salon's success significantly depends on key editorial and design
personnel. In addition, because its users must perceive the content of its
Websites as having been created by credible and notable sources, Salon's success
also depends on the name recognition and reputation of its editorial staff, in
particular David Talbot, Salon's founder and Editor-in-Chief.

         Salon's future success depends to a significant extent on the continued
services of key personnel, particularly, David Talbot, and Michael O'Donnell,
Chief Executive Officer. Salon currently has no

                                       31
<PAGE>

employment agreement with Mr. Talbot and it does not maintain "key person" life
insurance for any of its personnel. The loss of the services of Mr. Talbot, Mr.
O'Donnell, or other key employees would likely have a significantly adverse
effect on its business.

         Due to Salon's current operating difficulties, 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 integrating, 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. Infringement or misappropriation of its content or intellectual
property could severely harm its business. Salon also licenses content from
various freelance providers and other third-party content providers. While Salon
attempts to insure 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 network of
Websites 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 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 RETENTION 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, including advertising on the Internet, its
network of Websites or subscription management 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.

                                       32
<PAGE>

SALON RELIES ON THIRD PARTIES FOR SEVERAL CRITICAL FUNCTIONS RELATING TO
DELIVERY OF ADVERTISING AND ITS WEBSITE PERFORMANCE, AND THE FAILURE OF THESE
THIRD PARTIES TO SUPPLY THESE SERVICES IN AN EFFICIENT MANNER COULD LIMIT ITS
GROWTH AND IMPAIR ITS BUSINESS

         Salon relies on a number of third party suppliers for various services,
including web hosting and advertising delivery. While Salon believes that it
could obtain these services from other qualified suppliers on similar terms and
conditions, a disruption in the supply of these services by its current
suppliers could severely harm its business.

         Salon uses third-party software to manage and measure the delivery of
advertising on its network of Websites. This type of software may fail to
perform as expected. If this software malfunctions or does not deliver the
correct advertisements to its network, Salon's advertising revenues could be
reduced, and its business could be harmed.

         Salon uses third-party software to measure traffic on its network of
Websites. This type of software does not always perform as expected. If this
software malfunctions or does not accurately measure its user traffic, Salon may
not be able to justify its advertising rates, and its advertising revenues could
be reduced.

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 does
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.

                                       33
<PAGE>

TRACKING AND 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

         Measurement standards for Internet based advertising are evolving. In
addition, software to track Internet usage is also evolving. The development of
such software or other methodologies may not keep pace with Salon's information
needs, particularly to support Salon's internal business requirements and those
of its advertisers. The absence or insufficiency of this information could limit
Salon's ability to attract and retain advertisers.

         It is important to Salon's advertisers that Salon accurately presents
the demographics of its user base and the delivery of advertisements on its
Websites. 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 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 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 ITS
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 ten Websites.

                                       34
<PAGE>

         Increased competition could result in advertising price reductions or
loss of market share, any of which could harm our 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 WEBSITES 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 network of Websites. 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 its links
to sexually explicit Websites and our provision of sexually explicit
advertisements when this content is displayed. 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 if 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 PROGRAMS BY
SUBJECTING US TO LIABILITY OR BY DISCOURAGING COMMERCIAL TRANSACTIONS OVER THE
INTERNET

         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 computer capabilities, new discoveries
in the field of cryptography or other developments, a compromise or breach of
the algorithms we use to protect customer transaction data may occur. A
compromise of its 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 network of Websites.

         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

                                       35
<PAGE>

card transactions. If these systems were to fail or not function as intended,
credit card transactions might not be processed and Salon's 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 Websites 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 its network of Websites and could cause advertisers to terminate
any agreements with us. 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, its
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 Websites 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 Websites. Many of these
providers and operators have experienced significant outages in the past, and
could experience outages, delays and other difficulties due to system failures
unrelated to its systems. Any of these system failures could harm its business.

HACKERS MAY ATTEMPT TO PENETRATE SALON'S SECURITY SYSTEM; ONLINE SECURITY
BREACHES COULD HARM ITS BUSINESS

         Consumer and supplier confidence in Salon's Websites depends on
maintaining relevant security features. Security breaches also could damage its
reputation and expose us to a risk of loss or litigation. Experienced
programmers or "hackers" have successfully penetrated sectors of its systems and
Salon expects that these attempts will continue to occur from time to time.
Because a hacker who is able to penetrate its 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.

GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES OF THE INTERNET MAY RESTRICT
SALON'S BUSINESS OR RAISE ITS COSTS

         There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Laws and regulations may be adopted
in the future, however, that address issues including content, copyrights,
distribution, antitrust matters, user privacy, pricing, and the characteristics
and quality of products and services. An increase in regulation or the
application of existing laws to the Internet could significantly increase
Salon's costs of operations and harm Salon's business. For example, the
Communications Decency Act of 1996 sought to prohibit the transmission of
certain types of information and content over the web. Additionally, several
telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online

                                       36
<PAGE>

service providers in a manner similar to long distance telephone carriers and to
impose access fees on these companies. Imposition of access fees could increase
the cost of transmitting data over the Internet. Moreover, it may take years to
determine the extent to which existing laws relating to issues such as property
ownership, obscenity, libel and personal privacy are applicable to the Internet
or the application of laws and regulations from jurisdictions whose laws do not
currently apply to its business.

PRIVACY CONCERNS COULD IMPAIR SALON'S BUSINESS

         Salon has a policy against using personally identifiable information
obtained from users of its Websites 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 does 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. The State of
California, due to current budget constraints, has discussed instituting a sales
tax on Internet based transactions. Other 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

                                       37
<PAGE>

            have the right to determine confidentially whether shares held under
            the plan will be tendered in a tender or exchange offer; or

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

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

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

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

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

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

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

         In addition, offer letters with executive officers 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 does not have an exposure to market risk for changes in interest
rates. Salon has no investments denominated in foreign country currencies and
therefore is not subject to foreign exchange risk.










                                       38
<PAGE>

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
                                                                            Page

Report of Independent Auditors  ..............................................40

Consolidated Balance Sheets as of March 31, 2003 and 2002.....................41

Consolidated Statements of Operations for the years ended March 31, 2003
     2002, and 2001   ........................................................42

Statements of Stockholders' Equity for the years ended March 31, 2003
     2002, and 2001   ........................................................43

Consolidated Statements of Cash Flows for the years ended March 31, 2003
     2002, and 2001   ........................................................44

Notes to Consolidated Financial Statements....................................45


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
























                                       39
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


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 financial
position of Salon Media Group, Inc. and its subsidiaries at March 31, 2003 and
2002, and the results of their operations and their cash flows for each of the
three years in the period 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
auditing standards generally accepted in the United States of America, which
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















                                       40
<PAGE>

                             SALON MEDIA GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE><CAPTION>
                                                                                            MARCH 31,
                                                                                     ----------------------
                                                                                       2003          2002
                                                                                     --------      --------
<S>                                                                                  <C>           <C>
ASSETS
    Current assets:
       Cash and cash equivalents                                                     $    162      $  1,542
       Accounts receivable, net                                                           227           326
       Prepaid expenses and other current assets                                          169           212
                                                                                     --------      --------
        Total current assets                                                              558         2,080

    Property and equipment, net                                                           459         1,299
    Prepaid advertising rights                                                          5,480         6,266
    Intangible assets, net                                                                348           719
    Goodwill, net                                                                         200           200
    Other assets                                                                          545           778
                                                                                     --------      --------
        Total assets                                                                 $  7,590      $ 11,342
                                                                                     ========      ========
LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
       Notes payable - related parties                                               $  1,256      $   --
       Notes payable - non related parties                                                458          --
       Accounts payable and accrued liabilities                                         1,275         1,542
       Deferred revenue                                                                   918           563
       Capital lease obligations, current                                                  91           231
                                                                                     --------      --------
        Total current liabilities                                                       3,998         2,336

    Warrants payable                                                                      354          --
    Other long term liabilities                                                           197           152
    Capital lease obligations, long term                                                   18            77
                                                                                     --------      --------

       Total liabilities                                                                4,567         2,565
                                                                                     --------      --------
Commitments and Contingencies (Note 8)

Stockholders' equity:
      Preferred stock, $0.001 par value, 5,000,000 shares authorized, 934 shares
           issued and outstanding at March 31, 2003 and March 31, 2002
           (aggregate liquidation preference of $7,472 at March 31, 2003 and
            March 31, 2002)                                                              --            --

    Common stock, $0.001 par value, 50,000,000 shares authorized, 14,155,276
       shares issued and outstanding at March 31, 2003 and March 31, 2002                  14            14
    Additional paid-in capital                                                         85,283        85,416
    Unearned compensation                                                                --             (57)
    Accumulated deficit                                                               (82,274)      (76,596)
                                                                                     --------      --------
       Total stockholders' equity
                                                                                        3,023         8,777
                                                                                     --------      --------
        Total liabilities and stockholders' equity                                   $  7,590      $ 11,342
                                                                                     ========      ========
</TABLE>

           See accompanying notes to Consolidated Financial Statements

                                       41
<PAGE>

                             SALON MEDIA GROUP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE><CAPTION>
                                                                 YEAR ENDED MARCH 31,
                                                         ------------------------------------
                                                           2003          2002          2001
                                                         --------      --------      --------
<S>                                                      <C>           <C>           <C>
Net revenues                                             $  4,003      $  3,619      $  7,202
                                                         --------      --------      --------

Operating expenses:
   Production and content                                   4,425         5,009         9,809
   Sales and marketing                                      2,305         2,737         7,160
   Research and development                                   626           703         1,598
   General and administrative                               1,354         1,925         3,523
   Amortization of intangibles                                412           476         1,207
   Write-down of long-lived assets                            345           782         3,517
                                                         --------      --------      --------
       Total operating expenses
                                                            9,467        11,632        26,814

Loss from operations                                       (5,464)       (8,013)      (19,612)


Interest income                                                13            82           591

Other income (expense), net                                  (146)          (69)         (134)
                                                         --------      --------      --------
       Net loss                                            (5,597)       (8,000)      (19,155)

Preferred deemed dividend                                     (81)       (3,189)         --

Cumulative cash dividend on preferred stock                  --             (97)         --
                                                         --------      --------      --------
Net loss attributable to common stockholders             $ (5,678)     $(11,286)     $(19,155)
                                                         ========      ========      ========

Basic and diluted net loss per share attributable to
   common stockholders                                   $  (0.41)     $  (0.83)     $  (1.48)

Weighted average shares used in computing basic
   and diluted net loss per share attributable
   to common stockholders                                  13,938        13,547        12,962
</TABLE>
           See accompanying notes to Consolidated Financial Statements

                                       42
<PAGE>

                             SALON MEDIA GROUP, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)

<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, 2000                      --         --      $ 12,547   $     13   $ 78,448    $ (2,098)   $(46,155)   $ 30,208


Shares issued under employee stock plans     --         --           325       --          134        --          --           134
Shares issued for acquisition                --         --         1,268          1      1,469        --          --         1,470
Unearned compensation                        --         --          --         --       (1,647)      1,693        --            46
Amortization of unearned compensation        --         --          --         --         --           174        --           174
Net loss                                     --         --          --         --         --          --       (19,155)    (19,155)
                                          ----------------------------------------------------------------------------------------

BALANCE, MARCH 31, 2001                      --         --        14,140         14     78,404        (231)    (65,310)     12,877

Series A convertible preferred stock and
   common stock warrants issued for cash      809       --          --         --        3,205        --          --         3,205
Series B convertible preferred stock and
   common stock warrants issued for cash      125       --          --         --          466        --          --           466
Preferred dividend                           --         --          --         --        3,189        --        (3,189)       --
Cash dividend on preferred stock             --         --          --         --           97        --           (97)       --
Shares issued under employee stock plans     --         --            15       --            4        --          --             4
Warrants issued in association with
   agreements                                --         --          --         --            3        --          --             3
Value of contingent shares issued in
   conjunction with acquisition              --         --          --         --          108        --          --           108
Amortization of unearned compensation        --         --          --         --          (60)        174        --           114
Net loss                                     --         --          --         --         --          --        (8,000)     (8,000)
                                          ----------------------------------------------------------------------------------------

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
Reclassification of warrants to
liabilities -see
   Note 10                                   --         --          --         --         (175)       --          --          (175)
Net loss                                     --         --          --         --         --          --        (5,678)     (5,678)
                                          ----------------------------------------------------------------------------------------

BALANCE, MARCH 31, 2003                       934   $   --        14,155   $     14   $ 85,283    $   --      $(82,274)   $  3,023
                                          ========================================================================================
</TABLE>
           See accompanying notes to Consolidated Financial Statements

                                       43
<PAGE>

                             SALON MEDIA GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE><CAPTION>
                                                                                        YEAR ENDED MARCH 31,
                                                                                 ------------------------------------
                                                                                   2003          2002          2001
                                                                                 --------      --------      --------
<S>                                                                              <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                        $ (5,597)     $ (8,000)     $(19,155)
 Adjustments to reconcile net loss to net cash used in operating activities:
    Write-down of long lived assets                                                   345           782         3,517
    Loss from retirement of assets                                                      2            28          --
    Stock-based compensation and warrant amortization                                 108           200           269
    Depreciation and amortization                                                     944         1,213         2,057
    Allowance for doubtful accounts                                                    46            73           133
    Write-off of long-term receivable                                                --             236           150
    Prepaid advertising rights usage                                                  786           809           809
    Changes in assets and liabilities:
      Accounts receivable                                                              53            75         1,668
      Prepaid expenses, other current assets and other assets                         326           111        (1,027)
      Accounts payable and accrued liabilities                                       (226)         (836)       (1,800)
      Deferred revenue                                                                355           340            13
                                                                                 --------      --------      --------
         Net cash used in operating activities                                     (2,858)       (4,969)      (13,366)
                                                                                 --------      --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of property and equipment                                                    (4)           (7)       (1,043)
 Acquisitions, net of liabilities assumed                                            --            --            (400)
                                                                                 --------      --------      --------
         Net cash used in investing activities                                         (4)           (7)       (1,443)
                                                                                 --------      --------      --------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from issuance of preferred stock, net                                      --           3,671          --
 Proceeds from issuance of common stock, net                                         --               7           134
 Proceeds from bank borrowings                                                         82          --            --
 Repayment of short-term borrowings                                                   (82)         --             (90)
 Proceeds from issuance of notes payable, net                                       1,694          --            --
 Principal payments under capital leases                                             (212)         (207)         (170)
                                                                                 --------      --------      --------
         Net cash (used in) provided by financing activities                        1,482         3,471          (126)
                                                                                 --------      --------      --------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                          (1,380)       (1,505)      (14,935)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                    1,542         3,047        17,982
                                                                                 --------      --------      --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       $    162      $  1,542      $  3,047
                                                                                 ========      ========      ========


AMOUNT PAID FOR INTEREST                                                         $     35      $     68      $    118
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              65          --            --
 Issuance of stock and warrants in connection with acquisition                         42           108         1,470
 Issuance of warrants in connection with agreements                                     3             3          --
 Preferred deemed dividend in connection with preferred stock financing                81         3,189          --
 Dividend on preferred stock                                                         --              97          --
 Value assigned to reciprocal advertising agreements                                 --            --              63
 Property and equipment purchased under capital lease                                --            --             221
</TABLE>

           See accompanying notes to Consolidated Financial Statements

                                       44
<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 total network of nine primary subject-specific Websites and two
online communities. One of the Websites 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, 2003 of $82,274. 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. However, until cash flow
breakeven is reached, Salon will have to rely on additional investment capital
or other financing alternatives. These financing alternatives may include the
sale of prepaid advertising credits. There can be no assurance that Salon will
be able to sell its advertising credits and obtain additional capital on terms,
which are favorable, or at all.

         In the event that Salon is unable to increase revenues or financing is
unavailable, management may explore further reductions of expenses to levels
that could be financed by revenues generated. There can be no assurance that a
further cost cutting exercise will 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. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of Salon and
its wholly owned subsidiaries. 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.

CASH EQUIVALENTS

         Salon considers all highly liquid investments purchased with an
original maturity of three months or less at the date of purchase to be cash
equivalents.

                                       45
<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 analyses 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 Websites 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.

                                       46
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

         During the years ended March 31, 2003 and March 31, 2002,
advertisements were generally short-term agreements, usually less than ninety
days. During the year ending March 31, 2001, advertisements ranged from
short-term advertisements to long-term arrangements. 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 typically include the guarantee of a minimum number of impressions,
or number of times that an advertisement appears in pages viewed by users of
Salon's Websites. To the extent the minimum guaranteed impressions are not
delivered, Salon defers recognition of the corresponding revenue until the
remaining guaranteed impression levels 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. 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 and Table Talk subscriptions are generally only for one
month.

          For the year ended March 31, 2001, advertising revenues included
barter revenues, which are the exchange by Salon of advertising space on Salon's
Websites for reciprocal advertising space on other Websites and represented 0.9%
of total revenues.

 ADVERTISING COSTS

          Salon expenses advertising costs as they are incurred. Advertising
expense was $772, $689, and $1,208 for the fiscal years ended March 31, 2003,
2002, and 2001. Of these total expenses, barter advertising cost represents
none, none, and $63 for the fiscal years ended March 31, 2003, 2002, and 2001,
respectively.

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, 2003, 2002 and 2001 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

                                       47
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

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.

STOCK-BASED COMPENSATION

          Salon accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock issued to Employees" (APB 25), and Financial Accounting
Standards Board (FASB) Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - an Interpretation of APB No. 25"
(FIN 44), and complies with the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 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,
                                                                           ------------------------------------
                                                                             2003          2002          2001
                                                                           --------      --------      --------
<S>                                                                        <C>           <C>           <C>
Net loss attributable to common stockholders:
    As reported                                                            $ (5,678)     $(11,286)     $(19,155)
    Add back: stock-based employee compensation
    expense included in reported net loss                                        57           114           174

    Deduct: total stock-based compensation expense
    determined under the fair value based method, net
    of related tax                                                             (737)       (1,258)       (2,896)
                                                                           --------      --------      --------
    Pro forma net loss attributable to common stockholders                 $ (6,358)     $(12,430)     $(21,877)
                                                                           ========      ========      ========

Basic and diluted net loss per share attributable common stockholders:
    As reported                                                            $  (0.41)     $  (0.83)     $  (1.48)
    Pro forma net loss per share                                           $  (0.46)     $  (0.92)     $  (1.69)
</TABLE>





                                       48
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

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,
                                                           ------------------------------------------------
                                                               2003              2002              2001
                                                           ------------      ------------      ------------
<S>                                                        <C>               <C>               <C>
Numerator:
  Net loss attributable to common stockholders             $     (5,678)     $    (11,286)     $    (19,155)
                                                           ============      ============      ============

Denominator:
  Weighted average shares outstanding                        14,155,000        14,153,000        13,672,000
  Weighted average shares held in escrow                       (217,000)         (606,000)         (710,000)
                                                           ------------      ------------      ------------
  Weighted average shares used in computing basic
     and diluted net loss per share attributable to
     common stockholders                                     13,938,000        13,547,000        12,962,000
                                                           ============      ============      ============
  Basic and diluted net loss per share attributable to
     common stockholders                                   $      (0.41)     $      (0.83)     $      (1.48)
                                                           ============      ============      ============

  Antidilutive securities including options, warrants
     and convertible preferred stock not included
     in loss per share calculation                           33,214,000        31,873,000         4,961,000
                                                           ------------      ------------      ------------
</TABLE>

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
24% and 19% respectively, of total trade accounts receivable at March 31, 2003
and two customers accounted for 14% and 10%, respectively, of total trade
accounts receivable at March 31, 2002.

          No customer accounted for 10% or more of total revenue for the fiscal
year ended March 31, 2003 and 2002, and one customer accounted for 10% of total
revenue for the fiscal year ended March 31, 2001.

RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS No. 146). SFAS No. 146
nullifies the guidance of EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity

                                       49
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(including Certain Costs Incurred in a Restructuring)". Under EITF Issue No.
94-3, an entity recognized a liability for an exit cost on the date that the
entity committed itself to an exit plan. In SFAS 146, the Board acknowledges
that an entity's commitment to a plan does not, by itself, create a present
obligation to other parties that meets the definition of a liability and
requires that a liability for a cost that is associated with an exit or disposal
activity be recognized when the liability is incurred. It also establishes that
fair value is the objective for the initial measurement of the liability. SFAS
No. 146 has been effective for exit or disposal activities that are initiated
after December 31, 2002. The adoption of this standard had no material impact on
Salon's financial statements.

         In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a
liability be recorded in the guarantor's balance sheet upon issuance of a
guarantee. In addition, FIN 45 requires disclosures about the guarantees that an
entity has issued, including a reconciliation of changes in the entity's product
warranty liabilities. The initial recognition and initial measurement provisions
of FIN 45 are applicable on a prospective basis to guarantees issued or modified
after December 31, 2002, irrespective of the guarantor's fiscal year-end. The
disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. The adoption of this
standard had no material impact on Salon's financial statements.

         In November 2002, the EITF reached a consensus on Issue No. 00-21
"Accounting for Revenue Arrangements With Multiple Deliverables" which provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The
provisions of EITF No. 00-21 will apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. Salon is currently evaluating the
effect that the adoption of EITF No. 00-21 will have on its financial position
and results of operations.

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. For
nonpublic entities, mandatorily redeemable financial instruments are subject to
the provisions of this Statement for the first period beginning after December
15, 2003. It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the issuance
date of the statement and still existing at the beginning of the interim period
of adoption. Salon has not determined the impact that the adoption of SFAS No.
150 will have on its financial position or results of operations.

NOTE 3.  RELATED PARTY TRANSACTIONS

         In March 2000, Salon entered into a publishing and joint-marketing
agreement with a principal shareholder. The shareholder served as a Director
until August 2001.

                                       50
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

         In October 2000, Salon loaned to its Chairman and Editor in Chief, $75
that accrues interest at a 6.3% annual rate. As of March 31, 2003, the loan and
associated accrued interest total $85 and is included as a component of "Prepaid
expenses and other current liabilities" in Salon's Consolidated Balance Sheets.
In addition, $1 of interest has been paid as of March 31, 2003.

         In October 2001, Salon entered into a month-to-month sublease agreement
with an investor for office space in New York, NY and received rent income of
$57 during the year ended March 31, 2003 and $68 during the year ended March 31,
2002.

         On August 9, 2001 and September 13, 2001, Salon issued 809 shares of
its Series A convertible redeemable preferred stock. As a result of this issue,
three of the individuals who acquired the stock joined Salon as Directors.

         On March 7, 2002, Salon issued 125 shares of its Series B convertible
preferred stock to Adobe Systems, Inc. of which a Director of Salon is also the
Co-Chairman of the Board of Adobe Systems, Inc.

NOTE 4. ACQUISITIONS

MP3LIT.COM:

         On May 5, 2000, Salon acquired MP3Lit.com (MP3Lit), a Website dedicated
to offering spoken word and audio literature recordings in the MP3 format. The
acquisition of MP3Lit consisted of: (i) 380,000 shares of common stock valued at
$3.375 per share; (ii) $400 of cash consideration; (iii) warrants to purchase
100,000 shares of common stock over a five-year period at a price of $10.50 per
share; (iv) 888,000 shares of common stock were issued and held in escrow. 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; and (iv) acquisition costs of $135.

         In May 2001, 317,000 shares of common stock held in escrow were issued
and valued at $108 using the Black-Scholes option-pricing model that resulted in
additional purchase consideration classified as goodwill. As determined during
the fiscal year ended March 31, 2001, all the goodwill associated with the
acquisition was impaired, and as a result, the additional goodwill resulting
from this additional stock award in May 2001 was written off during the fiscal
year ended March 31, 2002. Contingent shares of 412,100 were issued in May 2002
with the value being immaterial. Subsequent to March 31, 2003, the final
contingent shares held of 158,500 are expected to be released with an immaterial
value.

         Salon's acquisition of MP3Lit was accounted for under the purchase
method of accounting which required the results of MP3Lit to be included in the
consolidated financial statements since the date of acquisition and also
required the purchase price to be allocated to the acquired assets and
liabilities of MP3Lit on the basis of their estimated fair values as of the date
of acquisition. The assets acquired consisted primarily of identifiable
intangible assets and goodwill. Identifiable intangible assets acquired include
the purchase of audio streaming technology which serves as the platform for
Salon Audio, digital downloadable spoken word recordings, an acquired workforce
and non-compete agreements which are being amortized over a five-year period.
The excess of the purchase price over the fair value of the net tangible and
identifiable intangible assets acquired resulted in $1,873 of goodwill. During
the fiscal year ended March 31, 2001 Salon determined that no significant income
could be generated in the near future

                                       51
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

from the sale of digital downloadable spoken word recordings which was Salon's
original intent in acquiring MP3Lit. Accordingly, Salon determined that this
asset was impaired and recorded an impairment charge of $1,717 during fiscal
year 2001, net of $156 amortization previously recorded.

NOTE 5. BALANCE SHEET COMPONENTS
                                                          Year Ended March 31,
                                                          --------------------
                                                           2003          2002
                                                          -------      -------
Accounts receivable, net:
       Accounts receivable                                $   267      $   366
       Less: allowance for doubtful accounts                  (40)         (40)
                                                          -------      -------
                                                          $   227      $   326
                                                          =======      =======
Prepaid expenses and other current assets
          Prepaid expenses                                $    83      $    85
          Receivable from employee                             85           81
          Other receivables                                     1           46
                                                          -------      -------
                                                          $   169      $   212
                                                          =======      =======
Property and equipment, net
       Computer hardware and software                     $ 1,717      $ 1,728
       Leasehold improvements                                 976        1,009
       Furniture and office equipment                         457          571
                                                          -------      -------
                                                            3,150        3,308
       Less accumulated depreciation and amortization      (2,691)      (2,009)
                                                          -------      -------
                                                          $   459      $ 1,299
                                                          =======      =======
Other assets
       Restricted cash                                    $   420      $   640
       Other                                                  125          138
                                                          -------      -------
                                                          $   545      $   778
                                                          =======      =======

Accounts payable and accrued liabilities
       Accounts payable                                   $   709      $   423
       Salaries and wages payable                             186          678
       Accrued services                                       105          142
       Reserve for claims                                     203          236
       Other accrued expenses                                  72           63
                                                          -------      -------
                                                          $ 1,275      $ 1,542
                                                          =======      =======

         Depreciation expense for the years ended March 31, 2003, 2002 and 2001
was $513, $737 and $849, respectively.

         Included in computer hardware and software, and furniture and office
equipment are assets under capital leases amounting to $800 and $784 as of March
31, 2003 and March 31, 2002 respectively. The related accumulated depreciation
for these assets was $632 and $437 as of March 31, 2003 and 2002, respectively.


                                       52
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

         Restricted cash at March 31, 2003 and 2002 represents time deposits
held at financial institutions as collateral for Salon's letters of credit
pursuant to various lease agreements. Subsequent to March 31, 2003, Salon
forfeited the $420 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, will be expensed over the revised lease term.

NOTE 6. EMPLOYEE STOCK PURCHASE PLAN

         Salon has an Employee Stock Purchase Plan (the "ESPP") 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 ESPP operation was suspended on March 1, 2001. In the event of
resumption, participant account balances are used to purchase shares of Salon
common stock 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 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.

         No shares were issued during the years ended March 31, 2003 and March
31, 2002. Salon issued 67,000 shares at an average price of $0.99 per share
during the year ended March 31, 2001. The weighted average fair value of rights
granted under the ESPP in accordance with SFAS No. 123 was $0.45 per share for
the year ended March 31, 2001.

NOTE 7.  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,
2003.

NOTE 8.  COMMITMENTS AND CONTINGENCIES

         Salon has a non-cancelable operating lease agreement for its office
space in San Francisco that expires in December 2009, for its office in New
York, NY that expires in December 2004 and for minimal office equipment. Rent
expense under these operating lease agreements was $1,306, $1,472, and $1,744,
for the years ended March 31, 2003, 2002, and 2001, respectively.

         Salon leases minimal furniture and computer equipment under capital
leases with imputed interest rates from 8.9% to 15.9%.

         Subsequent to March 31, 2003, Salon reduced the lease space, term and
amount of its San Francisco office to expire in February 2005 for which the
landlord retained a $420 deposit. The forfeited deposit of $420 will be expensed
over the revised lease term. Also subsequent to March 31, 2003, Salon


                                       53
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

subleased its office space in New York and entered into a new lease agreement
for office space. Under the sublease agreement, which expires in December 2005,
requires $395 of lease payments by Salon to the landlord and $217 of payments by
the sublessor to the landlord. The sublease agreement results in a loss of $180
that will be included in Salon's results of operations for the year ended March
31, 2004.

         Future minimum rental payments under capital leases and amended
non-cancelable operating leases subsequent to March 31, 2003 are as follows:

                                                            CAPITAL    OPERATING
YEAR ENDING MARCH 31,                                       LEASES       LEASES
---------------------                                      -------      -------
    2004                                                   $    96      $   582
    2005                                                        19          424
    2006                                                      --              6
                                                           -------      -------
          Total minimum lease payments                         115      $ 1,012
                                                                        =======
             Less: interest                                     (6)
                                                           -------
          Present value of minimum lease payments              109
             Less: current portion                             (91)
                                                           -------
          Long-term portion of capital lease obligation    $    18
                                                           =======

         Salon has entered into various agreements in which it subleases office
space. Rental income resulting from these agreements was $530, $910, and $575,
for the years ended March 31, 2003, 2002, and 2001, respectively. The income is
recorded as an offset against rent expense.


         Salon, as permitted under Delaware law and in accordance with our
Bylaws, indemnifies its officers and directors for certain events or
occurrences, subject to certain limits, while the officer is or was serving at
Salon's request in such capacity. The term of the indemnification period is for
the officer's or director's lifetime. The maximum amount of potential future
indemnification is unlimited; however, the 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,
thereby eliminating annual goodwill amortization of approximately $100 based on
anticipated amortization for fiscal year 2003 that would have been incurred
under the prior accounting standard. The carrying value of goodwill at March 31,
2003 was $200 and has been found not to be impaired. Salon reassessed the
expected useful lives of existing intangible assets and found that no change to
the useful lives of the assets was required.




                                       54
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

         The following table reflects consolidated results adjusted as though
the adoption of SFAS No. 142 occurred as of the beginning of Salon's fiscal
years ended March 31, 2001 and March 31, 2002:

<TABLE><CAPTION>
                                                                                2003           2002           2001
                                                                             ----------     ----------     ----------
<S>                                                                          <C>                <C>        <C>
Reported net loss attributable to common stockholders                        $    5,678         11,286     $   19,155
Goodwill amortization                                                              --              133            867
                                                                             ----------     ----------     ----------
Adjusted net loss attributable to common stockholders                        $    5,678     $   11,153     $   18,288
                                                                             ==========     ==========     ==========

Basic and diluted net loss per share attributable to common stockholders     $     0.41     $     0.83     $     1.48

Goodwill amortization                                                              --             0.01           0.07
                                                                             ----------     ----------     ----------
Adjusted basic and diluted net loss per share attributable to
   common stockholders                                                       $     0.41     $     0.82     $     1.41
                                                                             ==========     ==========     ==========
</TABLE>

         The following table sets forth information concerning Salon's
intangible assets as of March 31, 2003:

<TABLE><CAPTION>
                                                          Gross                          Net
                                                         Carrying     Accumulated      Carrying
                                                          Amount      Amortization      Amount
                                                        ----------     ----------     ----------
<S>                                                     <C>            <C>            <C>
Trade name                                              $    1,200     $      960     $      240
Proprietary technology                                         355            284             71
Audio technology                                               158            121             37
                                                        ----------     ----------     ----------
Total intangible assets subject to amortization         $    1,713     $    1,365     $      348
                                                        ==========     ==========     ==========

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

         The following table sets forth information concerning Salon's
intangible assets as of March 31, 2002:

<TABLE><CAPTION>
                                                          Gross                          Net
                                                         Carrying     Accumulated      Carrying
                                                          Amount      Amortization      Amount
                                                        ----------     ----------     ----------
<S>                                                     <C>            <C>            <C>
Trade name                                              $    1,200     $      720     $      480
Proprietary technology                                         355            213            142
Audio technology                                               158             61             97
                                                        ----------     ----------     ----------
Total intangible assets subject to amortization         $    1,713     $      994     $      719
                                                        ==========     ==========     ==========

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

                                       55
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

         In May 2000, Salon acquired MP3Lit, a Website dedicated to offering
spoken word and audio literature recordings in the MP3 format and recorded
$1,873 of goodwill. During the year ended March 31, 2001 Salon determined that
no significant income could be generated in the foreseeable future from the sale
of digital downloadable spoken word recordings that was Salon's original intent
in acquiring MP3Lit. Accordingly, Salon determined that this asset was impaired
and recorded an impairment charge of $1,717 during the year ended March 31,
2001, net of $156 amortization previously recorded. The acquisition of MP3Lit
included contingently issuable common stock. In May 2001, Salon issued 317,000
such shares, valued at $108 that resulted in additional purchase consideration
classified as goodwill. As Salon had determined that all goodwill associated
with the acquisition was impaired, the goodwill resulting from this additional
stock award was written off and included as a component of write-down of
long-lived assets in Salon's results of operations for the year ended March 31,
2002. Additional contingent shares of 412,100 were issued in May 2002, valued at
$42, determined to be additional goodwill, and expensed as a component of
amortization of intangibles in Salon's results of operations for the year ended
March 31, 2003.

         In March 1999 Salon acquired The Well LLC, an online community and
recorded $3,555 of goodwill. During the year ended March 31, 2001 Salon
determined that future cash flows could not justify the then carrying value of
$2,133 and recorded an impairment charge $1,800 representing the difference
between the carrying value of the goodwill and other intangibles and the
discounted net present value of the expected future net cash flows.

         The aggregate amortization expense for Salon's fiscal year ended March
31, 2004 is estimated to be $348 and none to be charged thereafter.

NOTE 10. CONVERTIBLE PROMISSORY NOTES PAYABLE

         On July 24, 2002, Salon entered into a Note and Warrant Purchase
Agreement with various investors, including three then Directors of Salon, for
net proceeds of approximately $696. Under the agreement, Salon issued
Convertible Promissory Notes (Notes) for a gross amount of $714 and issued
warrants to purchase 357,021 shares of common stock at $0.21 per share. The
Notes accrue interest on the unpaid principal at 6.0% per year with such
interest and principal due the earlier of (i) the date of the next meeting of
Salon's stockholders at which a proposal seeking the approval of the sale of the
Notes and the sale of shares of Salon's Series B Preferred Stock is voted upon
and is not approved by Salon's stockholders, or (ii) September 30, 2003.

         On December 18, 2002 Salon entered into a Note and Warrant Purchase
Agreement with an investor for net proceeds of $200. Under the agreement, Salon
issued a Note for a gross amount of $200 and issued warrants to purchase 300,000
shares of common stock at $0.0575 per share. The Note accrues interest on the
unpaid principal at 6.0% per year with such interest and principal due September
30, 2003.

         On January 26, 2003 Salon entered into a Note and Warrant Purchase
Agreement with an investor who is also a Director of Salon, for net proceeds of
$100. Under the agreement, Salon issued a Note for a gross amount of $100 and
issued warrants to purchase 150,000 shares of common stock at $0.0575 per share.
The Note accrues interest on the unpaid principal at 6.0% per year with such
interest and principal due September 30, 2003.

         On February 11, 2003 Salon entered into a Note and Warrant Purchase
Agreement with an investor for net proceeds of $100. Under the agreement, Salon
issued a Note for a gross amount of $100

                                       56
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

and issued warrants to purchase 300,000 shares of common stock at $0.0575 per
share. The Note accrues interest on the unpaid principal at 6.0% per year with
such interest and principal due September 30, 2003.

         During March 2003, Salon entered into four Note and Warrant Purchase
Agreements with two investors, one of which is a Director of Salon, for net
proceeds of $400. Under the agreement, Salon issued Notes for a gross amount of
$400 and issued warrants to purchase 1,200,000 shares of common stock at $0.046
per share. The Notes accrue interest on the unpaid principal at 6.0% per year
with such interest and principal due September 30, 2003.

         The Notes listed above can be converted into financing securities or
Salon's common stock. As of this filing, the holders of the Notes have not
elected to convert their Notes into either financing securities or Salon's
common stock.

         Notes issued between July 24, 2002 and January 26, 2003 automatically
convert upon the closing of Salon's first sale of its proposed Series C
preferred stock 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). Notes issued subsequent to January
26, 2003, convert to a proposed Series D preferred stock, and if no such
financing occurs by September 30, 2003, the notes automatically convert into
shares of Salon's common stock.

         In the event that Salon issues new financing securities by September
30, 2003, the number of shares of the financing securities to be issued upon
conversion of the Notes shall equal the aggregate amount of the Notes divided by
the price per share of the financing securities issued and sold. If no new
financing occurs by September 30, 2003, the Notes convert to shares of common
stock based on the average closing price of Salon's common stock over the sixty
trading days ending on September 30, 2003 as reported on such market(s) and/or
exchanges where the common stock has traded.

         In the event of bankruptcy or insolvency proceedings, the Notes become
immediately due and payable. Salon granted the purchasers of the Notes a
security interest in substantially all of Salon's assets. The indebtedness of
the Notes is subordinated to bank indebtedness, if incurred.

         The warrants issued in conjunction with the Notes issued from July 2002
through March 2003 were valued at $63 using the Black-Scholes option-pricing
model, applying a contractual life of three years, a weighted average risk-free
rate ranging from 2.75% to 1.5%, a volatility of 120% and a deemed fair value of
common stock ranging from $0.04 to $0.05 per share.

         The Notes issued did not stipulate a maximum number of shares issuable
upon conversion. Therefore, Salon may potentially have insufficient shares
authorized to satisfy all obligations under convertible instruments, warrant
agreements and options. Accordingly, as of July 24, 2002 all outstanding
warrants were classified as long-term liabilities at their fair value of $175 on
that day, along with $65 from the valuation of all new warrants issued. The
warrants' fair value has been remeasured as of March 31, 2003 resulting in a
charge of $114. Of this charge, $81 related to warrants issued in conjunction
with prior issuances of preferred stock, and was recorded as a preferred deemed
dividend in Salon's results of operations for the year ended March 31, 2003.

         On October 3, 2002, Salon sold and issued an unsecured promissory note
to a Director of Salon and raised gross proceeds of $200. The unsecured
promissory note accrues interest on the unpaid

                                       57
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

principal at 6.0% per year, with such interest and principal due the earlier of
(i) the date of the next meeting of Salon's stockholders at which a proposal
seeking the approval of the sale of the convertible promissory notes and the
sale of shares of Salon's Series B Preferred Stock is voted upon and is not
approved by Salon's stockholders, or (ii) September 30, 2003. The terms of the
note stipulate that Salon shall undertake reasonable efforts to amend the terms
of the note to be consistent with the rights and privileges to the convertible
promissory notes issued on July 24, 2002, with such amendments not having
occurred as of March 31, 2003.

NOTE 11. STOCKHOLDERS' EQUITY

PREFERRED STOCK

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

         On August 9, 2001 and September 13, 2001, Salon issued 809 shares of
Series A redeemable convertible ("Series A") preferred stock at $4,000 per
share, and issued warrants to purchase 6,472,000 shares of common stock at an
exercise price of $0.2875 per share, for net proceeds of $3,205. On March 7,
2002 Salon issued 125 shares of Series B convertible ("Series B") preferred
stock to one investor at $4,000 per share, and issued a warrant to purchase
1,414,827 shares of common stock at an exercise price of $0.21 per share, for
net proceeds of $466. The holders of Series A and B preferred stock are entitled
to certain rights and preferences, including the following: cumulative and
accrued dividends of 8.0% annually; in the event of a liquidation, either
voluntary, involuntary, liquidation, merger, sale of all or substantially all
the assets of Salon, dissolution or winding up the affairs of Salon,
distributions to be made prior to and in preference to holders of common stock
in an amount equal to $8,000 per share of Series A and B preferred stock, and
then the right to participate equally with the holders of common stock up to an
aggregate return of $12,000 per share of preferred stock; and certain voting
rights. The holders of Series A and B 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 Series A
and B preferred stock could be converted.

         Each share of Series A preferred stock is convertible at the option of
the holder into shares of common stock at any time after the earlier of (a) the
date on which Salon is delisted from any NASDAQ market or (b) the date on which
the holders of common stock approve the issuance of Series A preferred stock
with such approval having taken place on October 24, 2001. Each share of Series
B preferred stock is convertible at the option of the holder into shares of
common stock at any time. The Series A preferred stock initially was convertible
into 12,944,000 shares of common stock at the discretion of the Series A
preferred stockholders. The Series B preferred stock can be converted into
2,829,654 shares of common stock, or approximately 19.9%, of Salon's outstanding
common stock, also at the discretion of the Series B stockholders. No conversion
of Series A or Series B preferred stock to common stock occurred as of March 31,
2003.

         Both the conversion price and the warrant exercise price for Series A
and B are subject to downward adjustment under certain circumstances related to
subsequent stock issuances. The issuance of Series B triggered this feature for
the Series A preferred stockholders during the year ended March 31, 2002,
resulting in the conversion price of the Series A preferred stock to common
stock declining from


                                       58
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

$0.25 per share to $0.2433758 per share, while increasing the convertible shares
of Series A preferred stock from 12,944,000 shares of common stock to 13,296,306
shares of common stock. In addition, the exercise price of warrants issued to
Series A holders to acquire 6,472,000 shares of common stock declined from
$0.2875 per share to $0.27688215 per share as of March 31, 2003. The conversion
price of the Series B preferred stock to common stock is $0.1767 as of March 31,
2003. Salon has committed to not make further preferred stock issuances absent
shareholder approval of the terms of the Series B preferred stock and the
warrant. Salon anticipates soliciting the approval of its stockholders regarding
the conversion of the Series B preferred stock and the issuance and sale of the
warrant.

         The holders of Series A Preferred Stock were originally entitled to
terminable redemption rights which included redeeming their shares for cash
equal to the original issuance price plus all accumulated and accrued but unpaid
dividends on such shares. On October 24, 2001, the redemption feature was
automatically terminated by Salon's shareholders in accordance with the terms of
the Certificate of Designation of Preferences and Rights of the Series A
Preferred Stock dated as of August 8, 2001.

         The difference between the offering price of the Series A preferred
stock and the fair value of the common stock into which the preferred stock is
convertible on the dates of the transactions, resulted in a beneficial
conversion feature in the amount of $2,257. The allocation of proceeds between
preferred stock and warrants and the immediate redemption feature of the
preferred stock resulted in an immediate accretion of the preferred stock in the
amount of $932. The warrants have been valued using the Black-Scholes
option-pricing model, assuming no dividend yield, an expected volatility of
100%, contractual life of five years and a risk-free interest rate of 4.5%. The
aggregate value of the beneficial conversion feature and immediate accretion, of
$3,189, is reflected as a preferred dividend in the consolidated statements of
operations. In addition, an 8% cash dividend of $97 has accrued to the holders
of the preferred stock as of March 31, 2003 and 2002. As of March 31, 2003, no
cash dividend was paid.

         Neither the Series A or B 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.

CONVERTIBLE PREFERRED STOCK WARRANTS

         In July 1998, Salon issued a warrant to purchase 79,000 shares of Old
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
may be exercised at any time within 5 years after issuance and expires in July
2003. The warrant has not been exercised as of March 31, 2003.

         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 Old Series C convertible preferred stock. 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.


                                       59
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

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, 2003,
warrants to purchase 173,000 shares of common stock were exercisable.

         In April 1999, Salon issued warrants to purchase 148,000 shares of Old
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 may be exercised at any time
within five years after issuance and expire in April 2004. The warrants have not
been exercised as of March 31, 2003.

         In April 1999, Salon issued warrants to purchase 26,000 shares of Old
Series 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 may be exercised at any time
within five years after issuance and expire in April 2004. The warrants have not
been exercised as of March 31, 2003.

COMMON STOCK WARRANTS NOT ASSOCIATED WITH ISSUANCE OF SERIES A OR B PREFERRED
STOCK

         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 an 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 may be exercised at
any time within five years after issuance and expire in June 2004. The warrants
have not been exercised as of March 31, 2003.

         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, 2003.

                                       60
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

         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 fair market value of the warrants of $2 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 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, 2003.

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 $11,800 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
$3,272 of advertising and promotion time.

NOTE 12. 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, 2003, Salon has net operating loss carry-forwards of $56,006 and
$28,177 for Federal and California purposes, respectively, available to reduce
future taxable income, if any. These carry-forwards expire through 2022 and 2012
for Federal and California purposes, respectively, if not utilized beforehand.

         At March 31, 2003, 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 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,
                                                         ----------------------
                                                           2003          2002
                                                         --------      --------
Net operating losses                                     $ 20,686      $ 18,638

Other                                                       2,000         1,087
                                                         --------      --------
Total deferred tax assets                                  22,686        19,725
Valuation allowance                                       (22,686)      (19,725)
                                                         --------      --------

Net deferred tax asset                                   $   --        $   --
                                                         ========      ========


                                       61
<PAGE>

                             SALON MEDIA GROUP, INC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

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

                                               YEAR ENDED MARCH 31,
                                        ---------------------------------
                                          2003         2002         2001
                                        -------      -------      -------
Statutory tax benefit                   $(1,930)     $(3,860)     $(6,513)
State taxes, net of federal benefit        (331)        (662)      (1,118)

Permanent differences                       105        1,472          869

Other                                      (805)         343          716
                                        -------      -------      -------
Total                                    (2,961)      (2,707)      (6,046)

Change in valuation allowance             2,961        2,707        6,046
                                        -------      -------      -------

                                        $  --        $  --        $  --
                                        =======      =======      =======

NOTE 13. EMPLOYEE STOCK OPTION PLAN

         Under the Salon Internet, Inc. 1995 Stock Option Plan ("Salon Plan")
incentive and nonqualified stock options may be granted to officers, employees,
directors and consultants of Salon. Options vest over periods of one to four
years and have terms of ten years. 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. Salon does not have any option plans not
approved by shareholders. At March 31, 2003, 2002, and 2001, Salon had
1,151,000, 559,000, and 97,000, shares, respectively, authorized and available
for grants under this plan.

         The following table summarizes activity under Salon's Plan from March
31, 2001 through March 31, 2003:
                                                               Weighted
                                                                Average
                                              Number of        Exercise
                                                shares           Price
                                              ----------      ----------
Balance March 31, 2000                         2,712,000      $     4.64
Options granted                                1,914,000      $     1.36
Options terminated                              (859,000)     $     3.66
Options exercised                               (258,000)     $     0.26
                                              ----------
Balance March 31, 2001                         3,509,000      $     3.43
Options granted                                4,206,000      $     0.17
Options terminated                              (972,000)     $     1.99
Options exercised                                (15,000)     $     0.32
                                              ----------
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
                                              ==========

                                       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, 2003:

<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              11,000            9.5           $     0.06                 -          $      -
   $0.11 - $ 0.14           3,050,000            8.6                 0.14             1,088,000           0.14
   $0.20 - $ 0.20             485,000            4.0                 0.20               477,000           0.20
   $0.32 - $ 0.37             926,000            7.9                 0.36               681,000           0.36
   $0.52 - $ 0.52              34,000            5.5                 0.52                34,000           0.52
   $1.38 - $ 2.00             685,000            7.4                 1.80               445,000           1.81
   $2.92 - $ 3.63             131,000            6.0                 2.98               126,000           2.97
   $5.06 - $ 6.97             113,000            6.7                 5.57               102,000           5.55
   $8.50 - $10.94             701,000            6.4                 9.68               636,000           9.72
                        ------------------                                        -----------------
                            6,136,000            7.6           $     1.62             3,589,000      $    2.33
                        ==================                                        =================
</TABLE>

         At March 31, 2002 and 2001 options to purchase 1,900,000 and 1,118,000
shares of common stock, respectively, were exercisable.

         Salon has elected to follow the accounting provisions of APB 25 for
stock-based compensation. Accordingly, compensation expense is recognized only
when options are granted with a discounted exercise price from fair market value
at the time of the grant. Any compensation expense is recognized ratably over
the associated service period, which is generally the option vesting term.
Accordingly, Salon recognized the following compensation expense associated with
discounted options issued prior to Salon's initial public offering:

                                                     YEAR ENDED MARCH 31,
                                                  --------------------------
                                                   2003      2002       2001
                                                  -----     -----      -----
Production and content                            $  35     $  72      $  46
Sales and marketing                                  21        55        106
Research and development                           --         (22)        11
General and administrative                            1         9         11
                                                  -----     -----      -----
                                                  $  57     $ 114      $ 174
                                                  =====     =====      =====

         The pro forma information included in Note 2 of the consolidated
financial statements illustrates the results of operations as if Salon had
accounted for its grants of employee stock options under the fair value method
of SFAS No. 123. The fair value of the options was estimated at the date of
grant using the

                                       63
<PAGE>

                             SALON MEDIA GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Black-Scholes option-pricing model. Salon determined the estimated fair value of
its options granted for the years ended March 31, 2003, 2002, and 2001 using the
following weighted assumptions:

                                             YEAR ENDED MARCH 31,
                                    ----------------------------------------
                                    2003             2002               2001
                                    ----             ----               ----
    Risk-free interest rates    3.25 - 4.38%     3.55 - 4.67%       4.56 - 6.44%
    Expected lives (in years)       4.00             4.00               4.00
    Expected volatility            120.0%           120.0%             100.0%
    Dividend yield                  0.0%             0.0%               0.0%

         The weighted average grant date fair value per share of options granted
during the years ended March 31, 2003, 2002, and 2001 was $0.08, $0.14, and
$0.98, respectively.

NOTE 14. 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 can 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 cannot exceed $1,000, however the amount is
capped at $300 until such time as Salon has $2,500 of unrestricted cash. Amounts
advanced under this agreement accrue interest at prime plus 1% per annum on the
average daily balance outstanding and are 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 is 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. Salon borrowed and repaid $89 during the year ending March
31, 2003 and has no amounts outstanding under this agreement as of March 31,
2003. Subsequent to March 31, 2003, Salon has borrowed $61 net under the
agreement.

NOTE 15. SUBSEQUENT EVENTS

         Between April 10, 2003 and June 27, 2003, Salon issued Note and Warrant
Purchase Agreements for $900 and issued warrants to purchase 3,000,000 shares of
common stock. The notes accrue interest on the unpaid principal at 6.0% per year
with such interest and principal due September 30, 2003.




                                       64
<PAGE>




SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

                                             Net Loss       Loss per share
                                         Attributable to    Attributable to
                Net           Gross          Common             Common
Quarter      Revenues         Margin       Stockholders      Stockholders
----------  ----------      ----------      ----------        -----------
2003
    1st     $      972      $    (201)      $  (1,663)        $    (0.12)
    2nd          1,023           (198)         (1,481)             (0.11)
    3rd          1,140             36          (1,256)             (0.09)
    4th            868            (59)         (1,278)             (0.09)
            ----------      ----------      ----------
    Total   $    4,003      $    (422)      $  (5,678)        $    (0.41)
            ==========      ==========      ==========

2002
    1st     $      973      $    (554)      $  (2,920)        $    (0.22)
    2nd            567           (697)         (5,639)             (0.42)
    3rd          1,128            (29)         (1,374)             (0.10)
    4th            951           (110)         (1,353)             (0.10)
            ----------      ----------      ----------
    Total   $    3,619      $  (1,390)      $ (11,286)        $    (0.83)
            ==========      ==========      ==========

The sum of the quarterly net loss per share amounts may not equal the full-year
amounts since the computation of the weighted average number of
common-equivalent shares outstanding for each quarter and the full year are made
independently.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

         None.





                                       65
<PAGE>

PART III


ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS

         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, Item 4, 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.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         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.  CONTROLS AND PROCEDURES

         a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Annual Report
on Form 10-K, the principal executive officer and the principal financial
officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-14(C) and 15d-14(C) under the Securities Exchange Act of 1934 (the
"Exchange Act")) are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. It should be noted that
the design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential
conditions, regardless of how remote.

        (b) Changes in internal controls. There were no significant changes in
our internal controls or in other factors that could significantly affect those
controls subsequent to the date of their most recent evaluation. There were no
significant deficiencies or material weaknesses, and therefore there were no
corrective actions taken.



                                       66
<PAGE>

PART IV


ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

a) The following documents are filed as a part of this Report:

         1        Financial Statements: The information concerning Salon's
                  financial statements, and the Report of PricewaterhouseCoopers
                  LLP, Independent Auditors, required by this item is
                  incorporated by reference herein to the section of this Report
                  in Item 8, entitled "Financial Statements and Supplementary
                  Data."

         2        Exhibits: The Exhibits listed 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

     3.4(3)       Form of Bylaws of Salon adopted June 24, 1999

     3.4(10)      Certificate of Designation of Preferences and Rights of the
                  Series A Preferred Stock dated as of August 8, 2001

     3.4.1(12)    Certificate of Designation of Preferences and Rights of the
                  Series B Preferred Stock, dated as of February 8, 2002

     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.

                                       67
<PAGE>

     4.2.5(11)    Securities Rights Agreement dated as of September 13, 2001
                  between Salon Media Group, Inc. and the Purchasers listed on
                  Exhibit A attached thereto.

     4.2.6(11)    Form of Common Stock Purchase Warrant dated September 13, 2001
                  issued by Salon Media Group, Inc.

     4.2.7(12)    Securities Purchase Agreement dated as of February 14, 2002
                  between Salon Media Group, Inc. and Adobe Systems
                  Incorporated.

     4.2.8(12)    Securities Rights Agreement dated as of February 14, 2002
                  between Salon Media Group, Inc. and Adobe Systems
                  Incorporated.

     4.2.9(12)    Form of Common Stock Purchase Warrant dated February 14, 2002
                  issued by Salon Media Group, Inc.

     4.2.10(13)   Note and Warrant Purchase Agreement dated as of July 24, 2002

     4.2.11(13)   Form of Convertible Promissory Note, dated July 24, 2002
                  issued by Salon Media Group, Inc.

     4.2.12(13)   Form of Common Stock Purchase Warrant, dated July 24, 2002
                  issued by Salon Media Group, Inc.

     4.2.13(14)   Note dated as of October 3, 2002

     4.2.14(15)   Note and Warrant Purchase Agreement dated as of December 18,
                  2002

     4.2.15(15)   Form of Convertible Promissory Note, dated December 18, 2002
                  issued by Salon Media Group, Inc.

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

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

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

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

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

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

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

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

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

     4.2.25(18)   Form of Common Stock Purchase Warrant used during March 2003
                  by Salon Media Group, Inc.

     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

                                       68
<PAGE>

     10.3(1)      Form of Indemnity Agreement.

     10.4(1)      Commercial Office Lease between T/W Associates and Salon dated
                  June 25, 1997.

     10.6(1)      Employment Agreement between Michael O'Donnell and Salon dated
                  November 7, 1996.

     10.6(9)      Employment Agreement between Robert O'Callahan and Salon dated
                  June 26, 2000

     10.9(1)      Warrant to Purchase Stock issued to Imperial Bancorp dated
                  December 17, 1998.

     10.10(1)     Warrant to Purchase Stock issued to Imperial Bank dated April
                  13, 1998.

     10.11(1)     Warrant to Purchase Stock issued to Imperial Bankcorp dated
                  April 14, 1997.

     10.12(1)     Warrant to Purchase Stock issued to America Online Inc. dated
                  July 31, 1998.

     10.13(1)     Warrant to Purchase Stock issued to Adobe Ventures II L.P.
                  dated September 18, 1998.

     10.14(1)     Warrant to Purchase Stock issued to ASCII Ventures dated
                  September 18, 1998.

     10.15(1)     Warrant to Purchase Stock issued to H&Q Salon Investors, L.P.
                  dated September 18, 1998.

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

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

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

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

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

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

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

     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.

     21.1(8)      Subsidiaries of Salon

     23.2         Consent of Independent Auditors, PricewaterhouseCoopers LLP

     24.1(1)      Power of Attorney (included on page II-5).

     27.1         Financial Data Schedule

     99.1         Certification of Chief Executive Officer under Section 906 of
                  the Sarvanes-Oxley Act of 2002

     99.2         Certification of Chief Financial Officer under Section 906 of
                  the Sarvanes-Oxley Act of 2002


                                       69
<PAGE>

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

     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

                                       70
<PAGE>

     b) Reports on Form 8-K during the quarter ended March 31, 2003:

         On February 11, 2003 Salon filed a Current Report on Form 8-K under
Item 5 announcing the sale of a convertible promissory note and warrants for
which it received gross proceeds of $100,000 in cash.

         On February 24, 2003 Salon filed a Current Report on Form 8-K under
Item 5 announcing the sale of a convertible promissory note and warrants for
which it received gross proceeds of $100,000 in cash.

         On March 28, 2003 Salon filed a Current Report on Form 8-K under Item 5
announcing the sale of convertible promissory notes and warrants for which it
received gross proceeds of $400,000 in cash.
































                                       71
<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/ Michael O'Donnell
                                           -------------------------------------
                                           Michael O'Donnell
                                           Chief Executive Officer and President


                                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.

<TABLE><CAPTION>
              Signature                                   Title                          Date
--------------------------------------  -------------------------------------       -------------
<S>                                     <C>                                         <C>

          /s/ David Talbot              Chairman of the Board,                      June 27, 2003
--------------------------------------  Editor-in-Chief
            David Talbot


       /s/ Michael O' Donnell           Chief Executive Officer,                    June 27, 2003
--------------------------------------  President and Director
          Michael O'Donnell             (Principal Executive Officer)


       /s/ Elizabeth Hambrecht          Chief Financial Officer, Secretary,         June 27, 2003
--------------------------------------  Treasurer and Director
         Elizabeth Hambrecht            (Principal Financial Officer)


        /s/ Dr. John Warnock            Director                                    June 27, 2003
--------------------------------------
          Dr. John Warnock

</TABLE>

                                       72
<PAGE>

<TABLE><CAPTION>
              Signature                                   Title                          Date
--------------------------------------  -------------------------------------       -------------
<S>                                     <C>                                         <C>

          /s/ Robert Ellis              Director                                    June 27, 2003
--------------------------------------
            Robert Ellis


       /s/ James H. Rosenfield          Director                                    June 27, 2003
--------------------------------------
         James H. Rosenfield


          /s/ Michael Fuchs             Director                                    June 27, 2003
--------------------------------------
            Michael Fuchs


</TABLE>































                                       73
<PAGE>

                                 CERTIFICATIONS

I, Michael O'Donnell, certify that:

1. I have reviewed this annual report on Form 10-K of Salon Media Group, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the periods covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) Designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;

     b) Evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and

     c) Presented in this annual report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) All significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) Any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: June 25, 2003

/s/ Michael O'Donnell
-------------------------------------
Michael O'Donnell
Chief Executive Officer and President

                                       74
<PAGE>

I, Elizabeth Hambrecht, certify that:

1. I have reviewed this annual report on Form 10-K of Salon Media Group, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the periods covered by this annual
report;

 3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) Designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;

     b) Evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and

     c) Presented in this annual report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) All significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) Any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: June 25, 2003

/s/ Elizabeth Hambrecht
-------------------------------------
Elizabeth Hambrecht
Chief Financial Officer, Secretary and Treasurer

                                       75