Table of Contents
 
 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, 2008
  or
  [   ]           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period
from_______to_______
  Commission
file number 0-26395
 
 SALON
MEDIA GROUP, INC.
 (Exact
name of Registrant as specified in its charter)
  Delaware
                  94-3228750(State
      of Incorporation)
                  (IRS
      Employer Identification
No.)
 
 101
Spear Street, Suite 203
 San
Francisco, CA 94105
 (Address
of principal executive offices)
  (415)
645-9200
 (Registrant's
telephone number, including area code)
  Securities
registered pursuant to Section 12(b) of the Act:
 None
  Securities
registered pursuant to Section 12(g) of the Act:
 Common
Stock, $0.001 Par Value
 (Title
of Class)
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes [  ]  No
[X]
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes
[  ]  No [X]
 
 Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X]  No [  ]
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [  ]
 
 Indicate
by check mark whether the registrant is an accelerated filer as defined in
Rule 12b-2 of the Act.
 Large
accelerated filer o   Accelerated
filer oNon-accelerated filer oSmaller reporting
company þ
  Indicate
by check mark whether the registrant is a shell company (as defined by Exchange
Act Rule 12b-2).Yes [  ] No [X]
 
 The
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $125,000 based on the closing sale price of the
registrant’s common stock on June 10, 2009.  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 10, 2009 was 2,021,276 shares.
  
 
 
 FORM10-K
 SALON
MEDIA GROUP, INC.
 INDEX
 
 
 PART
      I
                                                  Page
                                                    NumberITEM
      1.
                                                  Business
                                                  3ITEM
      1A.
                                                  Risk Factors
                                                  10ITEM
      1B.
                                                  Unresolved Staff Comments
                                                  19ITEM
      2.
                                                  Properties
                                                  20ITEM
      3
                                                  Legal Proceedings
                                                  20ITEM
      4
                                                  Submission of Matters to a Vote of Security
      Holders
                                                  20PART
      IIITEM
      5.
                                                  Market for Registrant’s Common Equity and Related
      Stockholder Matters
                                                  20ITEM
      6.
                                                  Selected Consolidated Financial Data
                                                  23ITEM
      7.
                                                  Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                                                  24ITEM
      7A.
                                                  Quantitative and Qualitative Disclosures about Market
      Risk
                                                  33ITEM
      8.
                                                  Financial Statements and Supplementary
    Data
                                                  34ITEM
      9.
                                                  Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosures
                                                  63ITEM
      9A.
                                                  Controls and Procedures
                                                  63ITEM
      9B.
                                                  Other Information
                                                  64PART IIIITEM
      10.
                                                  Directors and Executive Officers of the
      Registrant
                                                  65ITEM
      11.
                                                  Executive Compensation
                                                  69ITEM
      12
                                                  Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                                                  79ITEM
      13.
                                                  Certain Relationships and Related
      Transactions
                                                  86ITEM
      14.
                                                  Principal Accountant Fees and Services
                                                  89PART IVITEM
      15.
                                                  Exhibits, Financial Statement Schedules and Reports on Form
      8-K
                                                  90SIGNATURES
                                                  99
 2
 Table of Contents
  PART
I
  This report contains “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) that involve risks and uncertainties, including but not limited to
statements regarding our strategy, plans, objectives, expectations, intentions,
financial performance, cash-flow breakeven timing, financing, economic
conditions, Internet advertising market performance, subscription service plans,
non-web opportunities and revenue sources.  Although Salon Media
Group, Inc. (“Salon” or the “Company”) believes its plans, intentions and
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such plans, intentions or expectations will be
achieved.  Salon’s actual results may differ significantly from those
anticipated or implied in these forward-looking statements as a result of the
factors set forth above and in Salon’s public filings.  Salon assumes
no obligation to update any forward-looking statements as circumstances
change.
  Salon’s
actual results may differ significantly from those anticipated or implied in
these forward-looking statements as a result of the factors set forth below and
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Factors That May Affect Salon’s Future Results and Market Price
of Stock."  In this report, the words “anticipates,” “believes,”
“expects,” “estimates,” “intends,” “future,” and similar expressions identify
forward-looking statements.  Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.
 
 ITEM1.  Business
  Overview
 
 Salon was
originally incorporated in July 1995 in the State of California and
reincorporated in Delaware in June 1999.  On June 22, 1999, Salon had
its initial public offering, with its common stock quoted on the NASDAQ National
Market under the symbol SALN.  Effective May 16, 2001, Salon adopted
the name Salon Media Group, Inc.  Due to Salon’s inability to meet the
continued listing requirements of the NASDAQ Market, on November 21, 2002,
Salon’s common stock began trading in the OTC (Over-The-Counter) Bulletin Board
marketplace under the symbol SALN.OB.   Following a 20:1 reverse
split on November 15, 2006, the Company’s stock ticker symbol became
SLNM.OB.
 
 Salon is
an online news and social networking company and an Internet publishing
pioneer.  Salon’s award-winning journalism combines original
investigative stories and provocative personal essays along with quick-take
commentary and staff-written Weblogs about politics, technology, culture and
entertainment.  Committed to interactivity, the Website also hosts two
online communities, Table Talk and The Well, as well as Open Salon, a blogging
social network launched in August, 2008.  Among its many quality
offerings, Salon sponsors a daily blog by the independent blogger Glenn
Greenwald, a monthly column by culture writer Camille Paglia, and a daily blog
by Editor-in-Chief Joan Walsh.   In its editorial product Salon
balances two crucial missions: (1) providing original and provocative content on
topics that the mainstream media overlook, and (2) filtering through the media
chatter and clutter to help readers find the stories that matter.
  3
 Table of Contents
  The main
entry and navigation point to Salon's primary subject-specific
sections is Salon's home page at www.salon.com.  Built around multiple
daily features – War Room,  Five Things,  Since you Asked,
Broadsheet, How the World Works, Beyond the Multiplex, Video Dog and daily blogs
by Glenn Greenwald and Joan Walsh, Salon provides a constantly updated array of
news, features, interviews, columnists and blogs, including the
following:
 
 News
      & Politics
              Salon
      News & Politics features breaking stories, investigative journalism
      and commentary, as well as interviews with newsmakers, politicians and
      pundits.  News features Salon’s War Room, a daily politics
      blog.Opinion
              Opinion
      features provocative commentary on timely issues, including daily blogs by
      Glenn Greenwald and Joan Walsh, and weekly columns by Gary Kamiya, Joe
      Conason and Garrison Keillor, and a monthly column by Camille
      Paglia.Technology
      &
                Business
              Technology
      & Business provides smart, opinionated coverage of Internet news and
      digital culture from today's best technology writers, along with in-depth
      features about the business world and the economy. It features Patrick
      Smith's regular Ask the Pilot column, Andrew Leonard’s How the World Works
      blog, and shared content from the GigaOM network.Arts
      &
                Entertainment
              Arts
      & Entertainment stages music and television reviews and interviews.
      The section includes frequent television and music features, as well as
      Video Dog, a video blog comprised of user generated video clips, as well
      as regular podcasts.  It is anchored by television critic
      Heather Havrilesky.Movie
      Page
              Salon’s
      Movie Page spotlights film reviews, especially critics’ picks, and
      provides readers an ability to check movie show times, buy tickets or rent
      DVDs. Starting in 2008, Salon also offers I Like to Watch, featuring film
      critics Andrew O’Hehir and Stephanie Zacharek.Life
              Life
      features articles by thought-provoking writers about family life,
      motherhood and women's lives and issues, as well as the women’s news
      digest Broadsheet. Cary Tennis' popular advice column, Since You Asked,
      appears daily.Books
              Books
      includes ahead-of-the-curve daily book reviews and interviews with today's
      most interesting writers. Nationally renowned critics Laura Miller and
      Andrew O’Hehir anchor this site, which often includes insightful freelance
      reviews.Comics
              The
      Comics section features the works of comic luminaries Tom Tomorrow, Ruben
      Bolling, Carol Lay and Keith Knight.Environment
      &
                Science
              News
      and opinion articles on issues related to science and the environment,
      with topics ranging from global warming to the relationship between
      science and religion.
 
 4
 Table of Contents
  Salon has
two online communities, The Well and Table Talk, which allow users to discuss
Salon content and interact with other users.  The Well, a subscription
member-only discussion community in which members use their real names to post
and only members can view the postings, had approximately 2,500 paying
subscribers as of May 31, 2009.  Table Talk is available to all
Internet users.
  Salon
believes that its original, award-winning content allows Salon to attract and
retain users who are more affluent, better educated and more likely to make
online purchases than typical Internet users. Salon believes its user profile
makes its Website a valuable media property for advertisers and retailers who
are allocating marketing resources to target consumers online.
  During fiscal year 2009,
Salon launched Open Salon.com,a social network for bloggers, with
content curated by Salon staff.  Open Salon functions like a real-time
magazine cover, where the best content is spotlighted.  Blogs from
Open Salon may be posted on the Salon.com website.  Open Salon’s
audience has grown consistently since its launch, and is expected to contribute
to revenues in fiscal 2010.
  Revenue
Sources
  One
customer accounted for over 13% of advertising revenue for the year ended March
31, 2009. No customer accounted for over 10% of either total revenue or
advertising revenue for the year ended March 31, 2008, or March 31, 2007, which
were as follows (in thousands):
 
 Year
      Ended March 31,2009
                            
                            
                            2008
                            
                            
                            2007Amount
                            
                            
                            %
                            
                            
                            Amount
                            
                            
                            %
                            
                            
                            Amount
                            
                            
                            %Advertising
                            
                            $
                            5,195
                            
                            
                            
                            76
                            %
                            
                            $
                            5,434
                            
                            
                            
                            72
                            %
                            
                            $
                            5,409
                            
                            
                            
                            70
                            %Salon
      Premium
                            
                            
                            994
                            
                            
                            
                            14
                            %
                            
                            
                            1,333
                            
                            
                            
                            18
                            %
                            
                            
                            1,546
                            
                            
                            
                            20
                            %All
      Other
                            
                            
                            685
                            
                            
                            
                            10
                            %
                            
                            
                            746
                            
                            
                            
                            10
                            %
                            
                            
                            793
                            
                            
                            
                            10
                            %Total
                            
                            $
                            6,874
                            
                            
                            
                            100
                            %
                            
                            $
                            7,513
                            
                            
                            
                            100
                            %
                            
                            $
                            7,748
                            
                            
                            
                            100
                            %
 
 Salon has
generated Internet advertising revenues since its inception.  To
offset the precipitous drop in advertising revenues experienced in 2000 from the
downturn in the economy, the company launched Salon Premium, a subscription
service, in April 2001.  Since that time, the market for Internet
advertising has improved; according to the Interactive Advertising Bureau,
online advertising revenues have grown from $9.6 billion in 2004 to $23.4
billion in 2008. According to industry analysts, online advertising revenues are
experiencing year over year declines during the first half of 2009 due to the
deep recession, although to a lesser extent than traditional media, especially
print.  However, long-term industry trends are expected to remain
favorable.  Central to Salon’s strategy is to capitalize on the
expected continued shift in spending of advertising budgets to the Web in
response to increased online usage.
 
 An
important factor in increasing advertising revenues in future periods, including
Salon’s peak third quarter ending December 31, is growing Salon’s
audience.  Attracting more unique Website visitors is important to
Salon as they generate page views, and each page view becomes a potential
platform for serving advertisements.  Ultimately, Salon charges
advertisers for a set number of ad impressions viewed by a Website
visitor.  Due to various factors, including concerted efforts to make
Salon’s content more accessible to readers by automatically launching its Site
Pass advertisement, formatting content to maximize the potential for Salon’s
content to show up in search engine results, and marketing campaigns with a
select few Websites, the average number of unique monthly Website visitors for
the year ended March 31, 2009 increased 10% to approximately 4.8 million from
the year ended March 31, 2008.   Additionally, monthly unique
visitors have grown by 123% over the past four years.  Aiding the
continued growth in unique visitors to Salon’s Website is the general migration
of readers to the Internet from print newspapers.  The table in the
following page reflects unique monthly visitors to Salon’s Website.
  5
 Table of Contents
  
 
 Salon has
evaluated the balance between its subscription and advertising businesses and
has shifted emphasis toward advertising.  Until recently, a Website
visitor was given a choice of: (1) becoming a Salon Premium subscriber to avoid
having to view advertisements on future visits to Salon’s Website or (2) viewing
an advertisement to gain access to all of Salon’s content.  This
strategy has been found to impede access to Salon’s Website and its ability to
generate advertising impressions.  During fiscal 2007, Salon changed
its Site Pass model to automatically serve advertisements, enabling a Website
visitor to gain more seamless access to Salon’s content.  This change
has produced an increase in the number of ad impressions that Salon can serve
and improved Salon’s potential to generate an even greater amount of advertising
revenues, offsetting a drop in Salon Premium subscriptions that traditionally
were solicited from the Site Pass and the relatively smaller amount of revenue
they generate.
 
 Most
advertising campaigns are of short duration, generally less than ninety
days.  Salon’s obligations may include a guaranteed minimum number of
impressions, or views by Website visitors of an advertisement, a set number of
“Site Pass” advertisements viewed by Website visitors or a set number of days
that a Site Pass advertisement is to run.  To the extent the minimum
guaranteed amounts are not achieved, Salon defers recognition of the
corresponding revenue until the remaining guaranteed amounts are provided, if
mutually agreeable with an advertiser.  If these “make good” amounts
are not agreeable with an advertiser, no further revenue is
recognized.  Salon has also successfully made greater use of ad
networks to better monetize unsold ad inventory.
  6
 Table of Contents
 
 Generally,
subscriptions to Salon Premium cost between $30 and $45 annually, depending on
any associated bundles of promotional items offered.  Benefits of
Salon Premium include unrestricted access to Salon’s content with no banners,
pop-ups or site pass advertisements, free magazine subscriptions, free access to
the Table Talk on-line discussion forum, and the ability to download content in
text or PDF format.
 
 Salon
Premium revenue is recognized ratably over the period that services are
provided.  For the year ended March 31, 2009, Salon received $0.8
million in cash and recognized $1.0 million of revenue for this service
primarily from approximately 17,600 paid new and renewed one year subscriptions
and from approximately 7,000 monthly subscriptions.  For the year
ended March 31, 2008, Salon received $1.2 million in cash and recognized $1.3
million of revenue for this service primarily from approximately 27,900 paid new
and renewed one year subscriptions and from approximately 4,400 monthly
subscriptions.  For the year ended March 31, 2007, Salon received $1.5
million in cash and recognized $1.5 million of revenue for this service
primarily from approximately 44,200 paid new and renewed one year subscriptions
and from approximately 5,000 monthly subscriptions.  Since peaking at
89,100 subscribers in December 2004, paid subscriptions have continued to
decline to 33,900 as of March 31, 2008 and approximately 23,500 as of March 31,
2009.  The drop is expected to continue during the next year,
following longstanding industry trends away from paid Web content.
  The other
sources of revenue are primarily from The Well, an on-line discussion
forum.  Revenue is recognized ratably over the subscription
period.  The revenues recognized were $0.4 million each for the years
ended March 31, 2009, March 31, 2008 and March 31, 2007.   Salon
generates nominal revenue from the licensing of content that previously appeared
in Salon and for providing links to a third party’s Website offering
personals/dating services.
 
 Sales
and Marketing
  Salon has
sales offices in New York City, Los Angeles and San Francisco with eight
advertising sales and operations employees as of March 31, 2009, of which four
actively solicit orders.  As of March 31, 2009, Salon has one employee
associated with Salon Premium membership activities.
  Salon
incurred advertising expenses of $0.9 million, $1.1 million and $0.4 million for
the years ended March 31, 2009, 2008, and 2007, respectively.  These
advertising expenses primarily represent non-cash expenses from the utilization
of advertising credits which Salon acquired in January 2000 from the sale of
common stock to Rainbow Media Holdings (“Rainbow”).  During the year
ended March 31, 2003, Rainbow transferred a portion of its obligation to provide
Salon with advertising credits to NBC’s Bravo channel, while still retaining a
portion of the overall obligation.  The transfer occurred due to the
sale by Cablevision, which owns Rainbow Media Holdings, of its Bravo channel to
NBC.  As of March 31, 2009, Salon has $1.8 million in advertising
credits, of which approximately $1.0 million remain with NBC and approximately
$0.8 million are with Rainbow, all of which will expire in December 2009. Since
their acquisition, Salon has used the advertising credits for cable television
and online advertisements.  Salon intends to utilize the NBC and
Rainbow credits to continue to promote its website as well as its new social
network, Open Salon.  Salon expects to recover the full value of all
the advertising credits through usage or settlement in cash, per the terms of
the agreement, but there can be no absolute assurance as to any potential cash
settlement.
  7
 Table of Contents
  Competition
  Salon
competes for advertising revenues with numerous Websites, with the 50 largest
companies attracting an estimated 91% of all the internet advertising dollars
according to a recent study by PricewaterhouseCoopers LLC and sponsored by the
Interactive Advertising Bureau.  These companies have Websites that
include major portals such as Yahoo, major search engines such as Google, major
social networks such as Facebook and MySpace, and major online media
publications such as CNN.com.
  Salon
also competes with many news–oriented Websites.  In addition to
traditional news-oriented Websites such as CNN, NBC, ABC and CBS, Salon also
competes with sites such as the Huffington Post, Slate, Mother Jones, Daily
Beast and Politico for staff, audience and ad sales.
  Salon’s
Strategy
  Continued
focus on growing Salon’s audience
 
 Increasing
unique visitors to Salon’s Website and the resulting page views that serve as a
platform for advertising impressions is key to Salon’s revenue growth. In
addition to the revenue generated from advertising, an increase in unique
visitors could increase revenue from subscriptions as each new visitor to
Salon’s Website is a potential new subscriber to Salon Premium.  As a
result, audience growth will continue to be a primary business goal for
Salon.
  Salon
plans to continue to focus on developing its audience growth through a
combination of editorial enhancements, new products, and more effective use of
technology.  Salon has continued to add new writers, and enhance or
create new content areas and features for its readers.  The Company
plans to invest in major site improvements in fiscal 2010 to accelerate its
continued growth.
  Salon
launched a new social networking service in August 2008 for its users, “Open
Salon”, which allows them to post user profiles; contribute blogs and other
content; and collect all their contributions to Salon, including Letters to the
Editor, in one place.  Management believes Open Salon will attract and
retain unique users, increase advertising inventory and lower its incremental
editorial costs.   Salon’s strategy to continue to grow its
audience also encompasses partnership formation to deliver Salon’s content to a
broader audience, a search engine optimization plan, and an integrated marketing
plan that includes mostly online advertising.  In the last several
years Salon has not allocated, and does not currently contemplate in its next
fiscal year allocating any significant cash resources towards such efforts;
however, Salon has formed and continues to form partnerships and alliances to
deliver Salon’s award-winning, unique, and compelling content to a broader
audience.
  Focus
on advertising revenue opportunity while Premium subscriber base
declines
 
 Salon
generates most of its revenue from advertising on its Website, as well as
through subscribers who pay to read its content without ads.  However,
as Salon increased its number of readers to its Website, Salon has determined
that if its advertising sales team can sell most of its inventory, it will be
more profitable for Salon to drive its readers to its advertising supported
Website rather than to a subscription, without-ads Website.  Salon
recognizes that its subscription model will continue to be preferred by a
minority of its readers, and will therefore continue the subscription program,
with emphasis on “Premium with ads” as a means of increasing potential ad
impressions.  Additionally, Salon will continue efforts to increase
the average value per subscriber by bundling third-party services with
subscriptions, and intends to offer other products and services to current
subscribers.
  8
 Table of Contents
  Salon
increased emphasis on advertising revenues during FY08 and has continued to do
so in FY09 and beyond.  In FY10, Salon plans to continue to provide
more creative advertising offerings, improve the technological orientation of
the site to attract more non-standard advertising and expand into additional
advertising categories.  It will also expand the use of ad networks to
fully monetize any unsold remnant inventory.
  Enhanced
Website Design
 
 In fiscal
2010, Salon plans to launch a re-designed architecture and website to improve
the presentation of timely and relevant content through a compelling and
dynamically-tuned interface. Salon expects this redesign to result in greater
user satisfaction, and therefore, higher utilization, higher search rankings
that will drive new users to the site and a higher proportion of repeat
engagement, as users return throughout the day to obtain timely news and
information. It is anticipated that the site will be more dynamic and
interactive, and that its new modular architecture will allow editors to manage
a real time flow of content presented in a graphically compelling fashion, while
also servicing multiple platforms and devices, and dynamic usability
experiments. Salon is also exploring additional ways to exploit the changing
media landscape.
  Expanding
Gross Margins
 
 Salon has
made substantial strides in the past several months to better realign its
production costs with its revenue potential in an effort to reach profitability.
Among other measures, we reduced full-time headcount from 67 in November 2008 to
52 at year end and we are continually aiming to match personnel resources to
overall business need given the prevailing advertising
market.  Additionally, we are evaluating opportunities to reduce the
expense of our high-quality content by focusing on reducing cost per page,
seeking less costly sources of content, including greater content aggregation
and the use of highly-rated articles and blogs from Open Salon.
  Develop
content partnerships
 
 Salon
believes it needs fresh content and new ideas to continue to attract readers to
its Website.  To this end, Salon has made efforts to initiate
partnerships to create content particularly in areas where Salon does not have
facilities or experience, such as video content, and various content
verticals.  Additionally, Salon has made efforts to identify bloggers
who might have a strong affinity with its readers, and who might be interested
in moving their sites to Salon in order to gain a greater reach of readership,
and to gain infrastructure support.
 
 New
Channels of Content Distribution
 
 To meet
the growing demand for mobile content, Salon has revamped its presence on
AvantGo, the largest mobile content platform.  Salon’s new AvantGo
presence will be featured on the top level of the service’s Technology channel,
one of its most popular feeds.   Even though increased mobile
usage is expected to generate minimal additional revenue, this channel is
primarily an opportunity for Salon to extend its presence beyond a Web
browser.
  9
 Table of Contents
 
 Infrastructure
and Operations
  Salon has
created a flexible publishing structure that enables it to develop its content
while responding quickly to news events and take advantage of the ease of
distribution provided by the Internet. Salon content is deployed on its
proprietary software platform and captured in a database for reuse in Web and
other formats.  The content on Salon’s Website has been structured to
facilitate being found by search engines, a key driver in increasing traffic to
Salon’s Website.  During the last two years, Salon has improved the
look and feel of its Website to increase appeal to its audience and contemplates
continued changes to its Website. In FY10, Salon plans to make significant
investments in this area to help drive traffic to its site.
 
 Salon’s
Website is supported by a variety of servers using the Solaris and Linux
operating systems.  Salon’s top technical priority is the fast
delivery of pages to its users.  Salon’s systems are designed to
handle traffic growth by balancing the amount of traffic among multiple
servers.  Salon relies on server redundancy to help achieve its goal
of 24 hours, seven-days-a-week Website availability.  Regular
automated backups protect the integrity of Salon’s data.   Salon
servers are maintained at a third-party facility in Sacramento, in a building
capable of withstanding a major earthquake.  The third-party facility
provides continuous monitoring of the servers.
 
 Software
to maintain and manage Salon Premium was created in-house and upgraded in 2003,
again during the year ended March 31, 2007, and a major reprogramming is planned
for fiscal year 2010.
 
 Proprietary
Rights
  Salon’s
success and ability to compete is dependent in part on the goodwill associated
with its trademarks, trade names, service marks and other proprietary rights and
on its ability to use U.S. laws to protect its intellectual property, including
its original content, content provided by third parties, and content provided by
columnists.   Salon has a registered trademark on its name and is
securing a registered trademark on its logo.
 
 Salon
owns the Internet address www.salon.com.  Because
www.salon.com is the
address of the main home page to Salon’s Website and incorporates Salon’s
company name, it is a vital part of Salon’s intellectual property
assets.  Salon does not have a registered trademark on the address,
and therefore it may be difficult for Salon to prevent a third party from
infringing its intellectual property rights to the address.
 
 Employees
  As of
March 31, 2009, Salon has 52 full-time and two part-time
employees.  Salon believes its employee relations are
good.  No employees of Salon are represented by a labor union or are
subject to a collective bargaining agreement. Salon’s future success is highly
dependent on the ability to attract, hire, retain and motivate qualified
personnel.
 
 ITEM1A.  Risk Factors
  Factors
That May Affect Salon’s Future Results and Market Price of Stock
 
 Salon’s
business faces significant risks.  The risks described below may not
be the only risks Salon faces.  Additional risks that are not yet
known or that are currently immaterial may also impair its business operations
or have a negative impact on its stock price.  If any of the events or
circumstances described in the following risks actually occurs, its business,
financial condition or results of operations could suffer, and the trading price
of its common stock could decline.
  10
 Table of Contents
 
 Salon’s
projected cash flows may not meet expectations
 
 Salon
relies on cash projections to run its business and changes such projections as
new information is made available or events occur.  The most
significant component of Salon’s cash projections is cash to be generated from
advertising sales and, to a lesser extent, cash to be generated from Salon
Premium.  Forecasting advertising revenues and resulting cash receipts
for an extended period of time is problematic due to the short duration of most
advertising sales.  If projected cash inflows and outflows do not meet
expectations, Salon’s ability to continue as a going concern may be adversely
affected.
 
 If Salon
forecasts or experiences periods of limited, or diminishing cash resources,
Salon may need to issue additional securities.  These newly issued
securities could be highly dilutive to existing common
shareholders.  However, there is no guarantee that Salon will be able
to issue additional securities in future periods to meet cash needs and, if it
is unable to raise additional cash, Salon’s ability to continue as a going
concern may be adversely affected.
 
 Salon
has relied on related parties for significant investment capital
 
 Salon has
been relying on cash infusions primarily from related parties to fund
operations.  The related parties are generally John Warnock, Chairman
of the Board of Salon, and William Hambrecht.  William Hambrecht is
the father of Salon’s former President and Chief Executive Officer, Elizabeth
Hambrecht, a Director of the Company.  During the year ended March 31,
2009, related parties provided approximately $1.8 million in new
loans.
 
 Curtailment
of cash investments and borrowing guarantees by related parties could
detrimentally impact Salon’s cash availability and its ability to fund its
operations.
  Salon’s
principal stockholders can exercise a controlling influence over Salon’s
business affairs and may make business decisions with which non-principal
stockholders disagree and may affect the value of their investment
  Based on
information available to Salon, the holders of Salon’s Series A, B, C and D
preferred stock collectively own approximately 94% of all voting securities.
These stockholders therefore own a controlling interest in Salon.  Of
this amount,  approximately 22% is controlled directly or indirectly
by William Hambrecht and approximately 41% by Chairman and Director John
Warnock.  Therefore, related parties by themselves own a controlling
interest in Salon.
  If these
stockholders were to act together, they would be able to exercise control over
all matters requiring approval by other stockholders, including the election of
Directors and approval of significant corporate transactions. This concentration
of ownership could also have the effect of accelerating, delaying or preventing
a change in control of Salon, which could cause Salon’s stock price to
decline.
  11
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  Future
sales of significant number of shares of Salon’s common stock by principal
stockholders could cause its stock price to decline
 
 Salon’s
preferred stockholders can convert their 9,467 shares of preferred stock to
approximately 10.1 million shares of common stock.  As Salon’s common
stock is normally thinly traded, if these stockholders were to convert their
shares of preferred stock to common stock and sell the resulting shares, the per
share price of Salon’s common stock may be adversely affected.
 
 Salon
may not be able to receive the full value of its advertising
credits
 
 As of
March 31, 2009, Salon has $1.8 million of advertising credits which Salon has
valued at $1.2 million that expire on December 31, 2009.  Of the $1.8
million, approximately $0.8 million are the obligation of Rainbow Media Holdings
(“Rainbow”) and approximately $1.0 million are the obligation of
NBC.  Salon feels that it should be able to fully utilize the credits
with both Rainbow and NBC, but may not be able to fully utilize the credits
prior to expiration.  Salon expects to recover the full value of all
the advertising credits through usage or settlement in cash, per the terms of
the agreement, but there can be no absolute assurance as to any potential cash
settlement.
  Salon’s
stock has been and will likely continue to be subjected to substantial price and
volume fluctuations due to a number of factors, many of which will be beyond its
control and may prevent its stockholders from reselling its common stock at a
profit
  The
securities markets have experienced significant price and volume
fluctuations.  This market volatility, as well as general economic,
market or political conditions, have and may continue to reduce the market price
of its common stock, regardless of its operating performance.  In
addition, Salon’s stock is thinly traded and operating results could be below
the expectations of public market analysts and investors, and in response, the
market price of its common stock could decrease significantly.
 
 Salon’s
preferred stockholders are entitled to potentially significant liquidation
preferences of Salon’s assets over common stockholders in the event of such an
occurrence
  Salon’s
Series A, B, C and D preferred stockholders have liquidation preferences over
common stockholders of the first approximately $24.3 million in potential sales
proceeds as of March 31, 2009, which includes the effect of undeclared dividends
of $5 million.  If a liquidation event were to occur, and preferred
stock dividends were declared, the holders of preferred stock would be entitled
to the first $24.3 million of cash distributions, while the holders of common
stock would receive none of this amount.  If a liquidation event were
to occur in excess of $24.3 million and if preferred stock dividends were to be
declared, the holders of preferred stock would be entitled to receive a
relatively larger distribution than the holders of common stock would be
entitled to receive.
  Salon
has historically lacked significant revenues and has a history of
losses
  Salon has
a history of significant losses and expects to incur a loss from operations,
based on generally accepted accounting principals, for its fiscal year ending
March 31, 2010 and potentially in future years.  Once Salon attains
profitability, it may not be able to sustain or increase profitability on a
quarterly or annual basis in the future. If revenues grow slower than Salon
anticipates or operating expenses exceed expectations, financial results will
most likely be severely harmed and the ability of Salon to continue its
operations will be seriously jeopardized.
  12
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  Burr,
Pilger & Mayer LLP, Salon’s independent registered public accounting firm
for the years ended March 31, 2007, March 31, 2008, and March 31, 2009, included
a “going-concern” audit opinion on the consolidated financial statements for
those years.  The audit opinions report substantial doubt about
Salon’s ability to continue as a going concern, citing issues such as the
history of losses and absence of current profitability.  As a result
of the “going-concern” opinions, Salon’s stock price and investment prospects
have been and will continue to be adversely affected, thus limiting financing
choices and raising concerns about the realization of value on assets and
operations.
  Salon
Premium memberships have been declining and may continue to decline, adversely
affecting revenues and available cash
 
 Salon has
been relying on the revenues and cash generated from Salon Premium subscriptions
since its implementation in April 2002.  Salon Premium subscriptions
grew from nothing to a high of approximately 89,100 as of December 31,
2004.  However, since that time, subscriptions have been declining to
approximately 23,500 as of March 31, 2009.  Salon forecasts that these
memberships will continue to decline to approximately 15,000 as of March 31,
2010.  If the decline were to be in excess of anticipated amounts,
Salon’s operations and available cash could be adversely affected.
  Salon
has depended on advertising sales for much of its revenues, and its inability to
maintain or increase advertising revenues could harm its business
  Maintaining
or increasing Salon’s advertising revenues depends upon many factors, including
whether it will be able to:
  ·
              successfully
      sell and market its Website auto start Site Pass or other rich media
      advertisements;
  ·
              entice
      non-Salon Premium Website visitors to view and advertisers to sell new ad
      units and formats;
  ·
              maintain
      a significant number of unique Website visitors and corresponding
      significant reach of Internet
users;
  ·
              maintain
      a significant number of sellable impressions generated from Website
      visitors available to advertisers;
  ·
              successfully
      sell and market its network to
advertisers;
  ·
              increase
      the dollar amount of the advertising orders it
  receives;
  ·
              maintain
      pricing levels of the advertising it
sells;
  ·
              increase
      awareness of the Salon brand;
  ·
              improve
      the technology for serving advertising on its
  Website;
  ·
              handle
      temporary high volume traffic spikes to its
  Website;
  ·
              accurately
      measure the number and demographic characteristics of its users;
      and
  ·
              attract
      and retain key sales personnel.
 
 13
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  Legislative
action and potential new accounting pronouncements are likely to cause its
general and administrative expenses and other operating expenses to
increase
  To comply
with the Sarbanes-Oxley Act of 2002 and proposed accounting changes by the
Securities and Exchange Commission, Salon may be required to hire additional
personnel and utilize additional outside legal, accounting and advisory
services, all of which will cause its general and administrative costs to
increase.
 
 Hackers
may attempt to penetrate Salon’s security system; online security breaches could
harm its business
 
 Consumer
and supplier confidence in Salon’s Website depends on maintaining relevant
security features.  Security breaches also could damage its reputation
and expose it to a risk of loss or litigation.  Experienced
programmers or “hackers” have successfully penetrated sectors of its systems and
Salon expects that these attempts will continue to occur from time to
time.  Because a hacker who is able to penetrate network security
could misappropriate proprietary information or cause interruptions in its
products and services, Salon may have to expend significant capital and
resources to protect against or to alleviate problems caused by these
hackers.  Additionally, Salon may not have a timely remedy against a
hacker who is able to penetrate its network security.  Such security
breaches could materially affect Salon.  In addition, the transmission
of computer viruses resulting from hackers or otherwise could expose it to
significant liability.  Salon’s insurance policies may not be adequate
to reimburse it for losses caused by security breaches.  Salon also
faces risks associated with security breaches affecting third parties with whom
it has relationships.
  With
a volatile share price, Salon may be the target of securities litigation, which
is costly and time-consuming to defend
  In the
past, following periods of market volatility in the price of a company’s
securities, security holders have instituted class action litigation. Salon’s
share price has in the past experienced price volatility, and may continue to do
so in the future.  Many companies have been subjected to this type of
litigation. If the market value of its common stock experiences adverse
fluctuations and it becomes involved in this type of litigation, regardless of
the merits or outcome, Salon could incur substantial legal costs and its
management’s attention could be diverted, causing its business, financial
condition and operating results to suffer.  To date, Salon has not
been subjected to such litigation.
  Salon’s
quarterly operating results are volatile and may adversely affect its common
stock price
  Salon’s
future revenues and operating results, both Generally Accepted Accounting
Principles in the United States (“GAAP”) and non GAAP, are likely to vary
significantly from quarter to quarter due to a number of factors, many of which
are outside Salon’s control, and any of which could severely harm Salon’s
business. These factors include:
  ·
              Salon’s
      ability to attract and retain advertisers and
  subscribers;
  ·
              Salon’s
      ability to attract and retain a large number of
  users;
  ·
              the
      introduction of new Websites, services or products by Salon or by its
      competitors;
  ·
              the
      timing and uncertainty of Salon’s advertising sales
  cycles;
  ·
              the
      mix of advertisements sold by Salon or its
  competitors;
  14
 Table of Contents
  ·
              the
      economic and business cycle;
  ·
              Salon’s
      ability to attract, integrate and retain qualified
    personnel;
  ·
              technical
      difficulties or system downtime affecting the Internet generally or the
      operation of Salon’s Website; and
  ·
              the
      amount and timing of operating
costs.
  Due to
the factors noted above and the other risks discussed in this section, one
should not rely on quarter-to-quarter comparisons of Salon’s results of
operations as an indication of future performance.  It is possible
that some future periods’ results of operations may be below the expectations of
public market analysts and investors.  If this occurs, the price of
its common stock may decline.
  The
controversial content of Salon’s Website may limit its revenues
  Salon’s
Website contains, and will continue to contain, content that is politically and
culturally controversial.  As a result of this content, current and
potential advertisers, potential Salon Premium subscribers, or third parties who
contemplate aggregating content, may refuse to do business with
Salon.  Salon’s outspoken stance on political issues has and may
continue to result in negative reactions from some users, commentators and other
media outlets.  From time to time, certain advocacy groups have
successfully targeted Salon’s advertisers in an attempt to persuade such
advertisers to cease doing business with Salon.  These efforts may be
a material impediment to Salon’s ability to grow and maintain advertising
revenue.
  Salon’s
promotion of the Salon brand must be successful to attract and retain users as
well as advertisers and strategic partners
  The
success of the Salon brand depends largely on its ability to provide high
quality content and services.  If Internet users do not perceive
Salon’s existing content and services to be of high quality, or if Salon
introduces new content and services or enters into new business ventures that
are not favorably perceived by users, Salon may not be successful in promoting
and maintaining the Salon brand.  Any change in the focus of its
operations creates a risk of diluting its brand, confusing consumers and
decreasing the value of its user base to advertisers.  If Salon is
unable to maintain or grow the Salon brand, its business could be severely
harmed.
  Salon
needs to hire, integrate and/or retain qualified personnel because these
individuals are important to its growth
  Salon’s
success significantly depends on key personnel.  In addition, because
Salon’s users must perceive the content of Salon’s Website as having been
created by credible and notable sources, Salon’s success also depends on the
name recognition and reputation of its editorial staff.  Due to
Salon’s history of losses, Salon may experience difficulty in hiring and
retaining highly skilled employees with appropriate
qualifications.  Salon may be unable to retain its current key
employees or attract, integrate or retain other qualified employees in the
future.  If Salon does not succeed in attracting new personnel or
retaining and motivating its current personnel, its business could be
harmed.
  15
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 Salon
may expend significant resources to protect its intellectual property rights or
to defend claims of infringement by third parties, and if Salon is not
successful it may lose rights to use significant material or be required to pay
significant fees
 
 Salon’s
success and ability to compete are significantly dependent on its proprietary
content.  Salon relies exclusively on copyright law to protect its
content.  While Salon actively takes steps to protect its proprietary
rights, these steps may not be adequate to prevent the infringement or
misappropriation of its content, which could severely harm its
business.  Salon also licenses content from various freelance
providers and other third-party content providers.  While Salon
attempts to ensure that such content may be freely licensed to it, other parties
may assert claims of infringement against it relating to such
content.
 
 Salon may
need to obtain licenses from others to refine, develop, market and deliver new
services.  Salon may not be able to obtain any such licenses on
commercially reasonable terms or at all or rights granted pursuant to any
licenses may not be valid and enforceable.
 
 In April
1999 Salon acquired the Internet address www.salon.com.  Because
www.salon.com is the address of the main home page to its Website and
incorporates its company name, it is a vital part of its intellectual property
assets.  Salon does not have a registered trademark on the address,
and therefore it may be difficult for it to prevent a third party from
infringing on its intellectual property rights to the address.  If
Salon fails to adequately protect its rights to the Website address, or if a
third party infringes its rights to the address, or otherwise dilutes the value
of www.salon.com, its business could be harmed.
 
 Salon’s
technology development efforts may not be successful in improving the
functionality of its network, which could result in reduced traffic on its
Website, reduced advertising revenues, or a loss of Salon Premium
subscribers
 
 Salon is
constantly upgrading its technology to manage its Website and its Salon Premium
program, and during the last year redesigned its Website homepage.  In
addition, it is creating technology for new products that Salon hopes to launch
during its next fiscal year.  If these systems do not work as
intended, or if Salon is unable to continue to develop these systems to keep up
with the rapid evolution of technology for content delivery and subscription
management, its Website or subscription management systems may not operate
properly, which could harm Salon’s business.  Additionally, software
product design, development and enhancement involve creativity, expense and the
use of new development tools and learning processes.  Delays in
software development processes are common, as are project failures, and either
factor could harm Salon’s business.  Moreover, complex software
products such as its online publishing and subscription management systems
frequently contain undetected errors or shortcomings, and may fail to perform or
scale as expected.  Although Salon has tested and will continue to
test its systems, errors or deficiencies may be found in these systems that may
adversely impact its business.
 
 Salon
relies on software, purchased from an independent supplier, to deliver and
report some of its advertising, the failure of which could impair its
business
 
 Salon
uses software, purchased from an independent supplier, to manage and measure the
delivery of advertising on its Website.  The software is essential to
Salon whenever an advertiser does not stipulate ad serving from a third party
such as Doubleclick.  This type of software may fail to perform as
expected.  If this software malfunctions, advertisements may not be
served correctly on its Website, or if the software does not accurately capture
impression information, then Salon’s advertising revenues could be reduced, and
its business could be harmed.
  16
 Table of Contents
 
 Salon
may be held liable for content or third party links on its Website or content
distributed to third parties
 
 As a
publisher and distributor of content over the Internet, including user-generated
content, links to third party Websites that may be accessible through Salon.com,
or content that includes links or references to a third party’s Website, Salon
faces potential liability for defamation, negligence, copyright, patent or
trademark infringement and other claims based on the nature, content or
ownership of the material that is published on or distributed from its
Website.  These types of claims have been brought, sometimes
successfully, against online services, Websites and print publications in the
past.  Other claims may be based on errors or false or misleading
information provided on linked Websites, including information deemed to
constitute professional advice such as legal, medical, financial or investment
advice.  Other claims may be based on links to sexually explicit
Websites.  Although Salon carries general liability and media
insurance, its insurance may not be adequate to indemnify Salon for all
liabilities imposed.  Any liability that is not covered by its
insurance or is in excess of its insurance coverage could severely harm its
financial condition and business.  Implementing measures to reduce its
exposure to these forms of liability may require Salon to spend substantial
resources and limit the attractiveness of Salon’s service to users.
 
 Concerns
about transactional security may hinder electronic commerce on Salon’s Website
and may expose Salon to potential liability
 
 A
significant barrier to sale of subscriptions and electronic commerce is the
secure transmission of confidential information over public
networks.  Any breach in Salon’s security could expose it to a risk of
loss or litigation and possible liability.  Salon relies on encryption
and authentication technology licensed from third parties to provide secure
transmission of confidential information.  As a result of advances in
the capabilities of Internet hackers, or other developments, a compromise or
breach of the algorithms Salon uses to protect customer transaction data may
occur.  A compromise of Salon’s security could severely harm its
business.  A party who is able to circumvent Salon’s security measures
could misappropriate proprietary information, including customer credit card
information, or cause interruptions in the operation of its
Website.
 
 Salon may
be required to expend significant capital and other resources to protect against
the threat of security breaches or to alleviate problems caused by these
breaches.  Protection may not be available at a reasonable price or at
all.
  Salon’s
internally developed software and software platforms provided by a third party
to manage Salon’s subscription business might fail resulting in lost
subscription income
 
 Salon’s
software to manage its subscription business was developed internally to
interface with the software provided by a third party.  The third
party’s software provides a gateway to authenticate credit card
transactions.  Even though Salon’s system to manage its Salon Premium
program is Payment Card Industry (PCI) compliant, if this system were to fail or
not function as intended, credit card transactions might not be processed and
Salon’s cash resources and revenues would therefore be harmed.
  17
 Table of Contents
 
 Salon’s
systems may fail due to natural disasters, telecommunications failures and other
events, any of which would limit user traffic
 
 Substantially
all of Salon’s communications hardware and computer hardware operations for its
Website are in a facility in Sacramento, California that has been extensively
retrofitted to withstand a major earthquake.  Fire, floods,
earthquakes, power loss, telecommunications failures, break-ins, supplier
failure to meet commitments, and similar events could damage these systems and
cause interruptions in its services.  Computer viruses, electronic
break-ins or other similar disruptive problems could cause users to stop
visiting Salon’s Website and could cause advertisers to terminate any agreements
with Salon.  In addition, Salon could lose advertising revenues during
these interruptions and user satisfaction could be negatively impacted if the
service is slow or unavailable.If
any of these circumstances occurred, Salon’s business could be
harmed.  Salon’s insurance policies may not adequately compensate it
for losses that may occur due to any failures of or interruptions in its
systems.  Salon does not presently have a formal disaster recovery
plan.
 
 Salon’s
Website must accommodate a high volume of traffic and deliver frequently updated
information.  It is possible that Salon will experience systems
failures in the future and that such failures could harm its
business.  In addition, its users depend on Internet service
providers, online service providers and other Website operators for access to
its Website.  Many of these providers and operators have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to its systems.  Any of
these system failures could harm its business.
 
 Privacy
concerns could impair Salon’s business
 
 Salon has
a policy against using personally identifiable information obtained from users
of its Website and services without the user’s permission.  In the
past, the Federal Trade Commission has investigated companies that have used
personally identifiable information without permission or in violation of a
stated privacy policy.  If Salon uses personal information without
permission or in violation of its policy, Salon may face potential liability for
invasion of privacy for compiling and providing information to its corporate
customers and electronic commerce merchants.  In addition, legislative
or regulatory requirements may heighten these concerns if businesses must notify
Internet users that the data may be used by marketing entities to direct product
promotion and advertising to the user.  Other countries and political
entities, such as the European Union, have adopted such legislation or
regulatory requirements. The United States may adopt similar legislation or
regulatory requirements.  If consumer privacy concerns are not
adequately addressed, its business, financial condition and results of
operations could be materially harmed.
 
 Possible
state sales and other taxes could adversely affect Salon’s results of
operations
 
 Salon
does not collect sales or other taxes from individuals who sign up for Salon
subscriptions.  During the year ended March 31, 2003, the State of
California audited Salon’s sales tax returns and found Salon in compliance with
its filings and did not object to the fact that it did not collect sales tax on
subscriptions.  However, one or more other states may seek to impose
sales tax collection obligations on out-of-state companies, including Salon,
which engage in or facilitate electronic commerce.  State and local
governments have discussed and made proposals imposing taxes on the sale of
goods and services through the Internet.  Such proposals, if adopted,
could substantially impair the growth of electronic commerce and could reduce
Salon’s ability to derive revenue from electronic commerce.  Moreover,
if any state or foreign country were to assert successfully that Salon should
collect sales or other taxes on the exchange of merchandise on its network or to
tax revenue generated from Salon subscriptions, its financial results could be
harmed.
  18
 Table of Contents
  Provisions
in Delaware law and Salon’s charter, stock option agreements and offer letters
to executive officers may prevent or delay a change of control
 
 Salon is
subject to the Delaware anti-takeover laws regulating corporate
takeovers.  These anti-takeover laws prevent Delaware corporations
from engaging in a merger or sale of more than 10% of its assets with any
stockholder, including all affiliates and associates of the stockholder, who
owns 15% or more of the corporation’s outstanding voting stock, for three years
following the date that the stockholder acquired 15% or more of the
corporation’s assets unless:
 
 ·
              the
      Board of Directors approved the transaction in which the stockholder
      acquired 15% or more of the corporation’s
  assets;
 
 ·
              after
      the transaction in which the stockholder acquired 15% or more of the
      corporation’s assets, the stockholder owned at least 85% of the
      corporation’s outstanding voting stock, excluding shares owned by
      directors, officers and employee stock plans in which employee
      participants do not have the right to determine confidentially whether
      shares held under the plan will be tendered in a tender or exchange offer;
      or
 
 ·
              on
      or after this date, the merger or sale is approved by the Board of
      Directors and the holders of at least two-thirds of the outstanding voting
      stock that is not owned by the
stockholder.
 
 A
Delaware corporation may opt out of the Delaware anti-takeover laws if its
certificate of incorporation or bylaws so provide. Salon has not opted out of
the provisions of the anti-takeover laws. As such, these laws could prohibit or
delay mergers or other takeover or change of control of Salon and may discourage
attempts by other companies to acquire Salon.
 
 Salon’s
certificate of incorporation and bylaws include a number of provisions that may
deter or impede hostile takeovers or changes of control or management. These
provisions include:
 
 ·
              Salon’s
      Board is classified into three classes of Directors as nearly equal in
      size as possible with staggered three year-terms;
  and
 
 ·
              special
      meetings of the stockholders may be called only by the Chairman of the
      Board, the Chief Executive Officer or the Board of
    Directors.
 
 These
provisions may have the effect of delaying or preventing a change of
control.
 
 Salon’s
Certificate of Incorporation and Bylaws provide that it will indemnify officers
and Directors against losses that they may incur in investigations and legal
proceedings resulting from their services to Salon, which may include services
in connection with takeover defense measures. These provisions may have the
effect of preventing changes in Salon’s management.
  In
addition, employment agreements with certain executive officers provide for the
payment of severance and acceleration of the vesting of options and restricted
stock in the event of termination of the executive officer following a change of
control of Salon.  These provisions could have the effect of
discouraging potential takeover attempts.
  ITEM1B.  Unresolved Staff Comments
  None.
  19
 Table of Contents
  ITEM2.   Properties
  Salon
leases 8,623 square feet of office space at 101 Spear Street, San Francisco,
California, where it is headquartered.  The lease for the San
Francisco office will terminate in February 2014. Salon also leases 4,200 square
feet of office space at 15 West 37th Street, 8th Floor, New York, NY, through
August 2011, and smaller offices at 1130 Connecticut Ave. NW, Washington, DC,
expiring December 31, 2009, and 300 Manhattan Beach Blvd, Manhattan Beach, CA,
terminating August 30, 2009. Salon also rents minimal space to host its servers
in Sacramento, California.
  Salon
believes that its existing properties are in good condition and are suitable for
the conduct of its business.
  ITEM3.   Legal Proceedings
  Salon is not a party to any pending
legal proceedings that it believes will materially affect its financial
condition or results of operations.
  ITEM4.   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, 2009.
   PART
II
  ITEM5.    Market for Registrant’s Common
Equity and Related Stockholder Matters
  Information
with respect to the quarterly high and low sales prices for Salon’s common
stock, ticker symbol SLNM.OB, for its fiscal years 2009 and 2008, based on sales
transactions reported by the OTC (Over-The-Counter) Bulletin Board is provided
below:
  Fiscal
      Year Ended
                            
                            Fiscal
      Year EndedMarch
      31, 2009
                            
                            March
      31, 2008For
      the quarter ended
                            
                            High
                            
                            Low
                            
                            High
                            
                            LowJune
      30
                            1.68
                            
                            1.10
                            
                            1.70
                            
                            1.10September
      30
                            1.98
                            
                            1.00
                            
                            1.70
                            
                            1.20December
      31
                            1.10
                            
                            0.16
                            
                            2.00
                            
                            1.50March
      31
                            0.40
                            
                            0.20
                            
                            1.90
                            
                            1.40
  There were 169 holders of record of
Salon common stock as of June 3, 2009.  This number was derived from
Salon’s stockholder records, and does not include beneficial owners of Salon’s
voting common stock whose shares are held in the names of various dealers,
clearing agencies, banks, brokers, and other fiduciaries.  The closing
price of Salon’s common stock on June 3, 2009 was $0.16 per share.
  Salon has never declared or paid any
cash dividends on its capital stock and does not expect to pay any cash
dividends in the foreseeable future.
  Salon has
never repurchased any of its equity securities.
  20
 Table of Contents
  Equity
Compensation Plan Information
  The
following table provides information about Salon’s common stock that may be
issued upon the exercise of options, warrants and rights under all of Salon’s
existing equity compensation plans as of March 31, 2009, including the
Salon Internet, Inc. 1995 Stock Option Plan, the Salon Media Group, Inc. 2004
Stock Plan, the Salon Media Group, Inc. Non-Plan Stock Agreement and the 1999
Employee Stock Purchase Plan.
  Plan
      category
                                                                            
                                                                            Number of securities to
                                                                                be issued upon exercise
                                                                                of outstanding options,
                                                                                warrants and rights
                                                                                (a)
                                                                            
                                                                            Weighted-average
                                                                                exercise
      price of
                                                                                outstanding
      options,
                                                                                warrants
      and rights
                                                                                (b)
                                                                            
                                                                            Number
      of securities
                                                                                          remaining
      available for
                                                                                          future
      issuance under
                                                                                          equity
      compensation
                                                                                          plans,
      excluding
                                                                                          securities
      reflected in
                                                                                          column
      (a)
                                                                                          (c)Equity
      compensation plans approved
      by security holders
                                                                            
                                                                            2,390,375
                                                                            
                                                                            $0.35
                                                                            
                                                                            293,052Equity
      compensation plans not
      approved by security holders
                                                                            
                                                                            50,000
                                                                            
                                                                            $0.35
                                                                            
                                                                            NoneTotal
                                                                            
                                                                            2,440,375
                                                                            
                                                                            N/A
                                                                            
                                                                            293,052
  Equity
Compensation Plans Not Approved by Security Holders
 
 In
February 2005, Salon entered into a Non-Plan Stock Agreement with its then
Chairman, pursuant to which Salon granted such person non-qualified options to
purchase 50,000 shares of common stock at an exercise price of $2.80 per
share.  Such option grant did not receive stockholder
approval.  50% of the shares subject to the option vested on the date
of grant and 50% of the shares subject to the option vested in February 2006. On
December 4, 2008, these and substantially all other options then outstanding
were repriced to $0.35, the fair market value of the Company’s common stock on
that date.
  In June
2006, Salon entered into a Non-Plan Stock Agreement with its then Senior Vice
President – Publisher, pursuant to which Salon granted such person non-qualified
options to purchase 50,000 shares of common stock at an exercise price of $3.20
per share.  Such option grant did not receive stockholder
approval.  25% of the shares subject to the option vested after one
year and 1/48th vests
per month thereafter.  In December 2006, Salon entered into another
Non-Plan Stock Agreement with its then Senior Vice President – Publisher,
pursuant to which Salon granted such person non-qualified options to purchase
25,000 shares of common stock at an exercise price of $1.05 per
share.  Such option grant did not receive stockholder
approval.  25% of the shares subject to the option vested after one
year and 1/48th vests
per month thereafter.  These options have been forfeited following the
departure of the executive.
  21
 Table of Contents
 Stock
Performance Graph
  The graph
below matches Salon Media Group Inc.'s cumulative 5-year total shareholder
return on common stock with the cumulative total returns of the NASDAQ Composite
index, and a customized peer group of six companies that includes: Answers
Corp., CNET Network Inc, PlanetOut Inc, Quepasa Corp., TheStreet.com Inc and
Tucows Inc. The graph tracks the performance of a $100 investment in our common
stock, in the peer group, and the index (with the reinvestment of all dividends)
from March 31, 2004 to March 31, 2009.
  
  The stock
price performance included in this graph is not necessarily indicative of future
stock price performance.
  22
 Table of Contents
  ITEM6.   Selected Consolidated Financial
Data
  Dollar
      amounts in thousands, except per shareYear
      Ended March 31,
                        
                        2009
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006
                        
                        
                        2005Net
      revenues
                        
                        $
                        6,874
                        
                        
                        $
                        7,513
                        
                        
                        $
                        7,748
                        
                        
                        $
                        6,516
                        
                        
                        $
                        6,628Net
      loss
                        
                        $
                        4,699
                        
                        
                        $
                        3,409
                        
                        
                        $
                        1,566
                        
                        
                        $
                        1,122
                        
                        
                        $
                        518Net
      loss attributable to commonstockholders
      (1)
                        
                        $
                        4,699
                        
                        
                        $
                        3,463
                        
                        
                        $
                        1,861
                        
                        
                        $
                        1,349
                        
                        
                        $
                        358Basic
      and diluted net loss per shareattributable
      to commonstockholders
      (2)
                        
                        $
                        2.34
                        
                        
                        $
                        1.79
                        
                        
                        $
                        1.10
                        
                        
                        $
                        1.67
                        
                        
                        $
                        0.50Weighted
      average common sharesoutstanding
      used in computingper
      share amounts (thousands)(2)
                        
                        
                        2,008
                        
                        
                        
                        1,940
                        
                        
                        
                        1,692
                        
                        
                        
                        809
                        
                        
                        
                        720Cash
      and cash equivalents
                        
                        $
                        371
                        
                        
                        $
                        818
                        
                        
                        $
                        829
                        
                        
                        $
                        441
                        
                        
                        $
                        686Prepaid
      advertising rights
                        
                        $
                        1,225
                        
                        
                        $
                        2,131
                        
                        
                        $
                        3,267
                        
                        
                        $
                        3,718
                        
                        
                        $
                        3,970Total
      assets
                        
                        $
                        3,330
                        
                        
                        $
                        4,616
                        
                        
                        $
                        5,605
                        
                        
                        $
                        5,304
                        
                        
                        $
                        6,069Capital
      leases – long-term portion
                        
                        $
                        34
                        
                        
                        $
                        56
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -Total
      long-term liabilities
                        
                        $
                        2,706
                        
                        
                        $
                        600
                        
                        
                        $
                        85
                        
                        
                        $
                        120
                        
                        
                        $
                        82
  (1)           
The net loss attributable to common stockholders for the year ended March 31,
2009 does not include a preferred deemed dividend, as there were no issuances of
preferred stock. The net loss attributable to common stockholders for the year
ended March 31, 2008 includes a preferred deemed dividend charge of $54 from the
issuance of Series D preferred stock. The charge represents the difference
between the offering price of Salon’s Series D preferred stock and the fair
value of Salon’s common stock into which the preferred stock was convertible on
the date of the transaction and the value of the warrants issued in the
transaction.  The net loss attributable to common stockholders for the
year ended March 31, 2007 includes a preferred deemed dividend charge of $295
from the issuance of Series D preferred stock. The charge represents the
difference between the offering price of Salon’s Series D preferred stock and
the fair value of Salon’s common stock into which the preferred stock was
convertible on the date of the transaction and the value of the warrants issued
in the transaction. The net loss attributable to common stockholders for the
year ended March 31, 2006 includes a preferred deemed dividend charge of $227
from the issuance of Series D preferred stock. The charge represents the
difference between the offering price of Salon’s Series D preferred stock and
the fair value of Salon’s common stock into which the preferred stock was
convertible on the date of the transaction and the value of the warrants issued
in the transaction. The net loss attributable to common stockholders for the
fiscal year ended March 31, 2005 includes a net preferred deemed dividend
benefit of $160 derived from a benefit of $470 from a decrease in value of
warrants previously issued to preferred stockholders and a charge of $310 from
the issuance of Series D-1 and D-2 preferred stock during the
year.  The charge represents the difference between the offering price
of Salon’s Series D preferred stock and the fair value of Salon’s common stock
into which the preferred stock was convertible on the date of the transaction
and the value of the warrants issued in the transaction.
  23
 Table of Contents
 
 (2)           The
share and per share results for the years ended prior to March 31, 2007 reflect
a reverse stock split effective as of November 15, 2006.  In the
reverse stock split, each 20 outstanding shares common stock (“old common
stock”) was automatically reduced into one share of new common
stock.
  ITEM7.Management’s Discussion
and Analysis of Financial Condition and Results of Operations
 
 Overview
  Salon is
an online news and social networking company and an Internet publishing
pioneer.  Salon’s award-winning journalism combines original
investigative stories and provocative personal essays along with quick-take
commentary and staff-written Weblogs about politics, technology, culture and
entertainment.  Committed to interactivity, the Website also hosts two
online communities, Table Talk and The Well, and is developing Open Salon, a
social network for bloggers.  In its editorial product Salon balances
two crucial missions: (1) providing original and provocative content on topics
that the mainstream media overlook, and (2) filtering through the media chatter
and clutter to help readers find the stories that matter.
  Sources
of Revenue
  The most
significant portion of Salon’s revenues is derived from advertising from the
sale of promotional space on its Website.  The sale of promotional
space is generally less than ninety days in duration.  Advertising
units sold include “rich media” streaming advertisements, as well as traditional
banner and pop-up advertisements.
 
 Salon
also derives a significant portion of its revenues from its Salon Premium
subscription program.  Prior to March 2007, subscriptions to Salon
Premium were generally $35 for one year with no ads, and during March 2007, the
rate was increased to $45. Salon Premium revenue is recognized ratably over the
period that services are provided.  This source of revenue has been
decreasing since Salon’s quarter ended December 31, 2004 when paid subscriptions
peaked at approximately 89,100 and have since decreased to approximately 23,450
as of March 31, 2009.  Salon expects this downward trend to continue,
as it is placing greater emphasis on its advertising sales to generate revenue.
Revenue from the online discussion forum The Well has been recognized ratably
over the subscription period.  Salon also generates nominal revenue
from the licensing of content that previously appeared in Salon’s Website and
for hosting links to a third party’s personals/dating Websites.
  Expenses
  Production
and content expenses consist primarily of salaries and related expenses for
Salon’s editorial, artistic, and production staff, online communities’ staff,
payments to freelance writers and artists, bandwidth costs associated with
serving pages and hosting our online communities on our Website, credit card
transaction costs andadserving
costs.
  Sales and
marketing expenses consist primarily of salaries, commissions and related
personnel costs, travel, and other costs associated with Salon’s sales force,
business development efforts and its subscription service.  It also
includes advertising, promotions and the amortization of prepaid advertising
rights.
  Information
technology support expenses consist primarily of salaries and related personnel
costs associated with the development, testing and enhancement of Salon’s
software to manage its Website, and to maintain and enhance the software
utilized in managing Salon Premium, as well as supporting marketing and sales
efforts.
  24
 Table of Contents
  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.  Certain shared overhead expenses are
allocated to other departments.
  Critical
Accounting Policies
 
 The preparation of financial statements
in conformity with generally accepted accounting principles requires Salon to
utilize accounting policies and make estimates and assumptions that affect our
reported amounts.  Salon’s significant accounting policies are
described in Note 2 to the Consolidated Financial Statements.  Salon
believes accounting policies and estimates related to revenue recognition and
prepaid advertising rights are the most critical to Salon’s financial
statements.  Future results may differ from current estimates if
different assumptions or conditions were to prevail.
  Share
Based Compensation
  On
April 1, 2006 Salon adopted the provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SFAS
123R, which requires companies to expense their stock option
awards.  Salon adopted SFAS 123R using the modified prospective
transition method and therefore did not restate results for prior
periods.  Salon’s expenses include stock-based expenses related to
stock option grants to employees, non-employee Directors and
consultants.
 
 Liquidity
  Salon has
incurred significant net losses and negative cash flows from operations since
its inception.  As of March 31, 2009, Salon had an accumulated
deficit of $101.0 million.  These losses have been funded primarily
through the issuance of common stock from Salon’s initial public offering in
June 1999, issuances of preferred stock, bank debt, from the issuance of
convertible notes payable and other advances from related parties.
  Burr,
Pilger & Mayer LLP, Salon’s independent accountants for the years ended
March 31, 2009, March 31, 2008 and March 31, 2007 have included a paragraph in
their report indicating that substantial doubt exists as to Salon’s ability to
continue as a going concern because of Salon’s recurring operating losses,
negative cash flow and accumulated deficit.
  Income
Taxes
  Salon has
not recorded a provision for federal or state income taxes since inception due
to recurring operating losses.  At March 31, 2009, Salon had net
operating loss carryforwards of $73.4 million for federal income tax purposes
that begin to expire in March 2016, and $34.2 million for California income tax
purposes.  As Salon has been incurring tax losses, $2.3 million of
California net operation loss carryforwards expired as of March 31, 2009, and if
Salon were to incur a tax loss for the year ending March 31, 2010, an additional
$7.1 million operating loss carryforward will expire.  Utilization of
Salon’s net operating loss carryforwards may be subject to a substantial annual
limitation due to ownership change limitations provided by the Internal Revenue
Code and similar California State provisions.  Such an annual
limitation could result in the expiration of the net operating loss
carryforwards before utilization.  A valuation allowance has been
established and, accordingly, no benefit has been recognized for such operating
losses and other deferred tax assets.  The net valuation allowance
increased $1.5 million during the year ended March 31, 2009 to $28.0
million.  Salon believes that, based on a number of factors, the
availability of objective evidence creates sufficient uncertainty regarding the
realization of the deferred tax assets such that a full valuation allowance has
been recorded.  These factors include Salon’s history of net losses
since inception and expected near-term future losses.
  25
 Table of Contents
  Revenue
Recognition
  Salon
recognizes revenues once persuasive evidence of an arrangement exists, delivery
has occurred, the fee is fixed or determinable and collectibility is reasonably
assured.  Revenues are recognized ratably in the period over which
Salon’s obligations are fulfilled.  Payments received before Salon’s
obligations are fulfilled are classified as “Deferred revenue” in Salon’s
consolidated balance sheet.
 
 Advertising
revenues, derived from the sale of promotional space on its Website, comprised
76%, 72% and 70% of Salon’s revenues, respectively for the years ended March 31,
2009, 2008 and 2007.  The duration of the advertisements are generally
short term, usually less than ninety days.  Revenues derived from such
arrangements are recognized during the period the advertising space is
provided.  Salon’s obligations typically include a guaranteed minimum
number of impressions, a set number of Site Pass advertisements viewed, or a set
number of days that a Site Pass advertisement will run.  To the extent
minimum guaranteed amounts are not achieved, Salon defers recognition of the
corresponding revenue until the remaining guaranteed amounts are provided, if
mutually agreeable to an advertiser.  If these “make good” impressions
are not agreeable to an advertiser, no further revenue is
recognized.
 
 Salon
Premium, a pay-for-online content service, provides unrestricted access to
Salon’s content with no banners, pop-ups or site pass advertisements, and
includes free magazine subscriptions, free access to Table Talk, an online
forum, and the ability to easily download content in text or PDF format, a
convenience that enables readers to view Salon’s content when not connected to
the Internet.  The subscription duration for Salon Premium is
generally one year.  Non-Salon Premium subscribers can gain access to
Salon’s content after viewing some form of advertisement.
  Salon
offers The Well as a monthly subscription service for access to online
discussion forums.  Revenue is recognized ratably over the
subscription period.
  Prepaid
Advertising Rights
  In
January 2000, Salon sold 1,125,000 shares of common stock to Rainbow Media
Holdings (“Rainbow”) and received $11.8 million of advertising credits that were
to be utilized by December 2009.  As the per share price of Salon’s
common stock declined from the time the agreement was made and the date the
agreement was finalized and signed, the advertising credits were valued for
financial reporting purposes at $8.1 million.  As of March 31, 2009,
Salon has $1.8 million advertising credits resulting from the transaction,
valued at $1.2 million for financial reporting purposes.  Of the $1.8
million of advertising credits, approximately $0.8 million remain with Rainbow
and approximately $1.0 million are with NBC.  Salon believes that it
should be able to utilize all the credits with Rainbow and NBC before they
expire on December 31, 2009. Salon is currently exploring ways of fully
utilizing the credits, including supporting the launch of Open Salon, before
they expire.  Salon expects to recover the full value of all the
advertising credits through usage or settlement in cash, per the terms of the
agreement, but there can be no absolute assurance as to any potential cash
settlement or full utilization thereof.
 
 Reclassifications
  Certain
reclassifications, not affecting previously reported net income or loss, have
been made to the previously issued consolidated financial statements to conform
to the current period presentation.
  26
 Table of Contents
  Goodwill
 
 Salon has
$0.2 million of goodwill remaining from a purchase in March
1999.  This asset is tested for impairment at least annually and has
been found not to be impaired.
  Results
of Operations
  Fiscal
Years Ended March 31, 2009 and 2008
 
 Net
Revenues
 
 Salon’s
net revenue decreased 9% to $6.9 million in the year ended March 31, 2009 from
$7.5 million in the year ended March 31, 2008.
 
 Advertising
revenues decreased 4% to $5.2 million for the year ended March 31, 2009 from
$5.4 million for the year ended March 31, 2008, as overall sales declined in the
third and fourth quarters, due to the economic recession.
 
 Salon
Premium subscription revenues decreased by 25% to $1.0 million for the year
ended March 31, 2009 from $1.3 million for the year ended March 31,
2008.  The drop in Salon Premium revenues recognized for the year
ended March 31, 2009 compared to the year ended March 31, 2008 is attributable
to a substantial reduction in the number of new subscribers.  Salon
acquired approximately 17,600 paid one-year subscriptions for the year ended
March 31, 2009 compared to approximately 27,900 for the year ended March 31,
2008.  As a result, the number of paid subscribers decreased from
approximately 33,900 at March 31, 2008 to approximately 23,450 at March 31,
2009.  As of June 1, 2009, Salon had approximately 22,000 paid
subscribers. Another contributing factor to the decline in Premium subscriptions
is Salon’s continued emphasis on increasing advertising income over promoting
Premium subscriptions.
 
 An
important factor in increasing advertising revenues in future periods, including
Salon’s peak third quarter ending December 31, is attracting more unique
visitors to Salon’s Website.  Attracting more unique Website visitors
is important to Salon as they generate page views, and each page view becomes a
potential platform for serving advertisements.  Ultimately, Salon
charges advertisers based on a set number of impressions viewed by Website
visitors.  Due to various factors, including concerted efforts to make
Salon’s content more accessible to readers by auto launching the site pass, a
better optimized Website to facilitate appearance in search engine results, and
marketing campaigns with select Websites, the average number of unique monthly
Website visitors for the year ended March 31, 2009 increased 10% to 4.8 million
from the year ended March 31, 2008, and attained a record high for fiscal year
2009 of 6.3 million in October 2008.  Aiding the continued growth in
unique visitors to Salon’s Website is the migration of readers to the Internet
from print newspapers.
 
 Salon has
evaluated the balance between its subscription and advertising businesses and
has shifted emphasis toward advertising.  Until recently, a Website
visitor was given a choice of: (1) becoming a Salon Premium subscriber to avoid
having to view advertisements on Salon’s Website or (2) viewing an advertisement
to gain access to all of Salon’s content.  This strategy was found to
impede access to Salon’s Website and its ability to generate advertising
impressions.  During the quarter ended December 31, 2006, Salon
changed its Site Pass model to automatically serve advertisements, enabling a
Website visitor to gain a more seamless access to Salon’s
content.  This change has produced an increase in the number of ad
impressions that Salon can serve and improved Salon’s potential to generate an
even greater amount of advertising revenues, offsetting a drop in Salon Premium
subscriptions that traditionally were solicited from the Site Pass and the
relatively small revenue they generate.
  27
 Table of Contents
 
 All other
sources of revenue were $0.7 million for the year ended March 31, 2009 and $0.8
million for the year ended March 31, 2008.  Approximately half of this
revenue was derived from the Well, an online discussion forum.
 
 Production
and Content Expenses
  Production
and content expenses during the year ended March 31, 2009 was $5.3 million
versus $5.5 million for the year ended March 31, 2008, a decrease of $0.2
million.  The 4% decrease primarily reflects a decrease in staff and
benefit costs.
 
 Sales
and Marketing Expenses
 
 Sales and
marketing expenses during the year ended March 31, 2009 were $2.9 million versus
$2.8 million for the year ended March 31, 2008, an increase of $0.1
million.  The minimal increase results from lower usage of advertising
credits being offset by higher ad sales salaries, commissions and travel
expenses.
 
 Information
Technology Support Expenses
  Information
technology support expenses during the year ended March 31, 2009 remained flat
from one year ago at $0.8 million.  The 13% decrease in salary costs
was primarily due to the reduction in headcount and the capitalization of
development costs for the Open Salon project.
 
 General
and Administrative Expenses
  General
and administrative expenses during the year ended March 31, 2009 remained flat
from one year ago at $1.8 million.  The minimal increase was primarily
attributed to stock-based compensation expenses from restricted stock vesting,
as well as an increase in allowance for doubtful accounts.
  Separation
Expenses
  Separation
expenses were $0.6 million for the year ended March 31, 2009 and consisted of
one-time charges of $0.6 million related to the resignation of Salon’s former
CEO, including $0.3 million in non-cash stock-based compensation from the
accelerated vesting of options.
  Interest
and Other Expenses
  Interest
and other expenses for the year ended March 31, 2009 consisted primarily of
accrued interest costs of $194,000 for Salon’s outstanding debts and financial
obligations, including a borrowing agreement, several convertible promissory
notes, and computer equipment capital leases.
  28
 Table of Contents
  Fiscal
Years Ended March 31, 2008 and 2007
 
 Net
Revenues
 
 Salon’s
net revenue decreased 3% to $7.5 million in the year ended March 31, 2008 from
$7.7 million in the year ended March 31, 2007.
 
 Advertising
revenues remained flat from one year ago at $5.4 million for the year ended
March 31, 2008, as sales trailed off in the fourth quarter, despite record
audiences, due to sales force turnover.
 
 Salon
Premium subscription revenues decreased by 14% to $1.3 million for the year
ended March 31, 2008 from $1.5 million for the year ended March 31,
2007.  The drop in Salon Premium revenues recognized for the year
ended March 31, 2008 compared to the year ended March 31, 2007 is attributable
to a substantial reduction in the number of new subscribers.  Salon
acquired approximately 27,900 paid one-year subscriptions for the year ended
March 31, 2008 compared to approximately 44,200 for the year ended March 31,
2007.  As a result, the number of paid subscribers decreased from
approximately 47,200 at March 31, 2007 to approximately 33,900 at March 31,
2008.  As of June 1, 2008, Salon had approximately 32,000 paid
subscribers.
 
 An
important factor in increasing advertising revenues in future periods, including
Salon’s peak third quarter ending December 31, is attracting more unique
visitors to Salon’s Website.  Attracting more unique Website visitors
is important to Salon as they generate page views, and each page view becomes a
potential platform for serving advertisements.  Ultimately, Salon
charges advertisers based on a set number of impressions viewed by a Website
visitor.  Due to various factors, including concerted efforts to make
Salon’s content more accessible to readers by auto launching the site pass, a
better optimized Website to facilitate appearance in search engine results, and
marketing campaigns with select Websites, the average number of unique monthly
Website visitors for the year ended March 31, 2008 increased 33% to 4.4 million
from the year ended March 31, 2007, and attained a record high of 6.5 million in
March 2008.  Aiding the continued growth in unique visitors to Salon’s
Website is the migration of readers to the Internet from print
newspapers.
 
 Salon has
evaluated the balance between its subscription and advertising businesses and
has shifted emphasis toward advertising.  Until recently, a Website
visitor was given a choice of: (1) becoming a Salon Premium subscriber to avoid
having to view advertisements on Salon’s Website or (2) viewing an advertisement
to gain access to all of Salon’s content.  This strategy was found to
impede access to Salon’s Website and its ability to generate advertising
impressions.  During the quarter ended December 31, 2006, Salon
changed its Site Pass model to automatically serve advertisements, enabling a
Website visitor to gain a more seamless access to Salon’s
content.  This change has produced an increase in the number of ad
impressions that Salon can serve and improved Salon’s potential to generate an
even greater amount of advertising revenues, offsetting a drop in Salon Premium
subscriptions that traditionally were solicited from the Site Pass and the
relatively small revenue they generate.
 
 All other
sources of revenue were $0.8 million each for the years ended March 31, 2008 and
March 31, 2007.  Approximately half of this revenue was derived from
the Well, an online discussion forum.
  29
 Table of Contents
  Production
and Content Expenses
  Production
and content expenses during the year ended March 31, 2008 were $5.5 million
versus $5.2 million for the year ended March 31, 2007, an increase of $0.3
million.  The 6% increase primarily reflects an increase in staff and
benefit costs.
 
 Sales
and Marketing Expenses
 
 Sales and marketing expenses during the
year ended March 31, 2008 were $2.8 million versus $2.0 million for the year
ended March 31, 2007, an increase of $0.8 million.  The 40% increase
primarily reflects utilizing an additional $0.7 million advertising credits this
year compared to last year.
  Information
Technology Support Expenses
  Information
technology support expenses during the year ended March 31, 2008 remained flat
from one year ago at $0.8 million.  The 29% increase in salary costs
was offset by capitalized development costs for the Open Salon
project.
 
 General
and Administrative Expenses
  General
and administrative expenses during the year ended March 31, 2008 were $1.8
million versus $1.3 million for the year ended March 31, 2007, an increase of
$0.5 million.  The 38% increase is primarily attributable to increased
staff salaries, stock-based compensation expenses, professional fees, severance
costs and directors fees.
  Preferred
Deemed Dividend
 
 Salon
sold 292 shares of Series D-5 preferred stock on November 19,
2007.  All the shares sold are convertible to common stock at an
effective price less than the fair market value of Salon’s common stock on the
commitment date of the respective transaction.  Salon valued the
beneficial conversion feature of these shares of preferred stock at $0.05
million.  As the shares of preferred stock sold were immediately
convertible, Salon recorded a total of $0.05 million non-cash preferred deemed
dividend for the year ended March 31, 2008, representing the value of the
beneficial conversion feature of the shares issued.
 
 During
the year ended March 31, 2007, Salon sold 208 shares of Series D-3 preferred
stock and 42 shares of Series D-4 preferred stock on July 27, 2006, 333 shares
of Series D-4 preferred on September 21, 2006, and 42 shares of Series D-4
preferred stock and 125 shares of Series D-5 preferred stock on December 18,
2006 that were convertible to common stock at an effective price less than the
fair market value of Salon’s common stock on the commitment
date.  Salon valued the beneficial conversion feature of the preferred
stock sold at $0.3 million.  As the shares of preferred stock were
immediately convertible, for its year ended March 31, 2007, Salon recorded a
$0.3 million non-cash preferred deemed dividend, representing the value of the
beneficial conversion feature of the shares issued.
  30
 Table of Contents
 
 Liquidity
and Capital Resources
 
 Net cash
used in operations was $2.4 million for the year ended March 31, 2009, $1.5
million for the year ended March 31, 2008, and $1.2 million for the year ended
March 31, 2007.  The principal use of cash during the years ended
March 31, 2009 and March 31, 2008 was to meet its operating
deficit.  The principal use of cash during the year ended March 31,
2007 was to fund the $1.6 million net loss and reflects accounts receivable
increasing by $0.5 million, less $0.8 million of non-cash charges.
 
 Net cash used in investing activities
for the years ended March 31, 2009 and March 31, 2008 was $0.3 million to fund
the acquisition of computer equipment and internal software
development.  Net cash used in investing activities was immaterial for
the year ended March 31, 2007.
 
 For the
year ended March 31, 2009, net cash provided from financing activities was $2.2
million, which included $2.0 million in long-term borrowing and $0.2 million in
short-term borrowing.  For the year ended March 31, 2008, net cash
provided from financing activities was $1.9 million, which included $1.0 million
in short-term borrowings, $0.5 million in long-term borrowing and $0.4 million
from the issuance of 292 shares of preferred stock.   For the
year ended March 31, 2007, net cash provided from financing activities was $1.7
million, which included $0.8 million from the exercise of warrants and $0.9
million from the issuance of 750 shares of preferred stock.
 
 Salon, as
permitted under Delaware law and in accordance with its Bylaws, indemnifies its
officers and directors for certain events or occurrences, subject to certain
limits, while the officer is or was serving at Salon’s request in such
capacity.  The term of the indemnification period is for the
officer's, or director's lifetime.  The maximum amount of potential
future indemnification is unlimited; however, Salon does have a Director and
Officer Insurance Policy that limits Salon's exposure and enables Salon to
recover a portion of any future amounts paid.  As a result of the
insurance policy coverage, Salon believes the fair value of these
indemnification agreements is minimal.
 
 As of
March 31, 2009, Salon has four outstanding capital leases on computer equipment
and does not anticipate entering into similar debt instruments during its year
ending March 31, 2010.  The following summarizes Salon’s contractual
obligations as of March 31, 2009, and the effect these contractual obligations
are expected to have on Salon’s liquidity and cash flows in future periods (in
thousands):
 
 Payments
      Due By PeriodTotal
                      
                      
                      Less
      than 1 Year
                      
                      
                      1
      - 3 Years
                      
                      
                      3
      - 5 Years
                      
                      
                      More
      than 5 YearsOperating
      leases
                      
                      $
                      2,000
                      
                      
                      $
                      254
                      
                      
                      $
                      977
                      
                      
                      $
                      769
                      
                      
                      $
                      -Capital
      leases
                      
                      
                      67
                      
                      
                      
                      33
                      
                      
                      
                      34
                      
                      
                      
                      -
                      
                      
                      
                      -Capital
      lease interest
                      
                      
                      12
                      
                      
                      
                      9
                      
                      
                      
                      3
                      
                      
                      
                      -
                      
                      
                      
                      -Short-term
      borrowing
                      
                      
                      1,250
                      
                      
                      
                      1,250
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Short-term
      borrowing interest
                      
                      
                      78
                      
                      
                      
                      78
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Convertible
      notes
                      
                      
                      2,500
                      
                      
                      
                      -
                      
                      
                      
                      2,500
                      
                      
                      
                      -
                      
                      
                      
                      -Convertible
      notes interest
                      
                      
                      767
                      
                      
                      
                      326
                      
                      
                      
                      441
                      
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      6,674
                      
                      
                      $
                      1,950
                      
                      
                      $
                      3,955
                      
                      
                      $
                      769
                      
                      
                      $
                      -
  31
 Table of Contents
  Capital
requirements
 
 Salon has
a history of significant losses and expects to incur a net loss from operations
for its year ending March 31, 2010.  Because of past losses, an
anticipated loss next year and a history of negative cash flows from operations,
Salon’s independent registered public accounting firm for the years ended March
31, 2009, March 31, 2008 and March 31, 2007 have included a paragraph in its
reports indicating substantial doubt as to Salon’s ability to continue as a
going concern.  During the last three years, Salon has relied on cash
from bank debt, the issuance of convertible notes and preferred stock, related
party advances, and from the exercise of warrants to meet its cash
requirements.
 
 Based
on current cash projections for next year, which contemplate a smaller operating
loss, positive cash flow generation in the second half of the year, and takes
into account $0.6 million in related party advances  received
subsequent to year end, Salon estimates it will require at least  an
additional $1.8 million in additional funding to meet operating
needs.  If planned revenues are less than expected, the cash shortfall
may be higher.  Salon is in discussions with potential investors,
including related parties, to obtain additional funding, and has engaged an
investment banker to facilitate these efforts. There can be no assurance that
the Company will be able to raise additional funds on commercially reasonable
terms, if at all.
 
 Off-Balance
Sheet Arrangements
 
 Salon has
no off-balance sheet arrangements.
  Recent
Accounting Pronouncements
  In
December 2007, the FASB issued Statement of Financial Accounting Standard No.
141 (revised 2007), “Business Combinations,” (“SFAS 141R”) and No. 160,
“Noncontrolling Interests in Consolidated Financial Statements,”an amendment of ARB No.
51 (“SFAS 160”.) SFAS 141R establishes principles and requirements during
business combinations for how the acquirer:
 
 a.
                Recognizes
      and measures in its financial statements the identifiable assets acquired,
      the liabilities assumed, and any noncontrolling interest in the
      acquiree,
 b.
                Recognizes
      and measures the goodwill acquired in the business combination or a gain
      from a bargain purchase, and
 c.
                Determines
      what information to disclose to enable users of the financial statements
      to evaluate the nature and financial effects of the business
      combination.
 
 SFAS 160
sets parameters as to how to report noncontrolling interest in consolidated
financial statements.  SFAS 141R and SFAS 160 are effective for fiscal
years beginning after December 15, 2008. Salon believes that the adoption of
SFAS 141R and SFAS 160 will not impact Salon’s results of operations, financial
position, or cash flows.
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standard No.
157, “Fair Value Measurements,” (SFAS 157).  SFAS 157 addresses how
companies should measure fair value when they are required to use a fair value
measure for recognition or disclosure purposes under generally accepted
accounting principles, and expands disclosures about fair value
measurements.  SFAS 157 is effective for fiscal years beginning after
November 15, 2007.  Salon adopted SFAS 157 as of April 1,
2007.  It did not have a material impact on its results of operations,
financial position or cash flows.
  32
 Table of Contents
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities,” (SFAS 161).  SFAS 161 amends and expands the
disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, and requires entities to provide enhanced qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair values and amounts of gains and losses on derivative
contracts, and disclosures about credit-risk-related contingent features in
derivative agreements.  This statement applies to all entities and all
derivative instruments. SFAS 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15,
2008.  The Company is currently evaluating the impact of SFAS 161 and
does not expect this statement to have a material impact on its financial
position and results of operations.
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles,” (SFAS 162).  SFAS 162 establishes the GAAP
hierarchy and identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial
statements.  SFAS 162 is effective 60 days following the Securities and
Exchange Commission’s approval of the Public Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles.  We have not yet determined
the impact, if any, that implementation of SFAS 162 will have on our results of
operations and financial condition.
 
 In May
2008, the FASB also issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of FASB Statement No. 60,” (SFAS
163).  SFAS 163 requires that an insurance enterprise recognize a claim
liability prior to an event of default (insured event) when there is evidence
that credit deterioration has occurred in an insured financial obligation. 
This Statement also clarifies how Statement 60 applies to financial guarantee
insurance contracts, including the recognition and measurement to be used to
account for premium revenue and claim liabilities.  Those
clarifications will increase comparability in financial reporting of financial
guarantee insurance contracts by insurance enterprises.  This
Statement requires expanded disclosures about financial guarantee insurance
contracts. The accounting and disclosure requirements of the Statement will
improve the quality of information provided to users of financial
statements.  SFAS 163 will be effective for financial statements issued for
fiscal years beginning after December 15, 2008.  The Company does not
expect the adoption of SFAS 163 will have a material impact on its financial
condition or results of operation.
 
 In June
2008, the Financial Accounting Standards Board Emerging Issues Task Force (EITF)
reached a consensus on EITF 07-5, “Determining Whether an Instrument (or
Embedded Feature) is indexed to an Entity’s Own Stock.”  This EITF
will be effective for fiscal years beginning after December 15,
2008.  We are currently evaluating the disclosure requirements under
EITF 07-5.
 
 ITEM7A.  Quantitative and Qualitative Disclosures
About Market Risk
  Salon
maintains all of its cash in immediately available cash deposits at its
bank.  These funds are not subject to market risk and no interest is
paid on such funds.  In May 2007, Salon entered into a credit
agreement with Deutsche Bank Securities, Inc. that allows Salon to borrow up to
$1.0 million at a rate of prime less 0.25% which will subject Salon to interest
rate risk.  This line of credit is fully drawn.  Rates
declined throughout most of fiscal 2009.  Salon feels that the impact
of the risk of future rate increases will not have a material
impact.  As Salon conducts all of its business in the United States,
Salon is not subject to foreign exchange risk.
  33
 Table of Contents
 
 ITEM8.  Consolidated Financial Statements and
Supplementary Data
  PageConsolidated
      Balance Sheets as of March 31, 2009 and 2008
                    35Consolidated
      Statements of Operations for the years ended March 31, 2009, 2008, and
      2007
                    36Consolidated
      Statements of Stockholders’ (Deficit) Equity for the years ended March 31,
      2009, 2008, and 2007
                    37Consolidated
      Statements of Cash Flows for the years ended March 31, 2009, 2008, and
      2007
                    38Notes
      to Consolidated Financial Statements
                    39Selected
      Quarterly Financial Data (unaudited)
                    63
  34
 Table of Contents
  Report
Of Independent Registered Public Accounting Firm
 
  To the
Board of Directors and Stockholders
 Salon
Media Group, Inc.
 
 We have
audited the accompanying consolidated balance sheets of Salon Media Group, Inc.
and its subsidiaries (the “Company”) as of March 31, 2009 and 2008, and the
related consolidated statements of operations, stockholders’ (deficit) equity,
and cash flows for each of the three years in the period ended March 31,
2009.  These consolidated financial statements are the responsibility
of the Company’s management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor have we been engaged to perform an audit of
the Company’s internal control over financial reporting.  Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also 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, as
well as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Salon Media Group,
Inc. and its subsidiaries as of March 31, 2009 and 2008, and the consolidated
results of their operations and their cash flows for each of the of the three
years in the period ended March 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses and
negative cash flows from operations and has an accumulated deficit of $101.0
million at March 31, 2009. These conditions raise substantial doubt about its
ability to continue as a going concern. Management’s plans regarding those
matters also are described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
 
 /s/
      Burr, Pilger & Mayer LLPSan
      Francisco, California
                      June
      25, 2009
 35
 Table of Contents


SALON
      MEDIA GROUP, INC.CONSOLIDATED
      BALANCE SHEETS(in
      thousands, except share and per share
amounts)  March
      31,2009
                      
                      
                      2008AssetsCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      371
                      
                      
                      $
                      818Accounts
      receivable, net
                      
                      
                      886
                      
                      
                      
                      864Prepaid
      advertising rights
                      
                      
                      1,225
                      
                      
                      
                      -Prepaid
      expenses and other current assets
                      
                      
                      53
                      
                      
                      
                      185Total
      current assets
                      
                      
                      2,535
                      
                      
                      
                      1,867Property
      and equipment, net
                      
                      
                      445
                      
                      
                      
                      412Prepaid
      advertising rights
                      
                      
                      -
                      
                      
                      
                      2,131Other
      assets
                      
                      
                      150
                      
                      
                      
                      6Goodwill
                      
                      
                      200
                      
                      
                      
                      200Total
      assets
                      
                      $
                      3,330
                      
                      
                      $
                      4,616Liabilities
      and stockholders’ (Deficit) EquityCurrent
      liabilities:Short-term
      borrowings
                      
                      $
                      1,250
                      
                      
                      $
                      1,000Accounts
      payable and accrued liabilities
                      
                      
                      1,324
                      
                      
                      
                      1,294Deferred
      revenue
                      
                      
                      470
                      
                      
                      
                      705Total
      current liabilities
                      
                      
                      3,044
                      
                      
                      
                      2,999Long-term
      liabilities:Convertible
      notes payable
                      
                      
                      2,500
                      
                      
                      
                      500Other
      long-term liabilities
                      
                      
                      172
                      
                      
                      
                      44Capital
      lease,  less current portion
                      
                      
                      34
                      
                      
                      
                      56Total
      liabilities
                      
                      
                      5,750
                      
                      
                      
                      3,599Commitments
      and contingencies (Note 9)Stockholders’
      (deficit) equity:Preferred
      stock, $0.001 par value, 5,000,000 shares authorized, 9,467
      sharesissued
      and outstanding at March 31, 2009 and 9,475 shares issued
    andoutstanding
      at March 31, 2008  (liquidation value of$24,246
      at March 31, 2009 and $23,498 at March 31, 2008)
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, $0.001 par value, 30,000,000 shares authorized,
      2,021,276shares
      issued and outstanding at March 31, 2009 and 1,940,172
    sharesissued
      and outstanding at March 31, 2008
                      
                      
                      2
                      
                      
                      
                      2Additional
      paid-in capital
                      
                      
                      98,564
                      
                      
                      
                      97,302Accumulated
      deficit
                      
                      
                      (100,986
                      )
                      
                      
                      (96,287
                      )Total
      stockholders’ (deficit) equity
                      
                      
                      (2,420
                      )
                      
                      
                      1,017Total
      liabilities and stockholders’ (deficit) equity
                      
                      $
                      3,330
                      
                      
                      $
                      4,616
  See
      accompanying notes to consolidated financial
  statements.





36
 Table of Contents


SALON
      MEDIA GROUP, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONS(in
      thousands, except per share data)  Year
      Ended March 31,2009
                      
                      
                      2008
                      
                      
                      2007Net
      revenues
                      
                      $
                      6,874
                      
                      
                      $
                      7,513
                      
                      
                      $
                      7,748Operating
      expenses:Production
      and content
                      
                      
                      5,314
                      
                      
                      
                      5,544
                      
                      
                      
                      5,223Sales
      and marketing
                      
                      
                      2,925
                      
                      
                      
                      2,756
                      
                      
                      
                      1,978Information
      technology support
                      
                      
                      763
                      
                      
                      
                      829
                      
                      
                      
                      828General
      and administrative
                      
                      
                      1,746
                      
                      
                      
                      1,756
                      
                      
                      
                      1,286Separation
      expenses
                      
                      
                      631
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      operating expenses
                      
                      
                      11,379
                      
                      
                      
                      10,885
                      
                      
                      
                      9,315Loss
      from operations
                      
                      
                      (4,505
                      )
                      
                      
                      (3,372
                      )
                      
                      
                      (1,567
                      )Interest
      and other income (expense)
                      
                      
                      (194
                      )
                      
                      
                      (37
                      )
                      
                      
                      1Net
      loss
                      
                      
                      (4,699
                      )
                      
                      
                      (3,409
                      )
                      
                      
                      (1,566
                      )Preferred
      deemed dividend
                      
                      
                      -
                      
                      
                      
                      (54
                      )
                      
                      
                      (295
                      )Net
      loss attributable to common stockholders
                      
                      $
                      (4,699
                      )
                      
                      $
                      (3,463
                      )
                      
                      $
                      (1,861
                      )Basic
      and diluted net loss per share attributable tocommon
      stockholders
                      
                      $
                      (2.34
                      )
                      
                      $
                      (1.79
                      )
                      
                      $
                      (1.10
                      )Weighted
      average shares used in computing basicand
      diluted net loss per share attributableto
      common stockholders
                      
                      
                      2,008
                      
                      
                      
                      1,940
                      
                      
                      
                      1,692
  See
      accompanying notes to consolidated financial
  statements.








37
 Table of Contents


SALON
MEDIA GROUP, INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY


(in
thousands, except Preferred Stock Shares)





Additional
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  TotalPreferredStock
                                                  
                                                  
                                                  CommonStock
                                                  
                                                  
                                                  Paid-In
                                                  
                                                  
                                                  Unearned
                                                  
                                                  
                                                  Accumulated
                                                  
                                                  
                                                  Stockholders’Shares
                                                  
                                                  
                                                  Amount
                                                  
                                                  
                                                  Shares
                                                  
                                                  
                                                  Amount
                                                  
                                                  
                                                  Capital
                                                  
                                                  
                                                  Compensation
                                                  
                                                  
                                                  Deficit
                                                  
                                                  
                                                  EquityBalance,
      March 31, 2006
                                                  
                                                  
                                                  8,558
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  
                                                  957
                                                  
                                                  
                                                  $
                                                  1
                                                  
                                                  
                                                  $
                                                  94,619
                                                  
                                                  
                                                  $
                                                  (40
                                                  )
                                                  
                                                  $
                                                  (90,963
                                                  )
                                                  
                                                  $
                                                  3,617Shares
      issued under employee stock plans
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  2
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  6
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  6Shares
      issued under warrant agreements
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  730
                                                  
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  
                                                  778
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  779Preferred
      stock converted to common stock
                                                  
                                                  
                                                  (125
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  251
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Share-based
      compensation
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  190
                                                  
                                                  
                                                  
                                                  40
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  230Series
      D convertible preferred stock andcommon
      stock warrants issued for cash
                                                  
                                                  
                                                  750
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  900
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  900Preferred
      deemed dividend on issuance ofSeries
      D Convertible preferred stock
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  295
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (295
                                                  )
                                                  
                                                  
                                                  -Net
      loss
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (1,566
                                                  )
                                                  
                                                  
                                                  (1,566
                                                  )Balance, March 31,
      2007
                                                  
                                                  
                                                  9,183
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,940
                                                  
                                                  
                                                  
                                                  2
                                                  
                                                  
                                                  
                                                  96,788
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (92,824
                                                  )
                                                  
                                                  
                                                  3,966Shares
      issued under employee stock plans
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1Series
      D convertible preferred stock andcommon
      stock warrants issued for cash
                                                  
                                                  
                                                  292
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  350
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  350Preferred
      deemed dividend on issuance ofSeries
      D Convertible preferred stock
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  54
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (54
                                                  )
                                                  
                                                  
                                                  -Share-based
      compensation
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  109
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  109Net
      loss
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (3,409
                                                  )
                                                  
                                                  
                                                  (3,409
                                                  )Balance,
      March 31, 2008
                                                  
                                                  
                                                  9,475
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,940
                                                  
                                                  
                                                  
                                                  2
                                                  
                                                  
                                                  
                                                  97,302
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (96,287
                                                  )
                                                  
                                                  
                                                  1,017Shares
      issued under employee stock plans
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  63
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1Preferred
      stock converted to common stock
                                                  
                                                  
                                                  (8
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  18
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Share-based
      compensation
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,261
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,261Net
      loss
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (4,699
                                                  )
                                                  
                                                  
                                                  (4,699
                                                  )Balance,
      March 31, 2009
                                                  
                                                  
                                                  9,467
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  
                                                  2,021
                                                  
                                                  
                                                  $
                                                  2
                                                  
                                                  
                                                  $
                                                  98,564
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  (100,986
                                                  )
                                                  
                                                  $
                                                  (2,420
                                                  )








See
accompanying notes to consolidated financial statements.





38
 Table of Contents




SALON
      MEDIA GROUP, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS(in
      thousands)  Year
      Ended March 31,2009
                              
                              
                              2008
                              
                              
                              2007Cash
      flows from operating activities:Net
      loss
                              
                              $
                              (4,699
                              )
                              
                              $
                              (3,409
                              )
                              
                              $
                              (1,566
                              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Loss
      from retirement of assets, net
                              
                              
                              4
                              
                              
                              
                              -
                              
                              
                              
                              -Share-based
      compensation
                              
                              
                              1,025
                              
                              
                              
                              313
                              
                              
                              
                              230Depreciation
      and amortization
                              
                              
                              210
                              
                              
                              
                              102
                              
                              
                              
                              89Prepaid
      advertising rights usage
                              
                              
                              906
                              
                              
                              
                              1,136
                              
                              
                              
                              451Changes
      in assets and liabilities:Accounts
      receivable
                              
                              
                              (22
                              )
                              
                              
                              143
                              
                              
                              
                              (505
                              )Prepaid
      expenses, other current assets and other assets
                              
                              
                              (12
                              )
                              
                              
                              (4
                              )
                              
                              
                              101Accounts
      payable, accrued liabilities and other long-term
    liabilities
                              
                              
                              410
                              
                              
                              
                              262
                              
                              
                              
                              (21
                              )Deferred
      revenue
                              
                              
                              (235
                              )
                              
                              
                              (87
                              )
                              
                              
                              (28
                              )Net
      cash used in operating activities
                              
                              
                              (2,413
                              )
                              
                              
                              (1,544
                              )
                              
                              
                              (1,249
                              )Cash
      flows from investing activities:Purchase
      of property and equipment
                              
                              
                              (247
                              )
                              
                              
                              (313
                              )
                              
                              
                              (48
                              )Net
      cash used in investing activities
                              
                              
                              (247
                              )
                              
                              
                              (313
                              )
                              
                              
                              (48
                              )Cash
      flows from financing activities:Proceeds
      from short-term borrowings
                              
                              
                              250
                              
                              
                              
                              1,000
                              
                              
                              
                              -Proceeds
      from long-term borrowings
                              
                              
                              2,000
                              
                              
                              
                              500
                              
                              
                              
                              -Capital
      lease payments
                              
                              
                              (38
                              )
                              
                              
                              (5
                              )
                              
                              
                              -Proceeds
      from issuance of preferred stock, net
                              
                              
                              -
                              
                              
                              
                              350
                              
                              
                              
                              900Proceeds
      from issuance of common stock, net
                              
                              
                              1
                              
                              
                              
                              1
                              
                              
                              
                              785Net
      cash provided by financing activities
                              
                              
                              2,213
                              
                              
                              
                              1,846
                              
                              
                              
                              1,685Net
      (decrease) increase in cash and cash equivalents
                              
                              
                              (447
                              )
                              
                              
                              (11
                              )
                              
                              
                              388Cash
      and cash equivalents at beginning of year
                              
                              
                              818
                              
                              
                              
                              829
                              
                              
                              
                              441Cash
      and cash equivalents at end of year
                              
                              $
                              371
                              
                              
                              $
                              818
                              
                              
                              $
                              829Amount
      paid for interest
                              
                              $
                              12
                              
                              
                              $
                              3
                              
                              
                              $
                              -Amount
      paid for taxes
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Supplemental
      schedule of non-cash investing and financing activities:Preferred
      deemed dividend
                              
                              $
                              -
                              
                              
                              $
                              54
                              
                              
                              $
                              295Property
      and equipment purchased with capital lease
                              
                              $
                              12
                              
                              
                              $
                              86
                              
                              
                              $
                              -Stock
      compensation liability
                              
                              $
                              -
                              
                              
                              $
                              204
                              
                              
                              $
                              -
  See
      accompanying notes to consolidated financial
  statements.








39
 Table of Contents




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” or the Company) is an Internet media company that
produces a content Website with various subject-specific sections, which
includes two online communities, and a social network.  The Website
also allows for audio downloads and video clips.  Salon was originally
incorporated in July 1995 in the State of California and reincorporated in
Delaware in June 1999.  Salon operates in one business
segment..




Note
2.        Summary of Significant
Accounting Policies




Basis
of presentation




These
consolidated financial statements contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business.  Salon
has incurred losses and negative cash flows from operations since inception and
has an accumulated deficit at March 31, 2009 of $100,986.  In
addition, Salon expects to incur a net loss from operations for its year ending
March 31, 2010.  During the last three years, Salon has relied on cash
from the issuance of bank debt, convertible notes and preferred stock and from
the exercise of warrants to meet its cash requirements.  Based on current
cash projections for next year, which contemplate a smaller operating loss,
positive cash flow generation in the second half of the year, and takes into
account $0.6 million in related party advances  received subsequent to
year end, Salon estimates it will require at least  an additional $1.8
million in additional funding to meet operating needs.  If planned
revenues are less than expected, the cash shortfall may be
higher.  Salon is in discussions with potential investors, including
related parties, to obtain additional funding, and has engaged an investment
banker to facilitate these efforts. There can be no assurance that the Company
will be able to raise additional funds on commercially reasonable terms, if at
all.





Principles
of consolidation




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




Segment
and enterprise-wide reporting




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






40
 Table of Contents


SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




Use
of estimates




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




Accounts
receivable, net




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




Property
and equipment, net




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.




Software
Development Costs





Information
technology support expenses to develop new product offerings for internal use,
such as Open Salon, are capitalized as software development
costs.  Salon has capitalized $95 of expenditures through March 31,
2009, which is included with property and equipment.




Prepaid
advertising rights




Prepaid advertising rights are carried
at cost less accumulated amortization, with amortization commensurate to the
usage of such rights, and expire on December 31, 2009.  In the event
that the rights are not fully utilized prior to their expiration, Salon has the
right to receive cash for the unused value, but there can be no absolute
assurance as to any potential cash settlement or full utilization
thereof.




Reclassifications




Certain
reclassifications, not affecting previously reported net loss, have been made to
the previously issued consolidated financial statements to conform to the
current period presentation.




Goodwill




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




41
 Table of Contents





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




Impairment
of long-lived assets




Salon
periodically evaluates the potential impairment of its long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable.  At the occurrence of an event or
change in circumstances, Salon evaluates the potential impairment of an asset
based on the estimated future undiscounted cash flows attributable to such
assets.  In the event impairment exists, Salon will measure the amount
of such impairment based on the present value of the estimated future cash flows
using a discount rate commensurate with the risks involved.




Revenue
recognition




Salon’s
revenues are primarily from the sale of advertising space on its Website and the
sale of subscriptions to individuals.  Salon recognizes revenue once
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable and collectibility is reasonably
assured.  Revenues are recognized ratably in the period over which
Salon’s obligations are fulfilled.  Payments received before Salon’s
obligations are fulfilled are classified as “Deferred revenue” in Salon’s
consolidated balance sheet.





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





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





Advertising
costs





Salon
expenses advertising costs as they are incurred.  Advertising expense
was $905, $1,136, and $448, for the fiscal years ended March 31, 2009, 2008, and
2007.





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, 2009, 2008 and 2007 and comprehensive loss
for those periods.





42
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SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




Stock-based
compensation





The
Company accounts for stock-based compensation in accordance with, the Financial
Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards
No. 123 (revised 2004,) “Share Based Payment” (SFAS 123R).  Under
the fair value provisions of this statement, stock-based compensation cost is
measured at the grant date based on the fair value of the award and is
recognized as expense over the requisite service period, which is the vesting
period.  Salon uses the Black-Scholes option-pricing model to
determine the fair-value of stock-based awards under SFAS 123R.  Salon
recognizes compensation cost related to options granted subsequent to the
adoption of SFAS 123R on a straight-line basis over the applicable vesting
period.





Stock
based compensation expense recognized under SFAS 123R for the years ended March
31, 2009, 2008 and 2007 was $1,025, $313 and $230, which consisted of
stock-based compensation expense related to stock options and restricted
stock.  See Note 7: “Employee Stock Option Plan” to the financial
statements for additional information.





As of
March 31, 2009, the aggregate stock compensation remaining to be amortized
to expenses was $668. Salon expects this stock compensation balance to be
amortized as follows: $334 during fiscal 2010; $205 during fiscal 2011; $103
during fiscal 2012; and $26 during fiscal 2013.  The expected
amortization reflects only outstanding stock awards as of March 31,
2009.





No
amounts were recorded relating to excess tax benefits from the exercise of
stock-based compensation awards during the year ended March 31, 2009, and as a
result there were no differences in net cash used in operating and financing
activities due to the implementation of SFAS 123R.




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




Year
      Ended March 31,2009
                
                2008
                
                2007Risk-free
      interest rates
                
                1.30
      – 3.09%
                
                2.16
      – 5.00%
                
                4.47
      – 4.97%Expected
      lives (in years)
                
                4
                
                4
                
                4Expected
      volatility
                
                92
      – 163 %
                
                94
      – 116 %
                
                107
      - 129 %Dividend
      yield
                
                0.0%
                
                0.0%
                
                0.0%





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





43
 Table of Contents




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:




Year
      Ended March 31,2009
                
                
                2008
                
                
                2007Numerator:Net
      loss attributable to common stockholders
                
                $
                (4,699
                )
                
                $
                (3,463
                )
                
                $
                (1,861
                )Denominator:Weighted
      average shares used incomputing
      basic and diluted net loss pershare
      attributable to common stockholders
                
                
                2,008,000
                
                
                
                1,940,000
                
                
                
                1,692,000Basic
      and diluted net loss per share attributableto
      common stockholders
                
                $
                (2.34
                )
                
                $
                (1.79
                )
                
                $
                (1.10
                )Antidilutive
      securities including options,warrants
      and convertible notes and preferredstock
      not included in loss per share calculation
                
                
                15,518,000
                
                
                
                12,678,000
                
                
                
                11,868,000




Financial
instruments





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





Income
taxes





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








44
 Table of Contents





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







Concentrations
of credit risk





Financial
instruments that potentially subject Salon to concentrations of credit risk
consist principally of trade accounts receivable.Salon performs ongoing
credit evaluations of its customers, butdoes not require
collateral.  Salon provides an allowance for credit losses that it
periodically adjusts to reflect management’s expectations of future
losses.  Three customers accounted for 10% or more of the trade
accounts receivable at March 31, 2009. No customer accounted for 10% or more of
the trade accounts receivable at March 31, 2008.   No customer
accounted for 10% or more of total revenue for the fiscal years ended March 31,
2009, 2008 and 2007, respectively.




Recent
accounting pronouncements





In
December 2007, the FASB issued Statement of Financial Accounting Standard No.
141 (revised 2007), “Business Combinations,” (“SFAS 141R”) and No. 160,
“Noncontrolling Interests in Consolidated Financial Statements,”an
amendment of ARB No. 51(“SFAS
160”.) SFAS 141R establishes principles and requirements during business
combinations for how the acquirer:





a.
            Recognizes
      and measures in its financial statements the identifiable assets acquired,
      the liabilities assumed, and any noncontrolling interest in the
      acquiree,


b.
            Recognizes
      and measures the goodwill acquired in the business combination or a gain
      from a bargain purchase, and


c.
            Determines
      what information to disclose to enable users of the financial statements
      to evaluate the nature and financial effects of the business
      combination.





SFAS 160
sets parameters as to how to report noncontrolling interest in consolidated
financial statements.  SFAS 141R and SFAS 160 are effective for fiscal
years beginning after December 15, 2008. Salon believes that the adoption of
SFAS 141R and SFAS 160 will not impact Salon’s results of operations, financial
position, or cash flows.





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








45
 Table of Contents




SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







In March
2008, the FASB issued Statement of Financial Accounting Standard No. 161,
“Disclosures about Derivative Instruments and Hedging Activities,” (“SFAS
161”).  SFAS 161 amends and expands the disclosure requirements of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and
requires entities to provide enhanced qualitative disclosures about objectives
and strategies for using derivatives, quantitative disclosures about fair values
and amounts of gains and losses on derivative contracts, and disclosures about
credit-risk-related contingent features in derivative
agreements.  This statement applies to all entities and all derivative
instruments. SFAS 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008.  The
Company is currently evaluating the impact of SFAS 161 and does not expect this
statement to have a material impact on its financial position and results of
operations.





In May
2008, the FASB issued Statement of Financial Accounting Standard No. 162, “The
Hierarchy of Generally Accepted Accounting Principles,” (“SFAS
162”).  SFAS 162 establishes the GAAP hierarchy and identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements.  SFAS 162 is effective 60
days following the Securities and Exchange Commission’s approval of the Public
Accounting Oversight Board amendments to AU Section 411, The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting
Principles.  We have not yet determined the impact, if any, that
implementation of SFAS 162 will have on our results of operations and financial
condition.





In May
2008, the FASB also issued Statement of Financial Accounting Standard
No.  163, “Accounting for Financial Guarantee Insurance Contracts – an
interpretation of FASB Statement No. 60,” (“SFAS 163”).  SFAS 163 requires
that an insurance enterprise recognize a claim liability prior to an event of
default (insured event) when there is evidence that credit deterioration has
occurred in an insured financial obligation.  This Statement also clarifies
how Statement 60 applies to financial guarantee insurance contracts, including
the recognition and measurement to be used to account for premium revenue and
claim liabilities.  Those clarifications will increase comparability
in financial reporting of financial guarantee insurance contracts by insurance
enterprises.  This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements.  SFAS 163 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008.  The
Company does not expect the adoption of SFAS 163 will have a material impact on
its financial condition or results of operation.





In June
2008, the Financial Accounting Standards Board Emerging Issues Task Force (EITF)
reached a consensus on EITF 07-5, “Determining Whether an Instrument (or
Embedded Feature) is indexed to an Entity’s Own Stock.”  This EITF
will be effective for fiscal years beginning after December 15,
2008.  We are currently evaluating the disclosure requirements under
EITF 07-5.





Reclassifications




Certain
reclassifications, not affecting previously reported net income or loss, have
been made to the previously issued consolidated financial statements to conform
to the current period presentation.








46
 Table of Contents




SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







Note
3.  Borrowing Agreements





In May 2007, Salon entered into a
borrowing agreement with Deutsche Bank Securities, Inc. that allows Salon to
borrow up to $1,000 at a rate of prime less 0.25%.  The agreement is
guaranteed in its entirety by Salon’s Chairman.  The line of credit
has been fully drawn as of March 31, 2009 and 2008.  Salon and its
Chairman have agreed to lift previously agreed restrictions on the timing of
borrowing to permit borrowing to continue under the agreement with the guarantee
of the Chairman.  Deutsche Bank Securities may demand repayment of
amounts borrowed at any time.   Additionally, the Chairman may
also choose to terminate his guarantee, which would trigger a demand for
repayment.  As of March 31, 2009, accrued interest on bank debt totals
$79.  As of March 31, 2009 and 2008, the weighted average interest
rate on the Company’s short-term borrowings was 5% and 7%,
respectively.




Convertible
notes payable





On April
4, 2008, Salon issued to each of its Chairman and the father of Salon’s then CEO
a convertible promissory note in exchange for loans with a principal amount of
$500, an aggregate of $1,000.  Each note bears an interest rate of
7.50 percent per annum, payable annually, in cash or in kind, and matures on
March 31, 2012.  Each note issued on April 4, 2008 may convert at the
election of the holder at any time into a number of shares of Salon’s
common stock equal to the aggregate amount of the note obligations divided
by (1) $1.68 or (2) the subsequent closing price if the holder participated in a
subsequent closing.





On May
15, 2008, Salon sold and issued to another investor a convertible promissory
note with a principal amount of $500 as part of the above-referenced financing
transaction.  The note bears an interest rate of 7.50 percent per
annum, payable semi-annually, in cash or in kind, and matures on March 31,
2012.  The note may convert at the election of the holder at any time
into a number of shares of Salon’s common stock equal to the aggregate amount of
the note obligations divided by $1.45.





On
October 31, 2008, Salon issued to each of its Chairman and the father of
Salon’s  then CEO a convertible promissory note in exchange for loans
with a principal amount of $500, an aggregate of $1,000, as part of the above
financing transactions in which Salon generated gross proceeds of approximately
$2,500 as of March 31, 2009.  Each note bears an interest rate of 7.50
percent per annum, payable annually, in cash or in kind, and matures on October
31, 2012.  Each note issued on October 31, 2008 may convert at the
election of the holder at any time into a number of shares of Salon’s common
stock equal to the aggregate amount of the note obligations divided by
$0.6746.  As of March 31, 2009, aggregate accrued interest on
convertible debt totals $138.





In the
event Salon, at any time prior to the payment in full of the notes, or
conversion thereof, shall (a) issue and sell shares of its common or preferred
stock or an instrument convertible into its common or preferred stock or (b)
issue and sell debentures or enter into any new indebtedness, then the holders
of the first $1,000 in principal of the notes may choose to exchange the
outstanding principal balance and accrued interest due under the notes for new
securities issued on the same terms and conditions of the
financing.  If Salon completes a financing in excess of $500, then
this right of exchange will terminate 30 days following notice of such financing
being given to the holders.




As
of  March 31, 2009,  total aggregate related party interest
expense was $106 and outstanding debt was $2,106.





47
 Table of Contents




SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







Advances





In March
2009, the Company’s Chairman advanced $250, payable on demand, to be used
for working capital. This debt is exchangeable into securities to be issued in
the next financing raised by the Company from non-related parties.






Note
4. Goodwill





In
accordance with FASB No. 142, “Goodwill and Other Intangible Assets” (SFAS No.
142), goodwill amortization was discontinued as of March 31,
2002.  The carrying value of goodwill at March 31, 2009 and March 31,
2008 was $200 and has been found not to be impaired.






48
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SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




Note
5. Balance Sheet Components




Year
      Ended March 31,2009
                                                        
                                                        
                                                        2008Accounts
      receivable, net:Accounts
      receivable
                                                        
                                                        $
                                                        998
                                                        
                                                        
                                                        $
                                                        894Less:
      allowance for doubtful accounts
                                                        
                                                        
                                                        (112
                                                        )
                                                        
                                                        
                                                        (30
                                                        )$
                                                        886
                                                        
                                                        
                                                        $
                                                        864Prepaid
      expenses and other current assetsPrepaid
      expenses
                                                        
                                                        $
                                                        41
                                                        
                                                        
                                                        $
                                                        51Short-term
      deposits
                                                        
                                                        
                                                        12
                                                        
                                                        
                                                        
                                                        134$
                                                        53
                                                        
                                                        
                                                        $
                                                        185Property
      and equipment, netComputer
      hardware and software
                                                        
                                                        $
                                                        1,371
                                                        
                                                        
                                                        $
                                                        1,299Leasehold
      improvements
                                                        
                                                        
                                                        82
                                                        
                                                        
                                                        
                                                        67Furniture
      and office equipment
                                                        
                                                        
                                                        276
                                                        
                                                        
                                                        
                                                        2431,729
                                                        
                                                        
                                                        
                                                        1,609Less
      accumulated depreciation and amortization
                                                        
                                                        
                                                        (1,284
                                                        )
                                                        
                                                        
                                                        (1,197
                                                        )$
                                                        445
                                                        
                                                        
                                                        $
                                                        412Other
      assetsLong-term
      deposits
                                                        
                                                        $
                                                        133
                                                        
                                                        
                                                        $
                                                        6Intangibles
                                                        
                                                        
                                                        17
                                                        
                                                        
                                                        
                                                        -$
                                                        150
                                                        
                                                        
                                                        $
                                                        6Accounts
      payable and accrued liabilitiesAccounts
      payable
                                                        
                                                        $
                                                        286
                                                        
                                                        
                                                        $
                                                        429Salaries
      and wages payable
                                                        
                                                        
                                                        579
                                                        
                                                        
                                                        
                                                        287Accrued
      services
                                                        
                                                        
                                                        25
                                                        
                                                        
                                                        
                                                        37Capital
      lease, current portion
                                                        
                                                        
                                                        33
                                                        
                                                        
                                                        
                                                        25Other
      accrued expenses
                                                        
                                                        
                                                        401
                                                        
                                                        
                                                        
                                                        516$
                                                        1,324
                                                        
                                                        
                                                        $
                                                        1,294




Depreciation
expense for the years ended March 31, 2009, 2008 and 2007 was $210, $102, and
$89 respectively.





Note
6.  401(k) Savings Plan





Salon’s
401(k) Savings Plan (the “401(k) Plan”) is a defined contribution retirement
plan intended to qualify under Sections 401(a) and 401(k) of the Internal
Revenue Code. All full-time employees of Salon are eligible to participate in
the 401(k) Plan pursuant to its terms.  Participants may contribute
from 1% to 20% of compensation, subject to statutory
limitations.  Employer matching 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, 2009.





49
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SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




Note
7. Employee Stock Option Plan




Salon has
two stock option plans approved by shareholders.  The Salon Internet,
Inc. 1995 Stock Option Plan (the 1995 Plan), which was terminated in November
2004, and the Salon Media Group, Inc. 2004 Stock Plan (the 2004 Plan) that was
approved by Salon’s stockholders in November 2004.  The 2004 Plan
allows the issuance of incentive and nonstatutory options to employees and
non-employees of Salon.  In October 2005, Salon’s stockholders
approved an amendment to the 2004 Plan to increase the maximum number of shares
of common stock that may be issued under the plan by 800,000 to 2,300,000
shares.  In October 2007, Salon’s stockholders approved another
amendment to the 2004 Plan to increase the maximum number of shares of common
stock that may be issued under the plan by 875,000 to a total of 3,175,000
shares and to allow for grants of restricted stock awards.




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




Salon may
grant restricted stock awards to officers under the Salon Media Group, Inc. 2004
Stock Plan, as amended and restated through October 4, 2007 (the “2004 Plan),
that typically vest over an approximate four year period.  Restricted
stock awards are considered outstanding at the time of grant, as the stock award
holders are entitled to dividends and voting rights





On
December 4, 2008, Salon granted non-plan restricted stock awards to certain
officers.  These grants will become fully vested on January 1,
2010.  Non- Plan restricted stock awards are considered outstanding at
the time of grant, as the stock award holders are entitled to dividends and
voting rights.  As of March 31, 2009, the number of shares granted but
unvested was 346,000 with a weighted average fair value of $0.35.





As of
March 31, 2009, Salon has approximately 782,000 shares authorized to be issued
under the 2004 Plan of which 293,000 remain available for future
grant.





Salon has
granted options pursuant to plans not approved by shareholders.  These
grants include an option to purchase 25,000 shares of common stock issued in
December 2006 and an option to purchase 50,000 shares of common stock issued in
June 2006, both granted to Salon’s then Senior Vice President – Publisher, and
an option to purchase 50,000 shares of common stock issued in February 2005 to
Salon’s former Chairman.  At March 31, 2009 Salon had 293,000 shares
of common stock authorized and available for grants under the 2004
Plan.







50
 Table of Contents




SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





During
the quarter ended December 31, 2008, the Company repriced substantially all its
outstanding options to $0.35, with no change in vesting. This resulted in a
non-cash incremental cost of approximately $0.4 million. The total compensation
cost measured at December 4, 2008 is the sum of (1) the portion of the
grant-date value of the original option award for which the requisite service is
expected to be rendered or already has been rendered on modification
date;


and (2)
the incremental cost resulting from the modification.  Incremental
cost is the excess, if any, of the fair value of the modified option award
immediately after the modification, over the fair value of the original option
award immediately before the modification.  Incremental cost is
expensed over the remaining vesting period of each option, unless it is fully
vested in which case it is immediately recognized.





The
following table summarizes activity under Salon’s plans for the year ended March
31, 2009:




WeightedOutstanding
                  
                  
                  Average
                  
                  
                  AggregateStock
                  
                  
                  Exercise
                  
                  
                  IntrinsicOptions
                  
                  
                  Price
                  
                  
                  ValueOutstanding
      as of April 1, 2008
                  
                  
                  2,530,000
                  
                  
                  
                  $4.02
                  
                  
                  
                  $320,000Granted
                  
                  
                  670,000
                  
                  
                  
                  $0.38Exercised
                  
                  
                  (1,000
                  )
                  
                  
                  $1.05Expired
      or forfeited
                  
                  
                  (759,000
                  )
                  
                  
                  $1.87Outstanding
      at March 31, 2009
                  
                  
                  2,440,000
                  
                  
                  
                  $0.35
                  
                  
                  
                  $123,000Exercisable
      at March 31, 2009
                  
                  
                  1,377,000
                  
                  
                  
                  $0.36
                  
                  
                  
                  -Expected
      to vest
                  
                  
                  1,370,000
                  
                  
                  
                  $0.35
                  
                  
                  
                  $67,000





The
following table summarizes information about stock options outstanding at March
31, 2009:





Options
      Outstanding
                      
                      
                      Options
      ExercisableWeightedAverage
                      
                      
                      Weighted
                      
                      
                      
                      
                      
                      WeightedNumber
      of
                      
                      
                      Remaining
                      
                      
                      Average
                      
                      
                      Number
      of
                      
                      
                      AverageRange
      of
                      
                      Shares
                      
                      
                      Contractual
                      
                      
                      Exercise
                      
                      
                      Shares
                      
                      
                      ExerciseExercise
      Prices
                      
                      Outstanding
                      
                      
                      Life
      (Years)
                      
                      
                      Price
                      
                      
                      Exercisable
                      
                      
                      Price$0.20
      - $0.20
                      
                      
                      31,000
                      
                      
                      
                      10.0
                      
                      
                      $
                      0.20
                      
                      
                      
                      -
                      
                      
                      $
                      -$0.35
      - $0.35
                      
                      
                      2,407,000
                      
                      
                      
                      7.4
                      
                      
                      $
                      0.35
                      
                      
                      
                      1,375,000
                      
                      
                      $
                      0.35$5.20
      - $5.20
                      
                      
                      2,000
                      
                      
                      
                      6.1
                      
                      
                      $
                      5.20
                      
                      
                      
                      2,000
                      
                      
                      $
                      5.202,440,000
                      
                      
                      
                      7.4
                      
                      
                      $
                      0.35
                      
                      
                      
                      1,377,000
                      
                      
                      $
                      0.36





The
weighted average fair value per share of the stock option awards in the year
ended March 31, 2009, 2008 and 2007 was $0.41, $0.94, and $1.34,
respectively.  The weighted average fair value of options vested
during the year ended March 31, 2009 was $0.63 per share.




51
 Table of Contents




SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




The
total intrinsic value of options exercised during the year ended March 31, 2009
for which Salon received $1 in cash was $0.




Note 8. Capital
Requirements





Salon has
incurred significant net losses and negative cash flows from operations since
its inception.  As of March 31, 2009, Salon had an accumulated
deficit of $101.0 million.  These losses have been funded primarily
through the issuance of common stock from Salon’s initial public offering in
June 1999, issuances of preferred stock, bank debt, from the issuance of
convertible notes payable, and other advances from related parties.




Note
9.  Commitments and Contingencies





Salon has
operating lease agreements for its office space in San Francisco, CA that
expires in February 2014, and for its office in Manhattan Beach, CA that expires
in August 2009. In addition, Salon has a sublease agreement for its office in
Washington, D.C. that expires in December 2009. In addition, Salon’s operating
lease for its office space in New York was signed for the period June 2008
through September 2011.  Rent expense under operating lease agreements
was $457, and $470 for the years ended March 31, 2009, 2008, and 2007
respectively.





Salon
has four capital leases as of March 31, 2009.  Total future minimum
payments under operating and capital leases, short-term borrowing and
convertible notes in effect at March 31, 2009 are as follows:




Payments
      Due By PeriodTotal
                
                
                1
      Year or Less
                
                
                1 -
      3 Years
                
                
                3 -
      5 Years
                
                
                More
      than 5 YearsOperating
      leases
                
                $
                2,000
                
                
                $
                254
                
                
                $
                977
                
                
                $
                769
                
                
                $
                -Capital
      leases
                
                
                67
                
                
                
                33
                
                
                
                34
                
                
                
                -
                
                
                
                -Capital
      lease interest
                
                
                12
                
                
                
                9
                
                
                
                3
                
                
                
                -
                
                
                
                -Short-term
      borrowing
                
                
                1,250
                
                
                
                1,250
                
                
                
                -
                
                
                
                -
                
                
                
                -Short-term
      borrowing interest
                
                
                78
                
                
                
                78
                
                
                
                -
                
                
                
                -
                
                
                
                -Convertible
      notes
                
                
                2,500
                
                
                
                -
                
                
                
                2,500
                
                
                
                -
                
                
                
                -Convertible
      notes interest
                
                
                767
                
                
                
                326
                
                
                
                441
                
                
                
                -
                
                
                
                -Total
                
                $
                6,674
                
                
                $
                1,950
                
                
                $
                3,955
                
                
                $
                769
                
                
                $
                -





52
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SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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








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





Salon has
entered into employment agreements with certain key executives under which
severance payments in the aggregate amount of approximately $330 would become
due and payable in the event of their termination for other than cause or as a
result of a change in control.





Note
10. Income Taxes





Salon has
not recorded a provision or benefit for federal or state income taxes for any
period since inception due to incurred operating losses.  At March 31,
2009, Salon has net operating loss carry-forwards of $73,414 and $34,254 for
Federal and California purposes, respectively, available to reduce future
taxable income, if any.  During the year ended March 31, 2009, $2,307
of California net operating loss carry-forwards expired and additional $7,136 is
due to expire as of March 31, 2010, with the balance expiring over time
thereafter if not utilized beforehand.  The federal net operating loss
carry-forwards begin to expire on March 31, 2016 if not utilized
beforehand.





At March
31, 2009, Salon has research and development credit carry-forwards of $12 and $9
for Federal and California income tax purposes, respectively.  The
research and development credit carry-forwards expire beginning in the year
2011.





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


From 2009
to 2008, the valuation allowance changed by $1,560, and from 2008 to 2007, the
valuation allowance changed by $997.


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
      31,2009
                  
                  
                  2008Net
      operating losses
                  
                  $
                  27,094
                  
                  
                  $
                  25,421Other
                  
                  
                  918
                  
                  
                  
                  1,031Total
      deferred tax assets
                  
                  
                  28,012
                  
                  
                  
                  26,452Valuation
      allowance
                  
                  
                  (28,012
                  )
                  
                  
                  (26,452
                  )Net
      deferred tax asset
                  
                  $
                  -
                  
                  
                  $
                  -





53
 Table of Contents





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 31,2009
                  
                  
                  2008
                  
                  
                  2007Statutory
      tax benefit
                  
                  $
                  (1,598
                  )
                  
                  $
                  (1,177
                  )
                  
                  $
                  (633
                  )State
      taxes, net of federal benefit
                  
                  
                  (274
                  )
                  
                  
                  (202
                  )
                  
                  
                  (109
                  )Permanent
      differences
                  
                  
                  230
                  
                  
                  
                  130
                  
                  
                  
                  195Other
                  
                  
                  81
                  
                  
                  
                  253
                  
                  
                  
                  120Total
                  
                  
                  (1,561
                  )
                  
                  
                  (996
                  )
                  
                  
                  (427
                  )Change
      in valuation allowance
                  
                  
                  1,561
                  
                  
                  
                  996
                  
                  
                  
                  427$
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -




Note
11. Preferred Stock




On
November 19, 2007 Salon issued 292 shares of Series D-5 preferred stock and
warrants to purchase a total of 35,040 shares of common stock for which it
received $350 in cash from the father of a Salon director.  The
warrants were issued at an exercise price of $1.840 per share, subject to
adjustment.  The financing was effected in accordance with Amendment
No. 8 to the Securities Purchase Agreement dated as of November 19,
2007.  All shares were sold at a price of $1,200 per
share.  The 292 shares of Series D-5 preferred stock are convertible
into, and have the voting rights of 233,600 shares of common stock, subject to
adjustment.




The Certificate of Designation of
Preferences and Rights of the Series D preferred stock stipulates that the
conversion price to common stock be equal to 70% of the average closing price of
Salon’s common stock for the thirty days prior to the date Salon provides notice
to purchasers regarding the sale of shares of Series D preferred
stock.  As a result, (1) the issuance of preferred stock on November
19, 2007 was at an effective common stock per share price of $1.500 compared to
a closing per share stock price on the date of the transaction of $1.600, (2)
the issuance of preferred stock on December 18, 2006 was at an effective common
stock per share price of $0.917 compared to a closing per share stock price on
the date of the transaction of $1.30, (3) the issuance of preferred stock on
September 21, 2006 was at an effective common stock per share price of $1.708
(as adjusted for the reverse stock split) compared to a closing per share stock
price on the date of the transaction of $2.00 (as adjusted for the reverse stock
split), and (4) the issuance of preferred stock on July 27, 2006 was at an
effective common stock per share price of $2.473 (as adjusted for the reverse
stock split) compared to a closing per share stock price on the date of the
transaction of $2.80 (as adjusted for the reverse stock split).  As
the shares of preferred stock were in the money on the commitment dates, Salon
therefore determined that the value of the beneficial conversion feature of the
shares of preferred stock issued was $73 for the shares issued on July 27, 2006,
$113 for the shares issued on September 21, 2006, $109 for the shares issued on
December 18, 2006 and $54 for the shares issued on November 19,
2007.  As the shares of preferred stock were immediately convertible
to shares of common stock, Salon recorded a preferred deemed dividend of $54 for
the year ended March 31, 2008.




54
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SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







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




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





During
the year ended March 31, 2009, eight shares of Series A preferred stock were
converted to 17,671 shares of common stock. Salon received no cash proceeds from
the transaction.








55
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SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







Following
the above transactions and the 20:1 reverse stock split of November 15, 2006,
the conversion rate and common equivalent shares of Salon’s preferred stock is
as follows as of March 31, 2009:




Per
      share
                    
                    
                    CommonShares
                    
                    
                    Purchase
                    
                    
                    Conversion
                    
                    
                    EquivalentPreferred
      Stock
                    
                    Outstanding
                    
                    
                    Price
                    
                    
                    Rate
                    
                    
                    SharesSeries
      A
                    
                    
                    675
                    
                    
                    
                    $4,000
                    
                    
                    
                    1.811
                    
                    
                    
                    1,491,009Series
      B
                    
                    
                    125
                    
                    
                    
                    $4,000
                    
                    
                    
                    1.495
                    
                    
                    
                    334,449Series
      C
                    
                    
                    6,582
                    
                    
                    
                    $800
                    
                    
                    
                    0.788
                    
                    
                    
                    6,685,091Series
      D-1
                    
                    
                    417
                    
                    
                    
                    $1,200
                    
                    
                    
                    1.707
                    
                    
                    
                    293,164Series
      D-2
                    
                    
                    417
                    
                    
                    
                    $1,200
                    
                    
                    
                    1.976
                    
                    
                    
                    253,239Series
      D-3Issued
      on 12/21/05
                    
                    
                    209
                    
                    
                    
                    $1,200
                    
                    
                    
                    1.707
                    
                    
                    
                    146,934Issued
      on 07/27/06
                    
                    
                    208
                    
                    
                    
                    $1,200
                    
                    
                    
                    2.192
                    
                    
                    
                    113,851Series
      D-4Issued
      on 07/27/06
                    
                    
                    42
                    
                    
                    
                    $1,200
                    
                    
                    
                    2.192
                    
                    
                    
                    22,989Issued
      on 09/21/06
                    
                    
                    333
                    
                    
                    
                    $1,200
                    
                    
                    
                    1.585
                    
                    
                    
                    252,067Issued
      on 12/18/06
                    
                    
                    42
                    
                    
                    
                    $1,200
                    
                    
                    
                    0.893
                    
                    
                    
                    56,429Series
      D-5Issued
      on 12/18/06
                    
                    
                    125
                    
                    
                    
                    $1,200
                    
                    
                    
                    0.893
                    
                    
                    
                    167,944Issued
      on 11/19/07
                    
                    
                    292
                    
                    
                    
                    $1,200
                    
                    
                    
                    1.418
                    
                    
                    
                    247,169Total
                    
                    
                    9,467
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    10,064,335




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




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 Table of Contents


SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




Warrants
outstanding as of March 31, 2009 that have been issued to holders of Series D
preferred stock are as follows:




Exercise
                
                
                WarrantPrice
                
                
                SharesSeries
      D-3Issued
      on 07/27/06
                
                
                $2.774
                
                
                
                15,137Series
      D-4Issued
      on 07/27/06
                
                
                $2.774
                
                
                
                3,056Issued
      on 09/21/06
                
                
                $2.058
                
                
                
                35,093Issued
      on 12/18/06
                
                
                $1.410
                
                
                
                8,244Series
      D-5Issued
      on 12/18/06
                
                
                $1.410
                
                
                
                24,536Issued
      on 11/19/07
                
                
                $1.673
                
                
                
                35,040121,106




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





The holders of the Series D preferred
stock are entitled to dividends of 5.0%, as and if declared by the Board of
Directors.  In event of a liquidation, the holders of Series D
preferred stock and the holders of the Series C preferred stock rank in parity,
and are entitled to receive, prior and in preference to any distribution of any
assets or property of Salon to the holders of common stock, and the holders of
Series A and B preferred stock,  and in the case of the Series D
preferred stock, an amount per share equal to $1,200 plus an amount equal to all
declared but unpaid dividends, and in the case of the Series C preferred stock,
$1,600 per share, plus an amount equal to all declared but unpaid dividends,
based on an annual rate of 8%.  If the assets and funds available for
distribution are insufficient to permit the payment to the holders of Series C
and D preferred stock of their full preferential amounts, then the entire assets
and funds of Salon legally available for distribution to stockholders will be
distributed among the holders of Series C and D preferred stock ratably in
proportion to the full preferential amounts which they are entitled to
receive.  After an initial distribution to the holders of Series C and
D preferred stock, the holders of the Series A and B preferred stock, who rank
in parity, are entitled to receive, prior and in preference to any distribution
of any assets or property of Salon to the holders of common stock, an amount per
share equal to $8,000 plus an amount equal to all declared but unpaid dividends,
based on an annual rate of 8%.  If, after the initial distribution to
holders of Series C and D preferred stock, the remaining assets and funds
available for distribution are insufficient to permit the payment to the holders
of Series A and B preferred stock of the full preferential amounts, then the
entire remaining assets and funds of Salon legally available for distribution to
stockholders will be distributed among the holders of Series A and B preferred
stock ratably in proportion to the full preferential amounts which they are
entitled to receive. As of March 31, 2009, no dividend has been declared to the
holders of preferred stock.





57
 Table of Contents




SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







If, after
initial preferential liquidation payments to the holders of Series A, B, C and D
preferred stock, any assets remain available for distribution, such assets are
to be distributed ratably among the holders of common stock and preferred stock,
based on the shares of common stock then held by them and issuable upon
conversion of the shares of preferred stock then held by them, until aggregate
distributions per share reach $12,000 for the holders of Series A and B
preferred stock, $2,400 for the holders of Series C Preferred Stock and $3,600
for the holders of Series D preferred stock.  Salon has currently
outstanding 675 shares of Series A preferred stock, 125 shares of Series B
preferred stock, 6,582 shares of Series C preferred stock and 2,085 shares of
Series D preferred stock.





If, after
payment has been made to the holders of common stock and holders of preferred
stock mentioned above, any assets remain available for distribution, such assets
are to be distributed ratably among the holders of common stock and the holders
of Series C preferred stock, based on the number of shares of common stock then
held by them and issuable upon conversion of the Series C preferred stock then
held by them.  Based on available information, Salon estimates that
the holders of Series C preferred stock hold approximately 89% of this group of
shareholders.





The
holders of preferred stock are entitled to vote together with the holders of
Salon’s common stock as though part of that class, and are entitled to vote on
all matters and to that number of votes equal to the largest number of whole
shares of common stock into which the shares of preferred stock could be
converted.  Preferred stockholders as a group own approximately 91% of
the outstanding shares of common stock and common stock issuable upon conversion
of the shares of preferred stock, all with voting rights.





The
aggregate liquidation preferences of all preferred stockholders as of March 31,
2009 were $19,443 excluding the effect of undeclared dividends, and $24,246
including the effect of undeclared dividends.  The aggregate
liquidation preferences of all preferred stockholders as of March 31, 2008 were
$19,497 excluding the effect of undeclared dividends, and $23,498 including the
effect of undeclared dividends.





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




58
 Table of Contents





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




Note
12. Warrants




During
the years ended March 31, 2008 and March 31, 2009, no warrants were
exercised.




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


ExerciseIssue
      Date
                                  
                                  Exercise
      Date
                                  
                                  Warrant
      Holder
                                  
                                  Warrant
      Shares
                                  
                                  
                                  Price
      per share
                                  
                                  
                                  Cash
      Received08/09/01
                                  
                                  06/22/06
                                  
                                  Shea
      Ventures LLC
                                  
                                  
                                  50,000
                                  
                                  
                                  $
                                  2.188
                                  
                                  
                                  $
                                  10906/26/03
                                  
                                  06/22/06
                                  
                                  E&M
      RP Trust
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.901
                                  
                                  
                                  
                                  1408/09/01
                                  
                                  07/31/06
                                  
                                  Stewart
      Carrell
                                  
                                  
                                  2,400
                                  
                                  
                                  $
                                  2.188
                                  
                                  
                                  
                                  508/09/01
                                  
                                  07/31/06
                                  
                                  Arthur
      Bruno
                                  
                                  
                                  1,200
                                  
                                  
                                  $
                                  2.188
                                  
                                  
                                  
                                  308/29/03
                                  
                                  08/29/06
                                  
                                  William
      E Mayer Holdings, Inc.
                                  
                                  
                                  6,000
                                  
                                  
                                  $
                                  0.690
                                  
                                  
                                  
                                  402/10/04
                                  
                                  02/05/07
                                  
                                  Shea
      Ventures LLC
                                  
                                  
                                  30,000
                                  
                                  
                                  $
                                  0.690
                                  
                                  
                                  
                                  21Total
      non-related parties
                                  
                                  
                                  104,600
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  15604/10/03
                                  
                                  04/05/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.834
                                  
                                  
                                  $
                                  1304/29/03
                                  
                                  04/05/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.901
                                  
                                  
                                  
                                  1408/09/01
                                  
                                  05/11/06
                                  
                                  Sarah
      & William Hambrecht Foundation
                                  
                                  
                                  30,000
                                  
                                  
                                  $
                                  2.188
                                  
                                  
                                  
                                  6606/12/03
                                  
                                  05/11/06
                                  
                                  The
      Hambrecht 1980 Revocable Trust
                                  
                                  
                                  7,500
                                  
                                  
                                  $
                                  0.901
                                  
                                  
                                  
                                  706/12/03
                                  
                                  05/11/06
                                  
                                  WR
      Hambrecht + Co LLC
                                  
                                  
                                  7,500
                                  
                                  
                                  $
                                  0.901
                                  
                                  
                                  
                                  707/10/03
                                  
                                  05/11/06
                                  
                                  HAMCO
      Capital Corporation
                                  
                                  
                                  7,500
                                  
                                  
                                  $
                                  0.834
                                  
                                  
                                  
                                  611/24/03
                                  
                                  05/11/06
                                  
                                  HAMCO
      Capital Corporation
                                  
                                  
                                  7,500
                                  
                                  
                                  $
                                  0.901
                                  
                                  
                                  
                                  702/10/04
                                  
                                  05/11/06
                                  
                                  The
      Hambrecht 1980 Revocable Trust
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.690
                                  
                                  
                                  
                                  1006/04/04
                                  
                                  05/11/06
                                  
                                  HAMCO
      Capital Corporation
                                  
                                  
                                  4,064
                                  
                                  
                                  $
                                  2.748
                                  
                                  
                                  
                                  1106/04/04
                                  
                                  05/11/06
                                  
                                  The
      Hambrecht 1980 Revocable Trust
                                  
                                  
                                  14,129
                                  
                                  
                                  $
                                  2.748
                                  
                                  
                                  
                                  3902/02/05
                                  
                                  05/11/06
                                  
                                  HAMCO
      Capital Corporation
                                  
                                  
                                  1,718
                                  
                                  
                                  $
                                  3.220
                                  
                                  
                                  
                                  602/02/05
                                  
                                  05/11/06
                                  
                                  The
      Hambrecht 1980 Revocable Trust
                                  
                                  
                                  15,381
                                  
                                  
                                  $
                                  3.220
                                  
                                  
                                  
                                  5005/28/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  45,000
                                  
                                  
                                  $
                                  0.901
                                  
                                  
                                  
                                  4107/10/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.833
                                  
                                  
                                  
                                  1207/30/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.690
                                  
                                  
                                  
                                  1008/29/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.690
                                  
                                  
                                  
                                  1009/12/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.901
                                  
                                  
                                  
                                  1309/29/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  1.036
                                  
                                  
                                  
                                  1610/10/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.901
                                  
                                  
                                  
                                  1310/30/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.901
                                  
                                  
                                  
                                  1311/12/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.969
                                  
                                  
                                  
                                  1511/24/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.901
                                  
                                  
                                  
                                  1312/11/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.901
                                  
                                  
                                  
                                  1312/30/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  75,000
                                  
                                  
                                  $
                                  0.690
                                  
                                  
                                  
                                  5212/31/03
                                  
                                  05/12/06
                                  
                                  John
      Warnock
                                  
                                  
                                  15,000
                                  
                                  
                                  $
                                  0.690
                                  
                                  
                                  
                                  1008/09/01
                                  
                                  06/29/06
                                  
                                  John
      Warnock
                                  
                                  
                                  50,000
                                  
                                  
                                  $
                                  2.188
                                  
                                  
                                  
                                  10908/09/01
                                  
                                  08/08/06
                                  
                                  WR
      Hambrecht + Co LLC
                                  
                                  
                                  20,000
                                  
                                  
                                  $
                                  2.188
                                  
                                  
                                  
                                  4408/29/03
                                  
                                  08/29/06
                                  
                                  Eu
      Revocable Trust
                                  
                                  
                                  3,750
                                  
                                  
                                  $
                                  0.690
                                  
                                  
                                  
                                  3Total
      related parties
                                  
                                  
                                  499,042
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  623Total
      exercised
                                  
                                  
                                  603,642
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  779





59
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SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




The
related parties include:


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


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


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


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


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


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





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





ExerciseIssue
      Date
                                
                                Exercise
      Date
                                
                                Warrant
      Holder
                                
                                Warrant
      Shares
                                
                                
                                Price
      per share
                                
                                
                                Converted
      Shares07/10/03
                                
                                06/05/06
                                
                                Octavia,
      LLC
                                
                                
                                14,700
                                
                                
                                $
                                0.834
                                
                                
                                
                                11,09608/09/01
                                
                                07/31/06
                                
                                Alacrity
      Tertiare LLC
                                
                                
                                10,000
                                
                                
                                $
                                2.188
                                
                                
                                
                                3,16108/09/01
                                
                                07/31/06
                                
                                Thomas
      Dittmer Declaration Trust
                                
                                
                                24,800
                                
                                
                                $
                                2.188
                                
                                
                                
                                7,84008/09/01
                                
                                08/08/06
                                
                                Constellation
      Venture Offshore
                                
                                
                                4,400
                                
                                
                                $
                                2.188
                                
                                
                                
                                1,39008/09/01
                                
                                08/08/06
                                
                                Constellation
      Venture
                                
                                
                                20,800
                                
                                
                                $
                                2.188
                                
                                
                                
                                6,57509/13/01
                                
                                08/30/06
                                
                                Octavia,
      LLC
                                
                                
                                24,800
                                
                                
                                $
                                2.188
                                
                                
                                
                                6,70909/13/01
                                
                                08/31/06
                                
                                HVS
      Boxers, LLC
                                
                                
                                24,800
                                
                                
                                $
                                2.188
                                
                                
                                
                                6,70909/13/01
                                
                                09/05/06
                                
                                Wasserstein
      Adelson Ventures
                                
                                
                                25,200
                                
                                
                                $
                                2.188
                                
                                
                                
                                6,81712/10/03
                                
                                12/06/06
                                
                                Wenner
      Media LLC
                                
                                
                                130,000
                                
                                
                                $
                                0.901
                                
                                
                                
                                18,424Total
      non-related parties
                                
                                
                                279,500
                                
                                
                                
                                
                                
                                
                                
                                68,72104/10/03
                                
                                04/04/06
                                
                                Ironstone
      Group, Inc
                                
                                
                                15,000
                                
                                
                                $
                                0.834
                                
                                
                                
                                12,76604/29/03
                                
                                04/25/06
                                
                                Ironstone
      Group, Inc
                                
                                
                                15,000
                                
                                
                                $
                                0.901
                                
                                
                                
                                12,18310/06/03
                                
                                05/11/06
                                
                                Ironstone
      Group, Inc
                                
                                
                                15,000
                                
                                
                                $
                                1.036
                                
                                
                                
                                10,90910/30/03
                                
                                05/11/06
                                
                                Ironstone
      Group, Inc
                                
                                
                                7,500
                                
                                
                                $
                                0.901
                                
                                
                                
                                5,72108/09/01
                                
                                08/09/06
                                
                                McKay
      Investment Group
                                
                                
                                24,800
                                
                                
                                $
                                2.188
                                
                                
                                
                                7,84002/10/04
                                
                                02/07/07
                                
                                WR
      Hambrecht + Co Inc.
                                
                                
                                15,000
                                
                                
                                $
                                0.690
                                
                                
                                
                                8,322Total
      related parties
                                
                                
                                92,300
                                
                                
                                
                                
                                
                                
                                
                                57,741Total
      converted
                                
                                
                                371,800
                                
                                
                                
                                
                                
                                
                                
                                126,462






60
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SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







The
related parties include:


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


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


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





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





Following
the above transactions, and after considering warrants issued in conjunction
with the issuance of preferred stock (see Footnote No.11) and expired warrants,
Salon has warrants to purchase 123,320 shares of common stock outstanding as of
March 31, 2009, as follows:




Warrant
                    
                    
                    Exercise
                    
                    Grant
                    ExpirationWarrant
      Holder
                    
                    Shares
                    
                    
                    Price
                    
                    Date
                    DateThe
      Hambrecht 1980 Revocable Trust
                    
                    
                    9,097
                    
                    
                    
                    $3.013
                    
                    07/27/06
                    07/27/09John
      Warnock
                    
                    
                    6,040
                    
                    
                    
                    $3.013
                    
                    07/27/06
                    07/27/09John
      Warnock
                    
                    
                    3,056
                    
                    
                    
                    $3.013
                    
                    07/27/06
                    07/27/09The
      Hambrecht 1980 Revocable Trust
                    
                    
                    17,599
                    
                    
                    
                    $2.215
                    
                    09/21/06
                    09/21/09John
      Warnock
                    
                    
                    17,494
                    
                    
                    
                    $2.215
                    
                    09/21/06
                    09/21/09Silicon
      Valley Bank
                    
                    
                    2,214
                    
                    
                    
                    $0.862
                    
                    10/17/02
                    10/17/09John
      Warnock
                    
                    
                    8,244
                    
                    
                    
                    $1.494
                    
                    12/18/06
                    12/18/09John
      Warnock
                    
                    
                    24,536
                    
                    
                    
                    $1.494
                    
                    12/18/06
                    12/18/09The
      Hambrecht 1980 Revocable Trust
                    
                    
                    35,040
                    
                    
                    
                    $1.786
                    
                    11/19/07
                    11/19/10123,320





Note
13. Subsequent Events





Following
year end, the Company has received $550 in advances from related parties,
including $250 from the father of the Company’s then CEO and director, and $300
from the Company’s Chairman. This debt is exchangeable into securities to be
issued in the next financing raised by the Company from non-related
parties.







61
 Table of Contents




Selected
      Quarterly Financial Data (unaudited)(in
      thousands, except per share data)
  First
                    
                    
                    Second
                    
                    
                    Third
                    
                    
                    FourthQuarter
                    
                    
                    Quarter
                    
                    
                    Quarter
                    
                    
                    Quarter2009:Net
      revenues
                    
                    $
                    1,907
                    
                    
                    $
                    1,977
                    
                    
                    $
                    1,848
                    
                    
                    $
                    1,142Net
      loss attributable tocommon
      stockholders
                    
                    
                    (582
                    )
                    
                    
                    (1,281
                    )
                    
                    
                    (1,133
                    )
                    
                    
                    (1,703
                    )Basic
      and diluted net loss per shareattributable
      to common stockholders
                    
                    
                    (0.30
                    )
                    
                    
                    (0.66
                    )
                    
                    
                    (0.57
                    )
                    
                    
                    (0.84
                    )Basic
      and diluted shares used in per share calculation
                    
                    
                    1,941
                    
                    
                    
                    1,953
                    
                    
                    
                    2,004
                    
                    
                    
                    2,0202008:Net
      revenues
                    
                    $
                    1,974
                    
                    
                    $
                    2,132
                    
                    
                    $
                    2,190
                    
                    
                    $
                    1,217Net
      loss attributable to common stockholders
                    
                    
                    (996
                    )
                    
                    
                    (308
                    )
                    
                    
                    (616
                    )
                    
                    
                    (1,544
                    )Basic
      and diluted net loss per shareattributable
      to common stockholders
                    
                    
                    (0.51
                    )
                    
                    
                    (0.16
                    )
                    
                    
                    (0.32
                    )
                    
                    
                    (0.80
                    )Basic
      and diluted shares used in per share calculation
                    
                    
                    1,940
                    
                    
                    
                    1,940
                    
                    
                    
                    1,940
                    
                    
                    
                    1,940







62
 Table of Contents


ITEM9.  Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures





None.





ITEM9A.  Controls and Procedures





Disclosure
Controls and Procedures





Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
Annual Report (March 31, 2009), as is defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as amended. Our disclosure controls and procedures are intended to ensure that
the information we are required to disclose in the reports that we file or
submit under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and
(ii) accumulated and communicated to our management, including the Chief
Executive Officer and Chief Financial Officer, as the principal executive and
financial officers, respectively, to allow timely decisions regarding required
disclosures.





Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of the end of the period covered by this Annual Report, our
disclosure controls and procedures were effective.





Our
management has concluded that the financial statements included in this
Form 10-K present fairly, in all material respects our financial position,
results of operations and cash flows for the periods presented in conformity
with generally accepted accounting principles.





It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system will be met. In addition, the design of any control system is based in
part upon certain assumptions about the likelihood of future
events.





Management’s
Annual Report on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Our
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of consolidated financial statements for external purposes in accordance with
generally accepted accounting principles.





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
guidelines as set forth in Securities and Exchange Commission Release no.
33-8810, Commission Guidance Regarding Management’s Report on Internal Control
Over Financial Reporting Under Section 13(a) or 15(d) of the Securities Exchange
Act of 1934. Based on our evaluation, our management concluded that our internal
control over financial reporting was effective as of March 31,
2009.





This
annual report does not include an audit or attestation report of our registered
public accounting firm regarding our internal control over financial reporting.
Our management’s report was not subject to audit or attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this annual
report.





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Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. It should be noted that any system of controls,
however well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system will be met. In addition,
the design of any control system is based in part upon certain assumptions about
the likelihood of future events. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




Changes
in Internal Control Over Financial Reporting





During
the most recent fiscal quarter, there have not been any significant changes in
our internal controls over financial reporting or in other factors that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.





ITEM9B.  Other Information





None.








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PART
III





ITEM10.   Directors and Executive Officers of
the Registrant





Salon’s executive officers and
directors as of May 31, 2009 are as follows:





Name
              
              Age
              
              PositionRichard
      Gingras  (3)
              
              57
              
              Chief
      Executive Officer, DirectorNorman
      Blashka
              
              55
              
              Executive
      Vice President and Chief Financial OfficerJoan
      Walsh
              
              50
              
              Editor-in-ChiefDeepak
      Desai (1,4,6)
              
              50
              
              DirectorRobert
      Ellis (2,4)
              
              73
              
              DirectorElizabeth  Hambrecht(3)
              
              46
              
              DirectorGeorge
      Hirsch(1,4)
              
              74
              
              DirectorJames
      Rosenfield (3,5)
              
              80
              
              DirectorDavid
      Talbot(2,)
              
              57
              
              DirectorJohn
      Warnock(1,5)
              
              68
              
              Chairman
      of the Board, Director





(1)
            Class
      I director whose term expires at the 2009 Annual Meeting of
      Stockholders


(2)
            Class
      II director whose term expires at the 2010 Annual Meeting of
      Stockholders


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


(4)
            Member
      of Audit Committee


(5)
            Member
      of Compensation Committee


(6)
            Audit
      Committee financial expert








Richard Gingras was appointed
Chief Executive Officer and a Director in May 2009.  Prior to joining
Salon, he worked as an advisor to various technology startups and also served as
an advisor on media product strategy to the senior team at Google from November
2007 through December 2008.  From June 2002 through July 2007 he was
founder, CEO and Chairman of Goodmail Systems and continued as Chairman through
October 2008.  From September 2000 through June 2002, he was an advisor to
various technology startups including Audiomill (merged into Real Networks,
April 2002), technology incubator ChanceTechAV, web applications platform
provider Laszlo Systems, custom book publisher MyPublisher, and broadband
applications platform developer Sugar Media. From January 1996 through January
1999, he was the founding Vice President, Programming of @Home Network and
following that company’s acquisition of Excite became Senior Vice President and
General Manager of Excite@Home's consumer portal division through September
2000. In late 1995 he assembled the seed financing for Salon.com and served as
an informal advisor to the Company. From September 1993 to January 1996 he was
Group Product Manager, Online Services at Apple Computer. From the spring of
1992 through July 1993 he was Group Product Manager at the Peter Norton
Computing division of Symantec Corporation.  From September 1987 through
May 1993 he was Chief Executive Officer of MediaWorks, Inc.  Mr. Gingras
holds a Bachelor of Arts degree in English from Boston College.




Norman Blashkawas appointed
Executive Vice President and Chief Financial Officer of Salon in January 2008.
From May 2006 through December 2007, he served as Chief Financial Officer of
Vizible Corp., an internet software and social networking company. From January
2005 to April 2006, he served as Chief Financial Officer of Operative Media,
Inc., an online advertising operations and software company. From January 2004
through December 2005, he served as a financial advisor to a number of internet
startup companies. From October 2001 to January 2004, he served as Executive
Vice President and Chief Financial Officer of 24/7 Real Media, Inc., a global
digital marketing and technology company. From September 1999 until its
acquisition in October 2001, he served as Senior Vice President, Chief Financial
Officer and Secretary of Real Media, Inc.  Prior thereto, he served in
a variety of senior financial and operating positions with both startups and
established media companies. Mr. Blashka is a Certified Public Accountant,
earned an MBA in finance and accounting from Columbia University, and holds a BA
in economics, summa cum
laude, from SUNY New Paltz, where he currently sits on the Board of
Trustees and chairs its audit committee.





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





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





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





Elizabeth Hambrecht served as
Chief Executive Office from September 2008 until May 2009.  She also
previously served as Salon’s Chief Executive Officer from February 2005 until
September 2007 and was Salon’s President from October 2003 until September 2007.
From May 2003 through February 2005 she also served as Salon’s Chief Financial
Officer and Secretary.  From 1999 to March 2003, she was co-founder
and Director of Asiacontent.com, an online media company focused on Asian
markets. From 1997 to 2000 she was co-founder, Chief Financial Officer and
Director of Boom.com, a Hong Kong-based online stock trading
company.  From 1992 to 1995 she was Executive Director at Goldman
Sachs (Hong Kong) Ltd.  From 1987 to 1992 she was Assistant Director
at Barings Securities (Hong Kong) Ltd.  Ms. Hambrecht holds a Bachelor
of Arts degree in History from Vassar College.  She sits on the Board
of Trustees of the San Francisco Friends School, and Northern California Public
Broadcasting, a public broadcast company for Northern California.





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





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




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





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





Code
of Conduct




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





67
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Section
16(a) Beneficial Ownership Reporting Compliance




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




Based
solely on Salon’s review of such forms furnished to us and written
representations from certain reporting persons, we believe that all filing
requirements applicable to our executive officers, directors and more than 10%
stockholders were complied with.






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ITEM11.  Executive Compensation




Executive
Compensation




The
following table shows, for the fiscal year ended March 31, 2009, the
compensation of Salon’s (i) principal executive officer; (ii) principal
financial officer; and (iii) the three most highly compensated executive
officers other than our principal executive officer and principal financial
officer who were serving as executive officers during the year ended March 31,
2009, collectively the “Named Executive Officers”:




Summary
Compensation Table




Non-EquityOption
                      
                      
                      Incentive
      PlanName
      and Principal Position
                      
                      Year
                      
                      Salary
      ($)
                      
                      
                      Bonus
      ($)
                      
                      
                      Awards
      ($) (1)
                      
                      
                      Compensation
      ($)
                      
                      
                      Total
      ($)Elizabeth
      Hambrecht (2)
                      
                      2009
                      
                      
                      65,360
                      
                      
                      
                      -
                      
                      
                      
                      3,047
                      
                      
                      
                      33,000
                      
                      
                      
                      101,407Former Chief Executive OfficerNorman
      Blashka (3)
                      
                      2009
                      
                      
                      195,000
                      
                      
                      
                      -
                      
                      
                      
                      266,550
                      
                      
                      
                      -
                      
                      
                      
                      461,550Executive Vice President and Chief Financial OfficerJoan
      Walsh (4)
                      
                      2009
                      
                      
                      219,292
                      
                      
                      
                      -
                      
                      
                      
                      272,739
                      
                      
                      
                      -
                      
                      
                      
                      492,031Editor-in-ChiefChristopher
      Neimeth (5)
                      
                      2009
                      
                      
                      408,571
                      
                      
                      
                      23,973
                      
                      
                      
                      471,945
                      
                      
                      
                      -
                      
                      
                      
                      904,488Former
      Chief Executive OfficerAndreas
      Droste (6)
                      
                      2009
                      
                      
                      166,922
                      
                      
                      
                      -
                      
                      
                      
                      32,497
                      
                      
                      
                      55,000
                      
                      
                      
                      254,420Former
      Senior Vice President  Salesand
      Marketing





1.
            The
      amounts shown are the compensation costs recognized by Salon in fiscal
      year 2009 for option and restricted stock awards, as determined pursuant
      to Statement of Financial Accounting Standards No. 123 (revised 2004),
      Share-Based
      Payments (“SFAS 123R”), excluding any estimates of future
      forfeitures.  For a discussion of the assumptions used to
      calculate the value of the option awards, see Note 2 of the Notes to the
      Consolidated Financial Statements.





2.
            Ms.
      Hambrecht was reappointed Chief Executive Officer in September 2008 and
      served in this position until replaced by Richard Gingras in May
      2009.  Her base annual salary during fiscal 2009 was
      $130,000.  Her base salary excludes $33,000 earned for
      consulting services prior to her appointment as CEO.  Ms.
      Hambrecht continues to serve as a company director and
      consultant.





3.
            Mr.
      Blashka was appointed Executive Vice President and Chief Financial Officer
      in January 2008 at a base annual salary of $200,000. In January 2009, Mr.
      Blashka agreed to a temporary 10% salary reduction in return for
      restricted stock.  Included in option awards is an equity grant
      in lieu of a cash bonus totaling
$73,594.





4.
            Ms.
      Walsh continues to serve as Editor-in-Chief.  Her base annual
      salary during fiscal 2009 was $230,000.  In January 2009, Ms.
      Walsh agreed to a temporary 10% salary reduction in return for restricted
      stock. Included in option awards is an equity grant in lieu of a cash
      bonus totaling $73,594.





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5.
            Mr.
      Neimeth served as Chief Executive Officer from September 2007 to September
      2008 with a base annual salary of $230,000. Option awards amount includes
      $329,654 in stock compensation expense due to accelerate vesting. Mr.
      Neimeth’s salary amount includes payments paid upon his termination
      totaling $230,000.   The non-equity incentive plan
      compensation amount reflects a partial year
  bonus.





6.
            Mr.
      Droste served as Senior Vice President Sales and Marketing from April
      2008 to March 2009 at a base annual salary of $180,000.  The
      salary amount includes payments paid upon his termination totaling
      $18,000.  The nonequity incentive plan compensation amount
      reflects commissions paid during the fiscal
  year.







Grants
of Plan-Based Awards in Fiscal 2009




The
following table presents information on equity awards granted during the 2009
fiscal year:





GRANTS
OF PLAN BASED AWARDS




All
      OtherOption
      Awards:
                                        
                                        
                                        
                                        
                                        
                                        Grant
      DateNumber
      of
                                        
                                        
                                        Exercise
      or
                                        
                                        
                                        Fair
      ValueEstimated
      Future Payouts Under
                                        
                                        Securities
                                        
                                        
                                        Base
      Price
                                        
                                        
                                        of
      StockGrant
                                        
                                        Equity
      Incentive Plan Awards
                                        
                                        Underlying
                                        
                                        
                                        of
      Option
                                        
                                        
                                        and
      OptionName
                                        
                                        Date
                                        
                                        Threshold
                                        
                                        Target
                                        
                                        Maximum
                                        
                                        Options
                                        
                                        
                                        Awards
      (1)
                                        
                                        
                                        AwardsElizabeth
      Hambrecht (2)
                                        
                                        12/04/2008
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        10,833
                                        
                                        
                                        
                                        $0.35
                                        
                                        
                                        
                                        $3,41212/04/2008
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        292,857
                                        
                                        
                                        
                                        $0.35
                                        
                                        
                                        
                                        $102,500Norman
      Blashka(3)
                                        
                                        12/04/2008
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        16,667
                                        
                                        
                                        
                                        $0.35
                                        
                                        
                                        
                                        $5,25012/04/2008
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        57,143
                                        
                                        
                                        
                                        $0.35
                                        
                                        
                                        
                                        $20,000Joan
      Walsh(4,6)
                                        
                                        06/05/2008
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        125,000
                                        
                                        
                                        
                                        $0.35
                                        
                                        
                                        
                                        $77,50012/04/2008
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        19,167
                                        
                                        
                                        
                                        $0.35
                                        
                                        
                                        
                                        $6,03812/04/2008
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        65,714
                                        
                                        
                                        
                                        $0.35
                                        
                                        
                                        
                                        $23,000Andreas
      Droste(5)
                                        
                                        12/04/2004
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        15,000
                                        
                                        
                                        
                                        $0.35
                                        
                                        
                                        
                                        $4,72506/05/2008
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        50,000
                                        
                                        
                                        
                                        $0.35
                                        
                                        
                                        
                                        $31,000





(1)
            The
      exercise price per share of each restricted stock and option was equal to
      the fair market value of Salon’s common stock on the date of grant. On
      December 4, 2008, Salon repriced all outstanding options for then current
      employees at $0.35, with no changes in vesting
    requirements.




(2)
            Non
      Plan restricted stock awarded to Ms. Hambrecht on December 4, 2008
      included 292,857 shares.




(3)
            Non
      Plan restricted stock awarded to Mr. Blashka on December 4, 2008 included
      57,143 shares, in lieu of salary.




70
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(4)
            Ms.
      Walsh’s employment agreement stipulated that she would be eligible to
      receive 125,000 stock options during her employment with
      Salon.




(5)
            Mr.
      Droste’s employment agreement stipulated that he would be eligible to
      receive 50,000 shares of common stock during his employment with
      Salon.




(6)
            Non
      Plan restricted stock awarded to Ms. Walsh on December 4, 2008 included
      65,714 shares, in lieu of salary.







Profit
Sharing Retirement Plan and 401(k) Savings Plan




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




71
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Outstanding
Equity Awards at Fiscal 2008 Year-End




The
following table sets forth the outstanding equity awards for each Named
Executive Officer as of March 31, 2009.




OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END




Option
      AwardsEquity
      IncentiveNumber
      of
                                                              
                                                              
                                                              Number
      of
                                                              
                                                              Plan
      Awards:Securities
                                                              
                                                              
                                                              Securities
                                                              
                                                              Number
      ofUnderlying
                                                              
                                                              
                                                              Underlying
                                                              
                                                              SecuritiesUnexercised
                                                              
                                                              
                                                              Unexercised
                                                              
                                                              Underlying
                                                              
                                                              Option
                                                              
                                                              OptionOptions
                                                              
                                                              
                                                              Options
                                                              
                                                              Unexercised
                                                              
                                                              Exercise
                                                              
                                                              ExpirationName
                                                              
                                                              Exercisable
                                                              
                                                              
                                                              Unexercisable
                                                              
                                                              Unearned  Options
                                                              
                                                              Price
      ($)
                                                              
                                                              DateElizabeth
      Hambrecht
                                                              
                                                              
                                                              125,000
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              2/7/201514,064
                                                              
                                                              
                                                              
                                                              
                                                              (1)       10,936
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              12/7/201630,631
                                                              
                                                              
                                                              
                                                              
                                                              39,369
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              6/28/201710,833
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              12/04/2018Norman
      Blashka
                                                              
                                                              
                                                              85,348
                                                              
                                                              
                                                              
                                                              
                                                              (2)     280,433
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              1/7/201816,667
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              12/04/2018Joan
      Walsh
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              19,167
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              12/04/201898,452
                                                              
                                                              
                                                              
                                                              
                                                              76,548
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              12/07/2016(1,3)125,000
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              06/05/20181,000
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              01/25/2010450
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              08/17/2010750
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              11/07/2010335
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              03/22/20111,000
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              05/03/20116,250
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              10/24/2011100,000
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              0.35
                                                              
                                                              
                                                              12/07/2015


(1)
            Option
      vests 1/48th
      per month starting January 7, 2008 provided the grantee continues to be
      employed by Salon.




(2)
            207,277
      options vest 1/48th
      per month as of April 2009, provided the grantee continues to be employed
      by Salon. 73,156 options vest upon Salon achieving “positive operating
      cash flow” in any four trailing quarters.  If Mr. Blashka is
      terminated, 100% of his outstanding options shall be fully vested and
      exercisable as of the date of his employment termination; and in the
      event of a change in control, all outstanding options become fully vested
      and exercisable.




(3)
            Options
      vest (1) if Ms. Walsh is terminated for other than cause, 100% of the
      shares subject to then outstanding options shall be fully vested and
      exercisable as of the date of her termination, and (2) in the event of a
      change of control, all outstanding options shall become fully vested and
      exercisable.







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Option
Exercises during Fiscal Year 2009




No
current Named Executive Officer exercised any option during fiscal year
2009.





Pension
Benefits




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





Nonqualified
Deferred Compensation




Salon
does not have any nonqualified deferred compensation plan.





Potential
Payments Upon Termination or Change in Control





Salon has
entered into employment agreements with Mr. Gingras, Mr. Blashka and Ms.
Walsh.





In the
event of a change in control, Mr. Gingras is entitled to the
following:





(1)           Fifty
percent (50%) of Executive’s then unvested equity awards shall become
vested.




(2)           If
Executive’s employment is terminated pursuant to an Involuntary Termination or
Executive resigns for Good Reason within three (3) months before or twelve (12)
months after the closing of a Change in Control, then Executive’s remaining
unvested equity awards shall become vested.




(3)           The
Company (or its successor in interest) will pay Executive an amount in cash
equal to the excess, if any, of (A) 5% of the aggregate consideration
(including all cash and non-cash consideration) paid or exchanged by one or more
acquirers in connection with such Change in Control over (B) Executive’s
Option Gains (as defined below).  For purposes of this Agreement,
“Executive’s
Option Gains” means the sum of (x) for stock options held by
Executive on the date of the closing of the transactions constituting a Change
in Control (the “Change in Control
Date”), the excess, if any, of the aggregate fair market value of the
Company common stock underlying such stock options measured as of the Change in
Control Date over the aggregate exercise price of such stock options plus (y) for stock options
exercised by Executive prior to the Change in Control Date, the excess, if any,
of the aggregate fair market value of the Company common stock underlying such
stock options as of the date of each such exercise over the aggregate exercise
price of such stock options.  The cash payment described in this
Section 4(f)(iii) will be paid as soon as administratively practicable after the
Change in Control Date, but in no event later than the 15th day of
the third month following the end of the year in which the Change in Control
occurs.





In the
event Mr. Blashka is terminated for a reason other than cause, he will be
entitled to a severance payment of six month’s salary and
benefits.  If Mr. Blashka (1) is terminated after June 30, 2008, 50%
of his outstanding options shall be fully vested and exercisable; (2) is
terminated after December 31, 2008, 100% of his outstanding options shall be
fully vested and exercisable; and (3) in the event of a change in control, all
outstanding options and restricted stock become fully vested and
exercisable.





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In the
event Ms. Walsh is terminated for a reason other than cause, she will be
entitled to a severance payment of one year’s salary and benefits. If Ms. Walsh
(1) is terminated for other than cause, 100% of her outstanding options shall be
fully vested and exercisable; and (2) in the event of a change in control, all
outstanding options become fully vested and exercisable.





Mr.
Gingras, Mr. Blashka and Ms. Walsh’s contracts contain annual target bonus
provisions of 50% of salary, 50-100% of salary and $150,000,
respectively.  In the event that Mr. Blashka or Ms. Walsh is
terminated for a reason other than cause, he or she will be entitled to receive
an amount equal to the bonus earned through the date of
termination.





Compensation
of Directors




The
following table details the total compensation by Salon’s non-employee directors
for its 2009 fiscal year:




Fees
      Earnedor
      Paid in
                
                
                OptionName
                
                Cash
                
                
                Awards
      (1)
                
                
                TotalDeepak
      Desai
                
                
                -
                
                
                
                $4,994
                
                
                
                $4,994Robert
      Ellis
                
                
                -
                
                
                
                $4,994
                
                
                
                $4,994Elizabeth
      Hambrecht (2)
                
                
                -
                
                
                
                $59,191
                
                
                
                $59,191George
      Hirsch
                
                
                -
                
                
                
                $4,994
                
                
                
                $4,994Robert
      McKay
                
                
                -
                
                
                
                $4,994
                
                
                
                $4,994James
      Rosenfield
                
                
                -
                
                
                
                $4,994
                
                
                
                $4,994David
      Talbot
                
                
                -
                
                
                
                $4,994
                
                
                
                $4,994John
      Warnock
                
                
                -
                
                
                
                $4,994
                
                
                
                $4,994




(1)
            On
      December 4, 2008, each director except for Ms. Hambrecht received an
      option to purchase 10,000 shares of common stock.  The grant
      date fair value of each stock option award was $3,150.  The
      exercise price per share for the grants to all of the directors was
      $0.35.  The amounts shown are the compensation costs recognized
      by Salon in fiscal year 2009 for option awards, as determined pursuant to
      SFAS 123R, excluding any estimates of future forfeitures.  For a
      discussion of the assumptions used to calculate the value of the option
      awards, see Note 2 of Notes to the Consolidated Financial
      Statements.





(2)
            On
      December 4, 2008, Ms. Hambrecht received an option to purchase 10,833
      shares of common stock. The grant date fair value was $3,412. The exercise
      price per share was $0.35. The amount shown is the compensation costs
      recognized by Salon in fiscal year 2009, as determined pursuant to SFAS
      123R, excluding any estimates of future forfeitures.  For a
      discussion of the assumptions used to calculate the value of the option
      awards, see Note 2 of  Notes to the Consolidated Financial
      Statements.





Compensation
Committee Interlocks and Insider Participation




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







74
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Compensation
Discussion and Analysis




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





Objectives
and Challenges of Salon’s Compensation Program





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





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





Role
of Compensation Committee and Outside Consultants





The
Compensation Committee of the Board of Directors oversees and administers
Salon’s executive compensation program in accordance with the Compensation
Committee Charter.  The Compensation Committee meets on an as-needed
basis to: (1) adjust and review executive salaries; (2) award executive bonuses;
(3) approve offers to prospective new executive officers; (4) recommend equity
grants for executive officers to the Board of Directors; and (5) set non-equity
incentive compensation for other key management employees, in conjunction and
based upon the recommendation of the executive team.  Due to budgetary
constraints, Salon has not utilized the services of outside compensation
consultants.  Once Salon’s operations generate sufficient cash to meet
operating needs, the Compensation Committee may retain the services of outside
consultants to review executive salaries for appropriateness and to formulate
incentive plans for the Named Executive Officers.





Elements
of Compensation





Salon
provides its executive officers with a compensation package consisting of base
salary, commissions for its sales executives, and benefit plan participation
generally available to other employees.  Beginning in fiscal 2009,
bonus plans were offered to named executives. In setting total compensation, the
Compensation Committee considers individual and company performance, as well as
current and projected cash balances.  In determining the compensation
for an executive who has been with Salon for a substantial amount of time, the
Compensation Committee will consider what it might cost to hire that executive’s
replacement, the effect on attaining revenue and profitability goals, and the
effect on the well being of Salon’s Website.





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





Bonuses and
Non-Equity Incentive Plan Compensation. Each executive is eligible for a
cash bonus.  Due to limited cash, no bonuses have ever been granted in
the past to Salon’s Chief Executive Officer and President, Chief Financial
Officer and Secretary and Editor-in-Chief. In fiscal 2009, a partial cash bonus
of $23,978 was paid to Mr. Neimeth, the Company’s CEO until September 2008, due
to the Company achieving certain operating targets through the date of his
departure.





In order
to align corporate goals and provide incentives for a its new Chief Executive
Officer, its  Chief Financial Officer, and its Editor-in-Chief, the
Compensation Committee will be formulating  a bonus plan for fiscal
2010, in accordance with their employment contracts. Fiscal year 2010 target
bonuses for these executives are $115,000, $150,000, and $150,000,
respectively.  Mr. Blashka and Ms. Walsh’s incentive compensation
plans for fiscal year 2009 were based on attaining prescribed common operating,
financial and other profitability goals, and were each targeted at
$150,000.  The bonuses, if earned, were payable in cash or stock at
the Company’s option.  If paid in stock, amounts were to be increased
by 25%.  The targeted amounts are contractually set.  The
goals were set based on what the Committee perceived to be synchronized with the
overall goal of increasing Salon’s enterprise value. Based on 2009 operating
results, Mr. Blashka and Ms. Walsh have each earned additional equity
compensation of $73,594, in lieu of cash.





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




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







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





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





The
number of stock options Salon granted to executives has varied
widely.  On May 4, 2009, Mr. Gingras was granted 1,416,211 options
upon joining the Company, with the right to receive up to an aggregate amount
equal to 10% of the fully-diluted shares of the Company under certain
circumstances. On December 4, 2009, Salon granted 16,667 options to its Chief
Financial Officer, Mr. Blashka, 15,000 options to its then Vice President of
Sales and Marketing, Andreas Droste, and 19,167 to Salon’s Editor-in-Chief, Joan
Walsh. During Fiscal 2008, in order to attract a new chief financial officer,
Salon granted 365,781 options to Mr. Blashka.  On June 5, 2008, the
Company granted to Mr. Droste 50,000 options. In May, 2008, Ms.Walsh was also
granted 125,000 options in connection with her new employment
agreement.





As of
March 31, 2009, Salon’s stock option plan allows for the granting of
approximately 293,000 shares of common stock.  In June 2009, subject
to shareholder approval, the Board of Directors increased the available pool by
4.500,000 to fulfill its obligations to Mr. Gingras and potential future
hires.





Restricted Stock.In October 2007, Salon’s shareholders approved an amendment to the 2004
Stock Plan to allow for the grant of restricted stock awards.  After
the creation of such an equity plan, the Compensation Committee will recommend
to the Board of Directors that similar awards be made to the other Named
Executive Officers.  It is contemplated that such awards will vest
over a period of four years and be subject to accelerated vesting in the event
that the Named Executive Officer is terminated for reasons other than cause, or
if a change in control event were to occur.  Salon feels that the
issuance of restricted stock will be a valuable incentive tool for its
executives as this type of equity award will have immediate value upon vesting
with no cash outlay by the Company.





During
fiscal 2009, Mr. Blashka, Ms. Walsh and Mr. Droste received  57,143,
65,714, and 51,429 shares of restricted stock, respectively, in return for
agreeing to temporary salary reductions. Ms. Hambrecht was granted 200,000
shares when she was reappointed as Chief Executive Officer.





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





Retirement and
Other Benefits.  Salon has a 401(k) savings plan for its
employees that allows for matching contributions and profit
sharing.  Due to limited cash, Salon has never made matching or profit
sharing contributions and has no intent to do so in the 2009 fiscal year.Salon does not have a
deferred compensation plan for any employee.





Named
Executive Officer Cash Compensation




Elizabeth
Hambrecht served as CEO from September 2008 until replaced by Mr, Gingras,
during which time she received a base annual salary of $130,000. She also
received $33,000 earned for consulting services prior to her appointment as CEO.
Ms. Hambrecht’s resignation did not affect her service as a director of the
Company’s board of directors.  She was not eligible for a
bonus.





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 Table of Contents


Christopher
Neimeth served as CEO until his departure in September 2008. He was paid an
annual salary of $230,000, received additional cash compensation of $23,973, and
severance, when fully paid, totaling $230,000.





Norman
Blashka, Executive Vice President and CFO, joined Salon in January 2008. His
starting contractual base annual salary is $200,000.  Due solely to
limited cash, Mr. Blashka agreed to a  temporary  ten
percent salary reduction in January 2009. He did not receive any other form of
cash compensation during fiscal year 2009.





Joan
Walsh, Editor-in-Chief, has a contractual salary of $230,000. She received cash
compensation of $219,000 during fiscal year 2009 after she agreed to a temporary
ten percent salary reduction in January 2009.  Due solely to the
Company’s limited cash, Ms. Walsh did not receive any other form of cash
compensation during fiscal year 2009.





Andreas
Droste joined Salon on April 14, 2008 as Senior Vice President of Sales and
Marketing at a base annual salary of $180,000. Mr. Droste left the Company’s
employ in March 2009.  In connection with the termination of his
employment, Mr. Droste received severance in the amount of
$18,000.  Prior to his departure, he earned $55,000 in
commissions.





Richard
Gingras, who became CEO effective May 1, 2009, earns a base salary of
$230,000.





Deductibility
of Executive Compensation




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





Accounting
for Stock-Based Compensation




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





COMPENSATION
COMMITTEE REPORT





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





THE
COMPENSATION COMMITTEE


James
Rosenfield


John
Warnock





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ITEM12.  Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters





Equity
Compensation Plan Information




Information
regarding Equity Compensation Plans may be found in Part II, Item 5, commencing
on page 23 of this Annual Report on Form 10-K.




Security
Ownership of Certain Beneficial Owners and Management





The
following table sets forth information regarding the beneficial ownership of
Common Stock and Common Stock equivalents of Salon as of June 1, 2009
(a) by each stockholder who is known by Salon to be the beneficial owner of
more than 5% of the outstanding Common Stock and Common Stock equivalents or the
combined total voting power of all classes of capital stock of Salon on a fully
diluted, as converted basis, (b) by each director and nominee,
(c) each executive officer named in the Summary Compensation Table, and
(d) by all executive officers and directors of Salon as a
group.




Amount
      andNature
      ofBeneficial
                        
                        PercentName
      and Address of Beneficial Owner (1)
                        
                        Ownership
      (2)
                        
                        of
      Class (3)William
      R. Hambrecht (4)
                        
                        3,945,348
                        
                        
                        91.3%Shea
      Ventures LLC (5)
                        
                        1,685,957
                        
                        
                        53.8%Adobe
      Systems Incorporated (6)
                        
                        443,847
                        
                        
                        18.8%Octavia
      LLC (7)
                        
                        374,222
                        
                        
                        15.7%Robert
      McKay(ex-Director) (8)
                        
                        341,510
                        
                        
                        14.5%Constellation
      Venture Capital (9)
                        
                        302,095
                        
                        
                        13.2%Jann
      Wenner (ex-Director) (10)
                        
                        272,340
                        
                        
                        12.0%HVS
      Boxers, LLC (11)
                        
                        143,743
                        
                        
                        6.7%Nancy
      & Timothy Armstrong  (12)
                        
                        137,837
                        
                        
                        6.4%Executive
      Officers and DirectorsJohn
      Warnock (13)
                        
                        6,056,158
                        
                        
                        91.7%Elizabeth
      Hambrecht (14)
                        
                        429,806
                        
                        
                        17.6%David
      Talbot (15)
                        
                        288,738
                        
                        
                        12.5%Joan
      Walsh (16)
                        
                        256,672
                        
                        
                        11.3%James
      Rosenfield (17)
                        
                        38,597
                        
                        
                        1.9%George
      Hirsch (18)
                        
                        35,492
                        
                        
                        1.7%Robert
      Ellis (19)
                        
                        29,760
                        
                        
                        1.5%Deepak
      Desai (21)
                        
                        27,260
                        
                        
                        1.3%Norman
      Blashka (22)
                        
                        109,734
                        
                        
                        5.1%Richard
      Gingras
                        
                        -
                        
                        
                        -All
      executive officers and directors as a group (10 persons)
                        
                        7,272,217
                        
                        
                        93.0%





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




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




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(3)
            Calculated
      on the basis of 2,021,276 shares of Common Stock outstanding as of June 1,
      2009, shares of Common Stock underlying options exercisable within
      sixty (60) days of June 1, 2009, shares of Common Stock that a
      shareholder has the right to acquire upon conversion of shares of
      Series A, B, C, and D Preferred Stock, shares of Common Stock
      issuable upon the conversion of promissory notes, and currently
      exercisable warrants to acquire shares of Common Stock are deemed
      outstanding for purposes of calculating the beneficial ownership of Common
      Stock of the holders of such options and warrants, as applicable, on a
      stand-alone basis, without considering the ownership interest of other
      stockholders.




(4)
              Mr.
      Hambrecht has an ownership interest in WR Hambrecht + Co., LLC and WR
      Hambrecht + Co., Inc. (together the “Hambrecht Entities”) and is the
      Chairman and Chief Executive Officer of those
      entities.   The Hambrecht Entities own 35,822 shares of
      Common Elizabeth Hambrecht, a director of Salon and Salon’s former
      President and Chief Executive Officer, has a pecuniary ownership interest
      in the Hambrecht Entities.  Mr. Hambrecht individually owns
      405,385 shares of Common Stock, 936,550 shares of Common Stock that Mr.
      Hambrecht has the right to acquire upon conversion of 50 shares of series
      A Preferred Stock and 378 shares of Series C Preferred Stock and 584
      shares of Series D Preferred Stock and 61,736 shares of Common Stock
      issuable upon exercise of  immediately exercisable warrants. He
      also holds a promissory note convertible into 1,061,119 shares of Common
      Stock. Includes ownership by The Sarah and William Hambrecht Foundation of
      32,005 shares of Common Stock and 275,459 shares of common stock that the
      Foundation has the right to acquire upon conversion of 75 shares of Series
      A Preferred Stock and 108 shares of Series C Preferred
      Stock.  William Hambrecht and Elizabeth Hambrecht are Directors
      and have voting rights in the Sarah & William Hambrecht
      Foundation.  Includes ownership by HAMCO Capital Corporation,
      consisting of 20,782 shares of Common Stock and 171,291 shares of Common
      Stock that HAMCO has the right to acquire upon conversion of 127 shares of
      Series C Preferred Stock and 63 shares of Series D preferred
      stock.  Mr. Hambrecht and Elizabeth Hambrecht, both have an
      ownership interest in HAMCO Capital.  Includes ownership by
      Ironstone Group, Inc., consisting of 79,970 shares of Common Stock and
      856,204 shares of Common Stock that Ironstone has the right to acquire
      upon conversion of 843 shares of Series C Preferred Stock.  Mr.
      Hambrecht has an ownership interest in Ironstone Group,
      Inc.  Mr. Hambrecht and Ms. Hambrecht disclaim beneficial
      ownership of the shares of Salon’s Common Stock held directly by the
      Hambrecht Entities, HAMCO Capital and Ironstone, other than their
      proportionate ownership
interest.




(5)
            Consists
      of 122,965 shares of Common Stock held by the stockholder and 984,197
      shares of Common Stock that the stockholder has the right to acquire upon
      conversion of 125 shares of Series A Preferred Stock and 697 shares of
      Series C preferred Stock.  Includes 78,101 shares of Common
      Stock of a trust, as well as 130,005 shares of Common Stock that the trust
      has the right to acquire upon conversion of 128 shares of Series C
      Preferred Stock. Includes 370,689 shares of Common Stock issuable upon
      conversion of a promissory note held by the trust.  Edward Shea
      is the Manager of the stockholder and a Trustee of the trust, and is also
      a Director of Ironstone Group, Inc. mentioned under item
    (4).




(6)
            Consists
      of 109,379 shares of Common Stock held by the
      stockholder.  Includes 334,468 shares of Common Stock that the
      stockholder has the right to acquire upon conversion of 125 shares of
      Series B Preferred Stock.  Salon’s Chairman John Warnock is
      the co-Chairman of the stockholder and disclaims beneficial ownership of
      the shares held by the stockholder.




(7)
            Consists
      of 17,805 shares of Common Stock held by the
      stockholder.  Includes 356,417 shares of Common Stock that the
      stockholder has the right to acquire upon conversion of 62 shares of
      Series A Preferred Stock and 216 shares of Series C Preferred
      Stock.




(8)
              Consists
      of 4,200 shares of Common Stock held by the Robert McKay Family
      Partnership, 7,840 shares of Common Stock held by the McKay Investment
      Group and 2,921 shares of Common Stock in the Elaine McKay Family
      Partnership.  Includes 297,508 shares of Common Stock that the
      McKay Investment Group, Inc. has the right to acquire upon conversion of
      62 shares of Series A Preferred Stock and that the Elaine McKay
      Family Partnership has the right to acquire upon conversion of 158 shares
      of Series C Preferred Stock.  Mr. McKay, a former Director
      of Salon, is the Managing Partner of all the entities.  Includes
      29,041 shares subject to options that may be exercised within sixty (60)
      days of June 1, 2009.




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(9)
              Consists
      of 33,084 shares of Common Stock held by Constellation Venture Capital, LP
      and 7,096 shares of Common Stock held by Constellation Venture Offshore,
      LP.  Includes 114,932 shares of Common Stock that Constellation
      Venture Capital has the right to acquire upon conversion of 52 shares of
      Series A Preferred Stock and 24,312 shares of Common Stock that
      Constellation Venture Capital Offshore, LP has the right to acquire upon
      conversion of 11 shares of Series A Preferred
  Stock.




(10)
              Consists
      of 18,424 shares of Common Stock held by the
      stockholder.  Includes 253,916 shares of Common Stock that
      Wenner Media LLC has the right to acquire upon conversion of 250 shares of
      Series C Preferred Stock.   Mr. Wenner, the Chairman
      and President of Wenner Media LLC served as a Director of Salon
      until  February
2006.




(11)
              Consists
      of 6,709 shares of Common Stock.  Includes 137,034 shares of
      Common Stock that the stockholder has the right to acquire upon conversion
      of 62 shares of Series A Preferred
Stock.




(12)
              Includes
      146,983 shares of Common Stock that the stockholder has the right to
      acquire upon conversion of 209 shares of Series D Preferred
      Stock.




(13)
              Consists
      of 410,426 shares of Common Stock held by the Chairman of the Board of
      Salon. Includes 4,495,983 shares of Common Stock that the stockholder has
      the right to acquire upon conversion of 125 shares of Series A
      Preferred Stock, 3,474 shares of Series C Preferred Stock, and 874
      shares of Series D preferred stock and 59,370 shares of Common Stock
      issuable upon exercise of immediately exercisable warrants. Includes
      1,061,119 shares of Common Stock issuable upon conversion of a promissory
      note.  Includes 29,260 shares subject to options that may be
      exercised within sixty (60) days of June 1,
  2009.




(14)
              Consists
      of 3,750 shares of Common stock held by the Director.  Includes
      248,446 shares of Common Stock that the Officer has the right to acquire
      upon conversion of 31 shares of Series C Preferred Stock and 334
      shares of Series D Preferred Stock.  Includes 177,610 shares
      subject to options that may be exercised within sixty (60) days of June 1,
      2009.  Excludes her proportional beneficial ownership of amounts
      owned by the Hambrecht Entities and HAMCO Capital described in footnote
      (4).




(15)
              Consists
      of 384 shares of Common Stock, of which 128 shares are held by Camille
      Peri, Mr. Talbot's spouse, and 256 shares held in trust for the benefit of
      Mr. Talbot's children.  Mr. Talbot disclaims beneficial
      ownership of the shares held individually by his spouse and in trust for
      his children.  Includes 288,354 shares subject to options that
      may be exercised within sixty (60) days of June 1,
  2009.




(16)
              Includes
      256,672 shares subject to options that may be exercised within sixty (60)
      days of June 1, 2009.




(17)
            Includes
      38,597 shares subject to options that may be exercised within sixty (60)
      days of June 1, 2009.




(18)
              Consists
      of 732 shares of Common Stock held by the Director and 34,760 shares
      subject to options that may be exercised within sixty (60) days of June 1,
      2009.




(19)
              Consists
      of 500 shares of Common Stock held by the Director and 29,2960 shares
      subject to options that may be exercised within sixty (60) days of June 1,
      2009.




(21)
              Includes
      27,260 shares subject to options that may be exercised within sixty (60)
      days of June 1, 2009.




(22)
              Includes
      109,734 shares subject to options that may be exercised within sixty (60)
      days of June 1, 2009.






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Series A
Preferred Stock




The following table sets forth
information regarding the beneficial ownership of Salon’s Series A
Preferred Stock as of June 1, 2009 (a) by each stockholder who is known by
Salon to be the beneficial owner of more than 5% of the outstanding shares of
Series A Preferred Stock, (b) by each director and nominee,
(c) by the Named Executive Officers, and (d) by all current executive
officers and directors of Salon as a group.




Amount
      andNature
      ofBeneficial
              
              PercentName
      and Address of Beneficial Owner (1)
              
              Ownership
              
              of
      ClassWilliam
      R. Hambrecht (2)
              
              125
              
              18.5%John
      Warnock (3,6)
              
              125
              
              18.5%Shea
      Ventures LLC (3)
              
              125
              
              18.5%Constellation
      Venture Capital (4)
              
              63
              
              9.3%McKay
      Investment Group (5,6)
              
              62
              
              9.2%Octavia
      LLC (5)
              
              62
              
              9.2%HVS
      Boxers LLC (5)
              
              62
              
              9.2%All
      executive officers and directors as a group (2 persons)
              
              125
              
              18.5%




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




(2)
            Includes
      75 shares held by the Sarah & William Hambrecht Foundation that are
      convertible into 165,768 shares of Common Stock, subject to
      adjustment.  Also includes 50 shares held by WR Hambrecht + Co.
      LLC that are convertible into 110,512 shares of Common Stock, subject to
      adjustment.  Mr. Hambrecht is the father of Elizabeth Hambrecht,
      a director of Salon and Salon’s former President and Chief Executive
      Officer.  Ms. Hambrecht has an ownership interest in WR
      Hambrecht + Co. LLC and is a Director of and has voting rights in the
      Sarah & William Hambrecht
Foundation.




(3)
            Shares
      held by the named stockholder are convertible into 276,280 shares of
      Common Stock, subject to
adjustment.




(4)
            Includes
      52 shares held by Constellation Venture Capital, LP that are convertible
      to 114,932 shares of Common Stock and 11 shares held by Constellation
      Venture Capital (Offshore), LP that are convertible to 24,312 shares of
      Common Stock, all subject to
adjustment.




(5)
            Shares
      held by the named stockholder are convertible into 160,474 shares of
      Common Stock, subject to
adjustment.




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







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Series B
Preferred Stock




The following table sets forth
information regarding the beneficial ownership of Salon’s Series B
Preferred Stock as of June 1, 2009 (a) by each stockholder who is known by
Salon to be the beneficial owner of more than 5% of the outstanding shares of
Series B Preferred Stock, (b) by each director and nominee,
(c) by the Named Executive Officers, and (d) by all executive officers
and directors of Salon as a group.




Amount
      andNature
      ofBeneficial
              
              PercentName
      and Address of Beneficial Owner (1)
              
              Ownership
              
              of
      ClassAdobe
      Systems Inc. (2)
              
              125
              
              100.0%All
      executive officers and directors as a group (3)
              
              0
              
              0.0%





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




(2)
            Shares
      held by the named stockholder are convertible into 334,468 shares of
      Common Stock, subject to
adjustment.




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




Series C
Preferred Stock




The following table sets forth
information regarding the beneficial ownership of Salon’s Series C
Preferred Stock as of June 1, 2009 (a) by each stockholder who is known by
Salon to be the beneficial owner of more than 5% of the outstanding shares of
Series C Preferred Stock, (b) by each director and nominee,
(c) by the Named Executive Officers, and (d) by all current executive
officers and directors of Salon as a group.




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





*Less
than 1%.




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




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(2)
            Shares
      held by the named stockholder are convertible into 3,505,000 shares of
      Common Stock, subject to
adjustment.




(3)
            Mr.
      Hambrecht has an ownership interest in WR Hambrecht + Co., LLC and WR
      Hambrecht + Co., Inc. (together the “Hambrecht Entities”) and is the
      Chairman and Chief Executive Officer of those
      entities.  Elizabeth Hambrecht, a director of Salon and Salon’s
      former President and Chief Executive Officer, has an ownership interest in
      the Hambrecht Entities.  Includes 108 shares held by the Sarah
      & William Hambrecht Foundation that are convertible to 109,691 shares
      of Common Stock, subject to adjustment.   Mr. Hambrecht and
      Ms. Hambrecht are Directors and have voting rights in the Sarah &
      William Hambrecht Foundation.   Includes 127 shares held by
      HAMCO Capital that are convertible to 128,989 shares of Common Stock,
      subject to adjustment.  Mr. Hambrecht and Elizabeth Hambrecht,
      both have an ownership interest in HAMCO Capital.  Includes 843
      shares held by Ironstone Group, Inc. that are convertible to 856,204
      shares of Common Stock, subject to adjustment.  Mr. Hambrecht
      has an ownership interest in Ironstone Group, Inc. Mr. Hambrecht disclaims
      beneficial ownership of the shares held directly by HAMCO Capital
      Corporation and Ironstone Group, Inc., other than his proportionate
      ownership interest. Ms. Hambrecht disclaims beneficial ownership of the
      shares held directly by the Hambrecht Entities and HAMCO Capital
      Corporation, other than her proportionate ownership
      interest.   Excludes 825 shares held by or controlled by
      Edward Shea that are convertible into 837,922 shares of Common Stock,
      subject to adjustment mentioned under item (4).  Mr. Shea is a
      Director of Ironstone Group, Inc.




(4)
            Includes
      697 shares held by the named stockholder that are convertible into 707,917
      shares of Common Stock, subject to adjustment.  Includes 128
      shares owned by the E&M RP Trust that are convertible into 130,005
      shares of Common Stock, subject to
adjustment.




(5)
            Shares
      held by the named stockholder are convertible into 160,474 shares of
      Common Stock, subject to adjustment.  Mr. McKay, Director, has
      an ownership interest in the Elaine McKay Family Partnership. Mr. McKay is
      the Managing Partner of the
partnership.




(6)
            Shares
      held by the officer are convertible into 31,485 shares of Common
      Stock.  Stockholder is the President and Chief Executive Officer
      of the registrant.




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




Series D
Preferred Stock




The following table sets forth
information regarding the beneficial ownership of Salon’s Series D-1, D-2,
D-3, D-4 and D-5 Preferred Stock (the “Series D Preferred Stock”) as of June 1,
2009 (a) by each stockholder who is known by Salon to be the beneficial
owner of more than 5% of the outstanding shares of Series D Preferred
Stock, (b) by each director and nominee, (c) by the Named Executive
Officers, and (d) by all current executive officers and directors of Salon
as a group.




Amount
      andNature
      ofBeneficial
              
              PercentName
      and Address of Beneficial Owner(1)
              
              Ownership
              
              of
      ClassJohn
      Warnock (2,6)
              
              874
              
              41.9%William
      R. Hambrecht (3)
              
              647
              
              31.0%Elizabeth
      Hambrecht (4,6)
              
              334
              
              16.0%Nancy
      & Timothy Armstrong (5)
              
              209
              
              10.0%All
      executive officers and directors as a group (2 persons)
(6)
              
              1,218
              
              58.0%




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




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(2)
            Shares
      held by the named stockholder, who is the Chairman of the Board of Salon,
      are convertible into 655,417 shares of Common Stock, subject to
      adjustment.




(3)
            Mr.
      Hambrecht is the father Elizabeth Hambrecht, a director of Salon and
      Salon’s former President and Chief Executive Officer.  Includes
      584 shares held by a trust of the stockholder that are convertible to
      442,118 shares of common stock, subject to adjustment.  Includes
      63 shares held by HAMCO Capital Corporation that are convertible to 42,302
      shares of common stock, subject to adjustment.  Mr. Hambrecht
      and Elizabeth Hambrecht, both have an ownership interest in HAMCO
      Capital.  Mr. Hambrecht disclaims beneficial ownership of the
      shares held directly by HAMCO Capital Corporation other than his
      proportionate ownership interest. Ms. Hambrecht disclaims beneficial
      ownership of the shares held directly by HAMCO Capital Corporation other
      than her proportionate ownership
interest.




(4)
            Shares
      held by the Officer are convertible into 216,961 shares of Common Stock,
      subject to adjustment.




(5)
            Shares
      held by the named stockholder are convertible into 146,983 shares of
      Common Stock, subject to
adjustment.




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










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ITEM13.  Certain Relationships and Related
Transactions





In May
2007, Salon entered into a line of credit with Deutsche Bank Securities, Inc.
for borrowings of up to $1 million plus accrued interest.  This
agreement is guaranteed in its entirety by John Warnock, Salon’s Chairman. As of
March 31, 2008 and March 31, 2009, the line was fully drawn.  Accrued
interest thereon is $79.




In
November, 2007, Salon issued 292 shares of Series D-5 preferred stock,
convertible into 233,600 shares of Common Stock, subject to adjustment, and a
warrant to purchase 35,040 shares of Common Stock at an exercise price of $1.84
per share, subject to adjustment, for net proceeds of $350. The purchaser was
William Hambrecht, father of Elizabeth Hambrecht, a director of Salon and
Salon’s former President and Chief Executive Officer.




In March
2008, the Company’s Chairman advanced $500, pending completion of a contemplated
financing that was under negotiation as of year end.  In April, 2008,
the Company sold $1 million of convertible promissory notes.  The
notes have a four year maturity, bear interest at a fixed rate of 7.5% per
annum, payable annually in cash or in kind, and are convertible into Common
Stock at the rate of $1.68 per share.  Mr. Warnock and Mr. Hambrecht
each purchased notes in the amount of $500.




In
October, 2008, the Company sold $1 million of convertible promissory
notes.  The notes have a four year maturity, bear interest at a fixed
rate of 7.5% per annum, payable semi-annually in cash or in kind, and are
convertible into Common Stock at the rate of $.67 per share.  Mr.
Warnock and Mr. Hambrecht each purchased notes in the amount of
$500.




In March
2009, Mr. Warnock advanced $250 to fund working capital.




Subsequent
to year end, Mr. Warnock and Mr. Hambrecht have advanced $300 and $250,
respectively, to meet Salon’s working capital requirements.  This debt
is exchangeable into securities to be issued in the next financing raised by the
Company from non-related parties.




In May
2009, the Company entered into an advisory agreement with its director and
former chief executive office, Elizabeth Hambrecht, under which she will be
compensated at the annual rate of $150,000, payable half in cash and half in
Salon stock. The agreement may be terminated at any time by either the Company
or the advisor.




During
the year ended March 31, 2008 and March 31, 2009, no warrants were exercised by
related parties





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 Table of Contents




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





ExerciseIssue
      Date
              Exercise
      Date
              Warrant
      Holder
              Warrant
      Shares
              Price
      per share
              
              Cash
      Received04/10/03
              04/05/06
              John
      Warnock (1)
              15,000
              $0.834
              $
              12,50604/29/03
              04/05/06
              John
      Warnock (1)
              15,000
              $0.901
              
              13,51808/09/01
              05/11/06
              Sarah
      & William Hambrecht Foundation (2)
              30,000
              $2.188
              
              65,65206/12/03
              05/11/06
              The
      Hambrecht 1980 Revocable Trust (3)
              7,500
              $0.901
              
              6,75906/12/03
              05/11/06
              WR
      Hambrecht + Co LLC (4)
              7,500
              $0.901
              
              6,75907/10/03
              05/11/06
              HAMCO
      Capital Corporation (5)
              7,500
              $0.834
              
              6,25311/24/03
              05/11/06
              HAMCO
      Capital Corporation (5)
              7,500
              $0.901
              
              6,75902/10/04
              05/11/06
              The
      Hambrecht 1980 Revocable Trust (3)
              15,000
              $0.690
              
              10,35006/04/04
              05/11/06
              HAMCO
      Capital Corporation (5)
              4,064
              $2.748
              
              11,17106/04/04
              05/11/06
              The
      Hambrecht 1980 Revocable Trust (3)
              14,129
              $2.748
              
              38,83302/02/05
              05/11/06
              HAMCO
      Capital Corporation (5)
              1,718
              $3.220
              
              5,53202/02/05
              05/11/06
              The
      Hambrecht 1980 Revocable Trust (3)
              15,381
              $3.220
              
              49,52905/28/03
              05/12/06
              John
      Warnock (1)
              45,000
              $0.901
              
              40,55307/10/03
              05/12/06
              John
      Warnock (1)
              15,000
              $0.833
              
              12,50607/30/03
              05/12/06
              John
      Warnock (1)
              15,000
              $0.690
              
              10,35008/29/03
              05/12/06
              John
      Warnock (1)
              15,000
              $0.690
              
              10,35009/12/03
              05/12/06
              John
      Warnock (1)
              15,000
              $0.901
              
              13,51809/29/03
              05/12/06
              John
      Warnock (1)
              15,000
              $1.036
              
              15,54210/10/03
              05/12/06
              John
      Warnock (1)
              15,000
              $0.901
              
              13,51810/30/03
              05/12/06
              John
      Warnock (1)
              15,000
              $0.901
              
              13,51811/12/03
              05/12/06
              John
      Warnock (1)
              15,000
              $0.969
              
              14,53011/24/03
              05/12/06
              John
      Warnock (1)
              15,000
              $0.901
              
              13,51812/11/03
              05/12/06
              John
      Warnock (1)
              15,000
              $0.901
              
              13,51812/30/03
              05/12/06
              John
      Warnock (1)
              75,000
              $0.690
              
              51,75012/31/03
              05/12/06
              John
      Warnock (1)
              15,000
              $0.690
              
              10,35008/09/01
              06/29/06
              John
      Warnock (1)
              50,000
              $2.188
              
              109,41908/09/01
              08/08/06
              WR
      Hambrecht + Co LLC (4)
              20,000
              $2.188
              
              43,76808/29/03
              08/29/06
              Eu
      Revocable Trust (6)
              3,750
              $0.690
              
              2,587Total
      exercised
              499,042
              
              $
              622,916





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


(2)
            Elizabeth
      Hambrecht, a director of Salon, and her father, William Hambrecht, have
      voting rights in the Sarah and William Hambrecht
    Foundation.


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


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


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


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








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





ExerciseIssue
      Date
            Exercise
      Date
            Warrant
      Holder
            Warrant
      Shares
            Price
      per share
            Converted
      Shares04/10/03
            04/04/06
            Ironstone
      Group, Inc (1)
            15,000
            $0.834
            12,76604/29/03
            04/25/06
            Ironstone
      Group, Inc (1)
            15,000
            $0.901
            12,18310/06/03
            05/11/06
            Ironstone
      Group, Inc (1)
            15,000
            $1.036
            10,90910/30/03
            05/11/06
            Ironstone
      Group, Inc (1)
            7,500
            $0.901
            5,72108/09/01
            08/09/06
            McKay
      Investment Group (2)
            24,800
            $2.188
            7,84002/10/04
            02/07/07
            WR
      Hambrecht + Co Inc. (3)
            15,000
            $0.690
            8,322Total
      converted
            92,300
            
            57,741




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


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


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




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




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


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


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




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







88
 Table of Contents




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




Salon has relied on cash infusion from
related persons to meet cash operating needs from the year ended March 31, 2003
through the year ended March 31, 2009.During this period of inadequate
cash, the Board of Directors approved related person transactions after full
disclosure of the interests of related parties.  Subsequent to March 31,
2007, Salon’s Audit Committee separately, or in conjunction with the full Board,
excluding those related parties involved in such transactions reviewed, approved
and/or ratified all
related party transactions, as the Audit Committee is empowered to do
under Salon's Audit Committee Charter.




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




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


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


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


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




ITEM14.  Principal Accountant Fees and
Services




Burr,
Pilger & Mayer LLP is Salon’s independent registered
accountant.  The aggregate audit fees billed by Burr, Pilger &
Mayer LLP for year ended March 31, 2008 were $110,172 and for March 31, 2009 are
estimated to be approximately $99,627.  In addition, the aggregate
corporate tax filing fees for the year ended March 31, 2009 are estimated to be
approximately $8,500. Fiscal year 2009 was the first year Burr, Pilger &
Mayer LLP was engaged to perform corporate tax filing
services.  Except for corporate tax filing services, Burr, Pilger
& Mayer LLP did not perform any services for which Salon incurred fees for
non-audit related fees, or other fees, nor did any other such firm.




During
the year ended March 31, 2009, all audit and tax fees were pre-approved by the
Audit Committee.  The Audit Committee has adopted a policy that it
must pre-approve all fees for audit services, tax services and other
services.




89
 Table of Contents


PART
IV





ITEM15.  Exhibits, Financial Statement Schedules, and
Reports on Form 8-K





1.
            Financial
      Statements




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





2.
            Financial
      Statement Schedules




None.





3.
            Exhibits




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





ExhibitNumber
                
                Description of Document2.1(7)
                
                Agreement
      and Plan of Reorganization dated as of May 5, 2000, among Salon.com, a
      Delaware corporation, Target Acquisition Corporation, a Delaware
      corporation and wholly-owned subsidiary of Salon, MP3Lit.com, a Nevada
      corporation and Gary Hustwit, Valerie Hustwit and William
      Hustwit.3.2(3)
                
                Restated
      Certificate of Incorporation of Salon as of June 17, 1999 with Certificate
      of Amendment of Article Fourth as of June 24, 1999.3.3.1
      (40)
                
                Certificate
      of Amendment to Restated Certificate of Incorporation, dated as of
      November 19, 2004.3.4(3)
                
                Form
      of Bylaws of Salon adopted June 24, 1999.3.4(10)
                
                Certificate
      of Designation of Preferences and Rights of the Series A Preferred Stock
      dated as of August 8, 2001.3.4.1(12)
                
                Certificate
      of Designation of Preferences and Rights of the Series B Preferred Stock,
      dated as of February 8, 2002.3.4.2(36)
                
                Certificate
      of Designation of Preferences and Rights of the Series C Preferred Stock,
      dated as of December 23, 2003.3.4.3(38)
                
                Certificate
      of Designation of Preferences and Rights of the Series D-1 Preferred
      Stock, Series D-2 Preferred Stock, Series D-3 Preferred Stock, Series D-4
      Preferred Stock and Series D-5 Preferred Stock dated as of June 1,
      2004.3.4.4(54)
                
                Amendment
      to the Certificate of Designation of Preferences and Rights of the Series
      D-1 Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred
      Stock, Series D-4 Preferred Stock and Series D-5 Preferred Stock dated as
      of November 19, 20074.1(1)
                
                Third
      Amended and Restated Rights Agreement dated April 14,
  1999.4.1(8)
                
                Fourth
      Amended and Restated Rights Agreement dated January 12,
    2000.4.2(1)
                
                Second
      Amended and Restated Voting Agreement dated April 14,
  1999.4.2(5)
                
                Bylaws
      of the Company are incorporated by reference to Exhibit 3.4 to the
      Company’s Registration Statement on Form
S-1.
  90
 Table of Contents
 4.2.1(10)
                
                Securities
      Purchase Agreement dated as of August 9, 2001 between Salon Media Group,
      Inc. and the Purchasers listed on Exhibit A attached
    thereto.4.2.2(10)
                
                Securities
      Rights Agreement dated as of August 9, 2001 between Salon Media Group,
      Inc. and the Purchasers listed on Exhibit A attached
    thereto.4.2.3(10)
                
                Form
      of Common Stock Purchase Warrant dated August 9, 2001 issued by Salon
      Media Group, Inc.4.2.4(11)
                
                Securities
      Purchase Agreement dated as of September 13, 2001 between Salon Media
      Group, Inc. and the Purchasers listed on Exhibit A attached
      thereto.4.2.5(11)
                
                Securities
      Rights Agreement dated as of September 13, 2001 between Salon Media Group,
      Inc. and the Purchasers listed on Exhibit A attached
    thereto.4.2.6(11)
                
                Form
      of Common Stock Purchase Warrant dated September 13, 2001 issued by Salon
      Media Group, Inc.4.2.7(12)
                
                Securities
      Purchase Agreement dated as of February 14, 2002 between Salon Media
      Group, Inc. and Adobe Systems Incorporated.4.2.8(12)
                
                Securities
      Rights Agreement dated as of February 14, 2002 between Salon Media Group,
      Inc. and Adobe Systems Incorporated.4.2.9(12)
                
                Form
      of Common Stock Purchase Warrant dated February 14, 2002 issued by Salon
      Media Group, Inc.4.2.10(13)
                
                Note
      and Warrant Purchase Agreement dated as of July 24,
  2002.4.2.11(13)
                
                Form
      of Convertible Promissory Note, dated July 24, 2002 issued by Salon Media
      Group, Inc.4.2.12(13)
                
                Form
      of Common Stock Purchase Warrant, dated July 24, 2002 issued by Salon
      Media Group, Inc.4.2.13(14)
                
                Note
      dated as of October 3, 2002.4.2.14(15)
                
                Note
      and Warrant Purchase Agreement dated as of December 18,
    2002.4.2.15(15)
                
                Form
      of Convertible Promissory Note, dated December 18, 2002 issued by Salon
      Media Group, Inc.4.2.16(15)
                
                Form
      of Common Stock Purchase Warrant, dated December 18, 2002 issued by Salon
      Media Group, Inc.4.2.17(16)
                
                Note
      and Warrant Purchase Agreement dated as of January 26,
    2003.4.2.18(16)
                
                Form
      of Convertible Promissory Note, dated January 26, 2003 issued by Salon
      Media Group, Inc.4.2.19(16)
                
                Form
      of Common Stock Purchase Warrant, dated January 26, 2003 issued by Salon
      Media Group, Inc.4.2.20(17)
                
                Note
      and Warrant Purchase Agreement dated as of February 11,
    2003.4.2.21(17)
                
                Form
      of Convertible Promissory Note, dated February 11, 2003 issued by Salon
      Media Group, Inc.4.2.22(17)
                
                Form
      of Common Stock Purchase Warrant, dated February 11, 2003 issued by Salon
      Media Group, Inc.4.2.23(18)
                
                Form
      of Note and Warrant Purchase Agreement used during March
    2003.4.2.24(18)
                
                Form
      of Convertible Promissory Note used during March 2003 by Salon Media
      Group, Inc.  91
 Table of Contents
 4.2.25(18)
                
                Form
      of Common Stock Purchase Warrant used during March 2003 by Salon Media
      Group, Inc.4.2.26(19)
                
                Note
      and Warrant Purchase Agreement dated April 10, 2003.4.2.27(19)
                
                Convertible
      Promissory Note dated April 10, 2003 by Salon Media Group,
      Inc.4.2.28(19)
                
                Common
      Stock Purchase Warrant dated April 10, 2003 by Salon Media Group,
      Inc.4.2.29(20)
                
                Note
      and Warrant Purchase Agreement dated April 29, 2003.4.2.30(20)
                
                Convertible
      Promissory Note dated April 29, 2003 by Salon Media Group,
      Inc.4.2.31(20)
                
                Common
      Stock Purchase Warrant dated April 29, 2003 by Salon Media Group,
      Inc.4.2.32(21)
                
                Note
      and Warrant Purchase Agreement dated May 28, 2003.4.2.33(21)
                
                Convertible
      Promissory Note dated May 28, 2003 by Salon Media Group,
    Inc.4.2.34(21)
                
                Common
      Stock Purchase Warrant dated May 28, 2003 by Salon Media Group,
      Inc.4.2.35(22)
                
                Note
      and Warrant Purchase Agreement dated June 12, 2003.4.2.36(22)
                
                Convertible
      Promissory Note dated June 12, 2003 by Salon Media Group,
    Inc.4.2.37(22)
                
                Common
      Stock Purchase Warrant dated June 12, 2003 by Salon Media Group,
      Inc.4.2.38(23)
                
                Note
      and Warrant Purchase Agreement dated June 26, 2003.4.2.39(23)
                
                Convertible
      Promissory Note dated June 26, 2003 by Salon Media Group,
    Inc.4.2.40(23)
                
                Common
      Stock Purchase Warrant dated June 26, 2003 by Salon Media Group,
      Inc.4.2.41(25)
                
                Note
      and Warrant Purchase Agreement dated July 10, 2003.4.2.42(25)
                
                Convertible
      Promissory Note dated July 10, 2003 by Salon Media Group,
    Inc.4.2.43(25)
                
                Common
      Stock Purchase Warrant dated July 10, 2003 by Salon Media Group,
      Inc.4.2.44(26)
                
                Note
      and Warrant Purchase Agreement dated July 30, 2003.4.2.45(26)
                
                Convertible
      Promissory Note dated July 30, 2003 by Salon Media Group,
    Inc.4.2.46(26)
                
                Common
      Stock Purchase Warrant dated July 30, 2003 by Salon Media Group,
      Inc.4.2.47(27)
                
                Note
      and Warrant Purchase Agreement dated September 12,
2003.4.2.48(27)
                
                Convertible
      Promissory Note dated September 12, 2003 by Salon Media Group,
      Inc.4.2.49(27)
                
                Common
      Stock Purchase Warrant dated September 12, 2003 by Salon Media Group,
      Inc.4.2.50(28)
                
                Note
      and Warrant Purchase Agreement dated September 29,
2003.4.2.51(28)
                
                Convertible
      Promissory Note dated September 29, 2003 by Salon Media Group,
      Inc.4.2.52(28)
                
                Common
      Stock Purchase Warrant dated September 29, 2003 by Salon Media Group,
      Inc.4.2.53(28)
                
                Note
      and Warrant Purchase Agreement dated October 6, 2003.4.2.54(28)
                
                Convertible
      Promissory Note dated October 6, 2003 by Salon Media Group,
      Inc.4.2.55(28)
                
                Common
      Stock Purchase Warrant dated October 6, 2003 by Salon Media Group,
      Inc.4.2.56(29)
                
                Note
      and Warrant Purchase Agreement dated October 10, 2003.4.2.57(29)
                
                Convertible
      Promissory Note dated October 10, 2003 by Salon Media Group,
      Inc.4.2.58(29)
                
                Common
      Stock Purchase Warrant dated October 10, 2003 by Salon Media Group,
      Inc.4.2.59(30)
                
                Note
      and Warrant Purchase Agreement dated October 30, 2003.4.2.60(30)
                
                Convertible
      Promissory Note dated October 30, 2003 by Salon Media Group, Inc. with
      Ironstone Group, Inc.  92
 Table of Contents
 4.2.61(30)
                
                Common
      Stock Purchase Warrant dated October 30, 2003 by Salon Media Group, Inc.
      with Ironstone Group, Inc.4.2.62(30)
                
                Convertible
      Promissory Note dated October 30, 2003 by Salon Media Group, Inc. with
      John Warnock.4.2.63(30)
                
                Common
      Stock Purchase Warrant dated October 30, 2003 by Salon Media Group, Inc.
      with John Warnock.4.2.64(30)
                
                Note
      and Warrant Purchase Agreement dated November 12, 2003.4.2.65(30)
                
                Convertible
      Promissory Note dated November 12, 2003 by Salon Media Group,
      Inc.4.2.66(30)
                
                Common
      Stock Purchase Warrant dated November 12, 2003 by Salon Media Group,
      Inc.4.2.67(31)
                
                Note
      and Warrant Purchase Agreement dated November 24, 2003.4.2.68(31)
                
                Convertible
      Promissory Note dated November 24, 2003 by Salon Media Group, Inc. and
      John Warnock.4.2.69(31)
                
                Common
      Stock Purchase Warrant dated November 24, 2003 by Salon Media Group, Inc.
      for John Warnock.4.2.70(31)
                
                Convertible
      Promissory Note dated November 24, 2003 by Salon Media Group, Inc. and
      HAMCO Capital Corporation.4.2.71(31)
                
                Common
      Stock Purchase Warrant dated November 24, 2003 by Salon Media Group, Inc.
      for HAMCO Capital Corporation.4.2.72(32)
                
                Note
      and Warrant Purchase Agreement dated December 10, 2003.4.2.73(32)
                
                Convertible
      Promissory Note dated December 10, 2003 by Salon Media Group, Inc. and
      Wenner Media LLC.4.2.74(32)
                
                Common
      Stock Purchase Warrant dated December 10, 2003 by Salon Media Group, Inc.
      for Wenner Media LLC.4.2.75(32)
                
                Note
      and Warrant Purchase Agreement dated December 11, 2003.4.2.76(32)
                
                Convertible
      Promissory Note dated December 10, 2003 by Salon Media Group, Inc. and
      John Warnock.4.2.77(32)
                
                Common
      Stock Purchase Warrant dated December 10, 2003 by Salon Media Group, Inc.
      for John Warnock.4.2.78(36)
                
                Securities
      Purchase Agreement dated as of December 30, 2003 between Salon
      Media
                  Group,
      Inc. and the Purchasers listed on the Schedule of Purchasers attached
      thereto.4.2.79(36)
                
                Form
      of Common Stock Purchase Warrant dated December 30, 2003 issued by Salon
      Media Group, Inc.4.2.80(37)
                
                Securities
      Purchase Agreement dated as of February 10, 2004 between Salon Media
      Group, Inc. and the Purchasers listed on the Schedule of Purchasers
      attached thereto.4.2.81(37)
                
                Form
      of Common Stock Purchase Warrant dated February 10, 2004 issued by Salon
      Media Group, Inc.4.2.82(38)
                
                Securities
      Purchase Agreement dated as of June 4, 2004 between Salon Media Group,
      Inc. and the Purchasers listed on the Schedule of Purchasers attached
      thereto.4.2.83(38)
                
                Form
      of Common Stock Purchase Warrant dated June 4, 2004 issued by Salon Media
      Group, Inc.4.2.84(39)
                
                Amendment
      No. 1 to Securities Purchase Agreement dated as of September 30,
      2004.4.2.85(39)
                
                Common
      Stock Purchase Warrant dated September 30, 2004 issued by Salon Media
      Group, Inc.4.2.86(43)
                
                Amendment
      No. 2 to Securities Purchase Agreement dated as of February 2,
      2005.  93
 Table of Contents
 4.2.87(43)
                
                Form
      of Common Stock Purchase Warrant dated February 2, 2005 issued by Salon
      Media Group, Inc.4.2.88(45)
                
                Amendment
      No. 3 to Securities Purchase Agreement dated November 9,
    2005.4.2.89(46)
                
                Amendment
      No. 4 to Securities Purchase Agreement dated December 21,
      2005.4.2.90(46)
                
                Common
      Stock Purchase Warrant dated December 21, 2005 issued by Salon Media
      Group, Inc.4.2.91(48)
                
                Amendment
      No. 5 to Securities Purchase Agreement dated July 27,
  2006.4.2.92(48)
                
                Common
      Stock Purchase Warrant dated July 27, 2006 issued by Salon Media Group,
      Inc. to The Hambrecht 1980 Revocable Trust.4.2.93(48)
                
                Common
      Stock Purchase Warrant dated July 27, 2006 issued by Salon Media Group,
      Inc. to John E. and Marva M. Warnock.4.2.94(48)
                
                Common
      Stock Purchase Warrant dated July 27, 2006 issued by Salon Media Group,
      Inc. to John E. and Marva M. Warnock.4.2.95(49)
                
                Amendment
      No. 6 to Securities Purchase Agreement dated September 21,
      2006..4.2.96(49)
                
                Common
      Stock Purchase Warrant dated September 21, 2006 issued by Salon Media
      Group, Inc. to The Hambrecht 1980 Revocable Trust.4.2.97(49)
                
                Common
      Stock Purchase Warrant dated September 21, 2006 issued by Salon Media
      Group, Inc. to John E. and Marva M. Warnock.4.2.98(50)
                
                Amendment
      No. 7 to Securities Purchase Agreement dated December 18,
      2006..4.2.99(50)
                
                Common
      Stock Purchase Warrant dated December 18, 2006 issued by Salon Media
      Group, Inc. to John E. and Marva M. Warnock.4.2.100(50)
                
                Common
      Stock Purchase Warrant dated December 18, 2006 issued by Salon Media
      Group, Inc. to John E. and Marva M. Warnock.4.2.101(52)
                
                Amendment
      No.8 to Securities Purchase Agreement dated November 19,
    20074.2.102(52)
                
                Common
      Stock Purchase warrant dated November 19, 20075.0
      (41)
                
                Legal
      opinion filed by DLA Piper Rudnick Gray Cary US LLP dated January 14,
      2005.10.0(4)
                
                Commercial
      Office Lease between Pacific Resources PCX Development, Inc. and Salon
      dated July 9, 1999.10.0(6)
                
                Rainbow
      Media Holdings, Inc. Stock Purchase Agreement dated December 3,
      1999.10.1(1)
                
                1995
      Stock Option Plan.10.1(6)
                
                Bravo
      Website Agreement dated January 12, 2000.10.2(2)
                
                1999
      Employee Stock Purchase Plan.10.2(6)
                
                Bravo
      Production Agreement dated January 12, 2000.10.3(1)
                
                Form
      of Indemnity Agreement.10.4(1)
                
                Commercial
      Office Lease between T/W Associates and Salon dated June 25,
      1997.10.6(1)
                
                Employment
      Agreement between Michael O’Donnell and Salon dated November 7,
      1996.10.6(9)
                
                Employment
      Agreement between Robert O’Callahan and Salon dated June 26,
      2000.10.9(1)
                
                Warrant
      to Purchase Stock issued to Imperial Bancorp dated December 17,
      1998.10.10(1)
                
                Warrant
      to Purchase Stock issued to Imperial Bank dated April 13,
      1998.10.11(1)
                
                Warrant
      to Purchase Stock issued to Imperial Bankcorp dated April 14,
      1997.10.12(1)
                
                Warrant
      to Purchase Stock issued to America Online Inc. dated July 31,
      1998.  94
 Table of Contents
 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,
      1999.10.26(24)
                
                Amended
      Office Lease between Salon’s San Francisco landlord and Salon dated June
      24, 2003.10.27(33)
                
                Amended
      Office Lease between Salon’s San Francisco landlord and Salon dated
      December 31, 2003.10.28(42)
                
                Office
      Lease between BRE/Rincon II Leasehold L.L.C. and Salon Media Group, Inc.
      dated January 13, 2005.10.29
      (44)
                
                Salon
      Media Group, Inc. 2004 Stock Plan.10.30
      (44)
                
                Form
      of the Salon Media Group, Inc. Notice of Grant of Stock Option and Stock
      Option Agreement.10.31(44)
                
                Salon
      Media Group, Inc. Non-Plan Stock Option Agreement with David Talbot dated
      February 7, 200510.32(47)
                
                Employment
      Agreement with Christopher Neimeth dated June 5, 200610.33(47)
                
                Salon
      Media Group, Inc. Non-Plan Stock Option Agreement with Christopher Neimeth
      dated June 6, 200610.34(51)
                
                Amendment
      No.1 to Neimeth Employment Agreement dated September 13,
    200710.35(53)
                
                Employment
      Agreement with Norman Blashka dated December 31, 200710.36(53)
                
                Separation
      Agreement with Conrad Lowry dated January 9, 200810.37(54)
                
                Note
      Purchase Agreement dated April 4, 200810.38(54)
                
                Form
      of Convertible Promissory Note dated April 4, 200810.39(55)
                  10.40
      (56)
                  10.41
      (57)
                
                Employment
      Agreement with Joan Walsh dated May 13, 2008
                  Separation
      Agreement with Christopher Neimeth dated November 12, 2008
                  Employment
      Agreement with Richard Gingras dated May 4,
2009  95
 Table of Contents
 16.1
      (34)
                    
                    Letter
      from PricewaterhouseCoopers LLP to the Securities and Exchange
      Commission.16.2
      (35)
                    
                    Letter
      from PricewaterhouseCoopers LLP to the Securities and Exchange
      Commission.21.1(8)
                    
                    Subsidiaries
      of Salon.23.2
      (41)
                    
                    Consent
      of PricewaterhouseCoopers LLP, Independent Registered Public Accounting
      Firm dated January 13, 2005.23.3
      (41)
                    
                    Consent
      of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting
      Firm dated January 12, 2005.23.1
                    
                    Consent
      of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting
      Firm.24.1(1)
                    
                    Power
      of Attorney (included on page II-5).31.1
                    
                    Certification
      of Richard Gingras, Chief Executive Officer of the Registrant pursuant to
      Section 302, as adopted pursuant to the Sarbanes-Oxley Act of
      2002.31.2
                    
                    Certification
      of Norman Blashka, Chief Financial Officer and Secretary of the Registrant
      pursuant to Section 302, as adopted pursuant to the Sarbanes-Oxley Act of
      2002.32.1
                    
                    Certification
      of Richard Gingras, Chief Executive Officer of the Registrant pursuant to
      Section 906, as adopted pursuant to the Sarbanes-Oxley Act of
      2002.32.2
                    
                    Certification
      of Norman Blashka, Chief Financial Officer and Secretary of the Registrant
      pursuant to Section 906, as adopted pursuant to the Sarbanes-Oxley Act of
      2002.Footnote
                    
                    Footnote Description1
                    
                    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.
  96
 Table of Contents
 12
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on March 13, 2002.13
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on July 29, 2002.14
                  
                  Incorporated
      by reference to the exhibit filed with Salon’s Current Report on Form 8-K
      filed on October 15, 2002.15
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on December 30, 2002.16
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on February 11, 2003.17
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on February 24, 2003.18
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on March 28, 2003.19
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on April 22, 2003.20
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on May 12, 2003.21
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on June 10, 2003.22
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on June 27, 2003.23
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on July 11, 2003.24
                  
                  Incorporated
      by reference to the exhibit filed with Salon’s Quarterly Report on Form
      10-Q filed on August 11, 2003.25
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on July 25, 2003.26
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on August 7, 2003.27
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on September 29, 2003.28
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on October 14, 2003.29
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on October 27, 2003.30
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on November 14, 2003.31
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on December 9, 2003.32
                  
                  Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on December 24, 2003.  97
 Table of Contents
 33
                        
                        Incorporated
      by reference to the exhibit filed with Salon’s Quarterly Report on Form
      10-Q filed on February 6, 2004.34
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on November 17, 2003.35
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on November 26, 2003.36
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on January 14, 2004.37
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on February 25, 2004.38
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on June 16, 2004.39
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on October 6, 2004.40
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on December 13, 2004.41
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Registration Statement on
      Form S-8 filed on January 14, 2005.42
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on January 19, 2005.43
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on February 4, 2005.44
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Annual Report on
      Form   10-K filed on June 29, 2005.45
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on November 10, 2005.46
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on December 22, 2005.47
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on June 9, 2006.48
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on July 31, 2006.49
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on September 26, 2006.50
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on December 20, 2006.51
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on September 14, 200752
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on November 20, 200753
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on January 9, 200854
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on April 9, 200855
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Annual Report on Form 10-K
      filed on June 27, 200856
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on November 20, 200857
                        
                        Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on May 6,
2009






98
 Table of Contents


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/ Richard
Gingras


Richard Gingras


Chief
Executive Officer







POWER OF ATTORNEY




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





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




Signature
            
            Title
            
            Date/s/
      Richard Gingras
            
            Chief
      Executive Officer
            
            June
      26, 2009Richard
      Gingras
            
            (Principal
      Executive Officer)/s/
      Norman Blashka
            
            Executive
      Vice President and
            
            June
      26, 2009Norman
      Blashka
            
            Chief
      Financial Officer(Principal
      Financial Officer)/s/
      Deepak Desai
            
            Director
            
            June
      26, 2009Deepak
      Desai





99
 Table of Contents





/s/
      Robert Ellis
            
            Director
            
            June
      26, 2009Robert
      Ellis/s/
      Elizabeth Hambrecht
            
            Director
            
            June
      26, 2009Elizabeth
      Hambrecht/s/
      George Hirsch
            
            Director
            
            June
      26, 2009George
      Hirsch/s/
      James H. Rosenfield
            
            Director
            
            June
      26, 2009James
      H. Rosenfield/s/
      David Talbot
            
            Director
            
            June
      26, 2009David
      Talbot/s/
      John Warnock
            
            Chairman
      of the Board, Director
            
            June
      26, 2009John
      Warnock




100