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, 2011


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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  [  ]  No  [x]





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





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


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 [X] No





The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $81,000 based on the closing sale price of the registrant’s common stock on June 1, 2011.  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 Media Group, Inc. 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 1, 2011 was 3,282,576 shares.




1





FORM 10-K


SALON MEDIA GROUP, INC.


INDEX


Page

NumberPART IITEM 1.
Business
3ITEM 1A.
Risk Factors
10ITEM 1B.
Unresolved Staff Comments
19ITEM 2.
Properties
19ITEM 3.
Legal Proceedings
19PART IIITEM 5.
Market for Registrant’s Common Equity and Related Stockholder Matters, and Issuer Purchases of Equity Securities
19ITEM 6.
Selected Consolidated Financial Data
22ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
23ITEM 7A.
Quantitative and Qualitative Disclosures about Market Risk
31ITEM 8.
Financial Statements and Supplementary Data
32ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
56ITEM 9A.
Controls and Procedures
56ITEM 9B.
Other Information
57PART IIIITEM 10.
Directors, Executive Officers and Corporate Governance
57ITEM 11.
Executive Compensation
61ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
69ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
75ITEM 14.
Principal Accountant Fees and Services
77PART IVITEM 15.
Exhibits, Financial Statement Schedules
78SIGNATURES

88


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PART I




This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that involve risks and uncertainties, including but not limited to statements regarding our strategy, plans, objectives, expectations, intentions, financial performance, cash-flow breakeven timing, financing, economic conditions, Internet advertising market performance, subscription service plans, non-web opportunities and revenue sources.  Although Salon Media Group, Inc. (“Salon” 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.





ITEM 1.  Business




Overview





Salon was originally incorporated in July 1995 in the State of California and reincorporated in Delaware in June 1999.  On June 22, 1999, Salon had its initial public offering, with its common stock quoted on the NASDAQ National Market under the symbol SALN.  Effective May 16, 2001, Salon adopted the name Salon Media Group, Inc.  Due to Salon’s inability to meet the continued listing requirements of the NASDAQ Market, on November 21, 2002, Salon’s common stock began trading in the OTC (Over-The-Counter) Bulletin Board marketplace under the symbol SALN.OB.   Following a 20:1 reverse split on November 15, 2006, the Company’s stock ticker symbol became SLNM.OB.  The stock symbol for the Company has since been updated to SLNM.PK.





Salon is an online news and social networking company and an Internet publishing pioneer providing high quality journalism and a forum for discussing current events and contemporary social political issues.  Salon’s award-winning content combines breaking news, original investigative stories and provocative personal essays along with quick-take commentary and staff-written blogs about politics, technology, culture and entertainment.  Committed to interactivity, the Website also hosts two online communities, The Well, and Open Salon, an innovative blogging social network.  Among its many quality offerings, Salon sponsors daily blogs by well-known staff and freelance writers, plus an evolving group of new voices who are regular contributors to the site.   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.




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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 such as War Room, Since You Asked, How the World Works, Ask the Pilot and daily blogs by Glenn Greenwald and Joan Walsh, Salon provides a constantly updated array of news, features, interviews, columnists and blogs, which is increasingly being grouped and expanded into five key content areas.





News
Smartly aggregated posts on the big news of the day for the well-read, savvy audience. Heavily formatted for easy access – Starting Point (big story of the morning); Morning Clip (the hot video from late-night); Big Question (the answer to the big question raised by the day’s news). Staffed by three news bloggers, seven days a week.Politics
Anchored by our War Room politics blog, we offer rolling commentary on the big political stories of the day by brand-name writers and TV mainstays, such as Joan Walsh, Glenn Greenwald, Alex Pareene, Steve Kornacki and David Sirota.Arts & Entertainment
Exhaustive, enthusiast coverage of entertainment, with special emphasis on breaking pop culture stories with deep cultural relevance, and obsessive coverage of the best in TV, film and books. Headline writers include Matt Zoller Seitz (TV), Mary Beth Williams and Drew Grant (pop culture), Andrew O’Hehir (film), and Laura Miller (books).Life
Gripping personal essays from famous writers (such as Jennifer Egan, David Rakoff, Walter Kirn, Anne Lamott) and Salon readers alike, exploring the most complicated issues of modern life – family, relationships, work and spirituality. Also includes advice columnists: Tracy Clark-Flory (love/sex); Cary Tennis (all-purpose); and Rahul Parikh, MD (health and medicine).Food
Salon's evolving food section includes recipes, cultural studies and the increasing political movement around food and sustainability issues. An adjunct to our Life content, it is currently all freelance.Open Salon
Open Salon provides a smart home for reader’s work where they can publish and share their work, generate advertising revenue, and potentially have their works be published on Salon.com.





Salon also operates The Well, a subscription member-only discussion community in which members use their real names to post and only members can view the postings. It had approximately 1,905 paying subscribers as of March 31, 2011.




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 has become a reliable source of content and audience traffic.




4




Revenue Sources




One customer accounted for over 10% of total revenue for the year ended March 31, 2011. No customer accounted for over 10% of total revenue for the years ended March 31, 2010 and 2009, which were as follows (in thousands):





Year Ended March 31,2011


2010


2009Amount


%


Amount


%


Amount


%Advertising

$
3,584



78
%

$
2,967



69
%

$
5,195



76
%Salon Premium


472



10
%


701



16
%


994



14
%All Other


517



12
%


623



15
%


685



10
%Total

$
4,573



100
%

$
4,291



100
%

$
6,874



100
%





Salon has generated Internet advertising revenues since its inception in 1995.  The Company launched Salon Premium, a subscription service, in April 2001. It acquired The Well, its primary source of other revenue, in 1999. Online advertising, which accounts for the bulk of Salon’s revenue, is subject to broader economic fluctuations, like other forms of advertising, but with a consistent upward bias.   According to the Interactive Advertising Bureau, United States online advertising revenues have grown from $9.6 billion in 2004 to $26.0 billion in 2010, with further double digit gains anticipated in 2011.  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. According to the eMarketer, online advertising surpassed newspaper advertising for the first time in 2010.





An important factor in increasing advertising revenues in future periods is growth in 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. During fiscal 2010, management launched a new strategy to increase traffic, including a fresh new site design, more aggressive and timely news coverage, and expanded lifestyle coverage in areas such as food, film and books. The strategy began to bear fruit in the fourth quarter ending March 31, 2010, as unique monthly visitors averaged 5.4 million, a 22% increase over the same quarter in the prior fiscal year.  In the fourth quarter ending March 31, 2011, further gains brought average unique monthly visitors to 5.6 million, a 4% increase over the same quarter in the prior fiscal year.  In 2011, full year average monthly unique visitors grew by 12% compared to fiscal 2010.  Additionally, monthly unique visitors have grown by a cumulative 43% 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


Advertising is Salon’s primary source of revenue.  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.





Subscriptions have been de-emphasized and are a secondary source of revenue. Generally, subscriptions to Salon Premium cost between $29 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, or other premiums, 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, 2011, Salon received $0.4 million in cash and recognized $0.5 million of revenue for this service primarily from approximately 7,700 paid new and renewed one year subscriptions and from approximately 9,900 monthly subscriptions.  For the year ended March 31, 2010, Salon received $0.6 million in cash and recognized $0.7 million of revenue for this service primarily from approximately 12,000 paid new and renewed one year subscriptions and from approximately 10,600 monthly subscriptions.  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.  Since peaking at 89,100 subscribers in December 2004, paid subscriptions have continued to decline to 15,800 as of March 31, 2010 and approximately 10,900 as of March 31, 2011.  The drop is expected to continue during the next year, following longstanding industry trends away from paid Web content.




6




The other sources of revenue are primarily membership and data storage fees from The Well, an on-line discussion forum.  Revenue is recognized ratably over the subscription period.  The revenues recognized were approximately $0.3 million for the year ended March 31, 2011, and approximately $0.4 million for each of the years ended March 31, 2010 and March 31, 2009.   Salon generates nominal revenue from the licensing of content that previously appeared in Salon, for providing links to a third party’s Website offering personals/dating services, and from its limited e-commerce activities.





Sales and Marketing




Salon has sales offices in New York City and Los Angeles, with seven advertising sales and operations employees as of March 31, 2011, of which four actively solicit orders.  As of March 31, 2011, Salon has one employee associated with Salon Premium membership activities.




Salon incurred advertising expenses of $0.0 million, $1.2 million and $0.9 million for the years ended March 31, 2011, 2010, and 2009, 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 December 31, 2009, Salon has fully utilized the ad credits with NBC and Rainbow.




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.




During fiscal 2010, Salon launched a re-designed architecture and Website in an effort to accelerate its growth and gave increased attention to search engine optimization and referral traffic.  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 broadened its content by reclassifying its content in five key contents areas.  These are: News, Politics, Arts & Entertainment, Life and Food. Through these five key content areas, Salon continues to enhance or create new content and features for its readers.  Further changes are in the process of being implemented.




7




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 far 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.




Since the end of fiscal year 2007, Salon has increased emphasis on advertising revenues.  In fiscal year 2012, 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 and better optimize the use of ad networks to fully monetize any unsold remnant inventory.




Enhanced Website Design




In fiscal 2010, Salon launched 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. The site has been dynamic and interactive, and its new modular architecture has allowed 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.




Expanding Gross Margins




Salon has made substantial strides in the past fiscal year to better realign its production costs with its revenue potential in an effort to reach profitability.  Among other measures, the company reduced full-time headcount from 53 in March 2009, to 45 in March 2010, to 41 in March 2011 and is continually aiming to match personnel resources to overall business need given the prevailing advertising market.  Additionally, Salon is evaluating opportunities to reduce the expense of its high-quality content by focusing on reducing cost per page and seeking less costly sources of content, including greater content aggregation and the use of popular articles and blogs from Open Salon.




8




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.




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 three 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 fiscal year 2010, Salon made significant investments in this area with a re-designed architecture and website 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.  In fiscal 2011, Salon has decided to explore a possible move to a cloud-based infrastructure.





Software to maintain and manage Salon Premium was created in-house and upgraded in 2003, again during fiscal year 2007, and a major reprogramming effort was conducted in fiscal year 2010. A full migration to an open source content management system is planned for fiscal 2012.





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 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.




9




Employees




As of March 31, 2011, Salon has 41 full-time employees.  Salon believes its employee relations are good.  No employees of Salon are represented by a labor union or are subject to a collective bargaining agreement. Salon’s future success is highly dependent on the ability to attract, hire, retain and motivate qualified personnel.






ITEM 1A.  Risk Factors




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





Salon’s business faces significant risks.  The risks described below may not be the only risks Salon faces.  Additional risks that are not yet known or that are currently immaterial may also impair its business operations or have a negative impact on its stock price.  If any of the events or circumstances described in the following risks actually occurs, its business, financial condition or results of operations could suffer, and the trading price of its common stock could decline.





Salon’s projected cash flows may not meet expectations





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





If Salon forecasts or experiences periods of limited, or diminishing cash resources, Salon may need to issue additional securities or borrow additional funds.  These newly issued securities could be highly dilutive to existing common stockholders.  However, there is no guarantee that Salon will be able to issue additional securities in future periods or borrow additional funds on commercially reasonable terms to meet its cash needs . Salon’s ability to continue as a going concern will be adversely affected if it is unable to raise additional cash from sources it had relied upon in the past or new sources.





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, 2011, related parties provided approximately $2.2 million in cash advances to fund Salon’s operations.





Curtailment of cash investments and borrowing guarantees by related parties could detrimentally impact Salon’s cash availability and its ability to fund its operations.




10




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 95% of all voting securities. These stockholders therefore own a controlling interest in Salon.  Of this amount,  approximately 20% is controlled directly or indirectly by William Hambrecht and approximately 37% by Chairman and Director John Warnock.  Therefore, related parties by themselves own a controlling interest in Salon.




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




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





Salon’s preferred stockholders can convert their 9,404 shares of preferred stock to approximately 10.0 million shares of common stock at any time.  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’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 $25.4 million in potential sales proceeds as of March 31, 2011, which includes the effect of undeclared dividends of $6.4 million.  If a liquidation event were to occur, and preferred stock dividends were declared, the holders of preferred stock would be entitled to the first $25.4 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 $25.4 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 an operating loss, based on generally accepted accounting principles, for its fiscal year ending March 31, 2012. Salon expects to turn cash flow positive during FY 2012.  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.




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Burr, Pilger Mayer, Inc., Salon’s independent registered public accounting firm for the years ended March 31, 2009, March 31, 2010, and March 31, 2011, 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 will most likely 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 10,900 as of March 31, 2011.  Salon forecasts that these memberships will continue to decline to approximately 7,000 as of March 31, 2012.  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;


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·
handle temporary high volume traffic spikes to its Website;
 
 ·
accurately measure the number and demographic characteristics of its users; and
  ·
attract and retain key sales personnel.


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





To comply with the Sarbanes-Oxley Act of 2002 and proposed accounting changes by the Securities and Exchange Commission, Salon ultimately 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;


13


·
Salon’s ability to attract and retain a large number of users;
 
 ·
the introduction of new Websites, services or products by Salon or by its competitors;
 ·
the timing and uncertainty of Salon’s advertising sales cycles;
 ·
the mix of advertisements sold by Salon or its competitors;
 
 ·
the economic and business cycle;
 ·
Salon’s ability to attract, integrate and retain qualified personnel;
 ·
technical difficulties or system downtime affecting the Internet generally or the operation of Salon’s Website; and
 
 ·
the amount and timing of operating costs.
 
 Due to the factors noted above and the other risks discussed in this section, one should not rely on quarter-to-quarter comparisons of Salon’s results of operations as an indication of future performance.  It is possible that some future periods’ results of operations may be below the expectations of public market analysts and investors.  If this occurs, the price of its common stock may decline.




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.




14





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 and vertical sections.  In addition, it is creating technology for new products that Salon expects 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.




15




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





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





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





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




16





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.




17





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.




18





ITEM 1B.  Unresolved Staff Comments




None.




ITEM 2.   Properties




Salon leases 8,623 square feet of office space at 101 Spear Street, San Francisco, California, 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 and a smaller office at 300 Manhattan Beach Blvd., Manhattan Beach, CA, through August 2011. 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.




ITEM 3.   Legal Proceedings




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






PART II




ITEM 5.    Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities




Information with respect to the quarterly high and low sales prices for Salon’s common stock, ticker symbol SLNM.PK, for its fiscal years 2011 and 2010, based on sales transactions reported by the OTC (Over-The-Counter) Bulletin Board is provided below:




Fiscal Year Ended

Fiscal Year EndedMarch 31, 2011

March 31, 2010For the quarter ended

High

Low

High

LowJune 30

0.34

0.03

0.40

0.11September 30

0.80

0.03

0.20

0.11December 31

0.79

0.10

0.65

0.11March 31

0.50

0.10

0.35

0.06




There were 43 active holders of record of Salon common stock as of June 1, 2011.  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 1, 2011 was $0.12 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.




19




Equity Compensation Plan Information




The following table provides information about Salon’s common stock that may be issued upon the exercise of options and rights under all of Salon’s existing equity compensation plans as of March 31, 2011, including the Salon Internet, Inc. 1995 Stock Option Plan, the Salon Media Group, Inc. 2004 Stock Plan, the Salon Media Group, Inc. Non-Plan Stock Agreement and the 1999 Employee Stock Purchase Plan.




Plan category
Number of securities to
Weighted-average
Number of securitiesbe issued upon exercise
exercise price of
remaining available forof outstanding options
outstanding options
future issuance underand rights
and rights
equity compensationplans, excludingsecurities reflected incolumn (a)(a)
(b)
(c)Equity compensation plansapproved by securityholders
5,321,728
$0.23
866,098Equity compensation plansnot approved by securityholders
50,000
$0.35
NoneTotal
5,371,728
N/A
866,098




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.




20




Stock Performance Graph




The graph below matches Salon Media Group Inc.'s cumulative 5-year total stockholder return on common stock with the cumulative total returns of the NASDAQ Composite index, and a customized peer group of five companies that includes: Answers Corp., Quepasa Corp., Thestreet.com Inc., Tucows Inc. and Edgar Online 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, 2006 to March 31, 2011.









The stock price performance included in this graph is not necessarily indicative of future stock price performance.




21




ITEM 6.   Selected Consolidated Financial Data




Dollar amounts in thousands, except per shareYear Ended March 31,

2011


2010


2009


2008


2007Net revenues

$
4,573


$
4,291


$
6,874


$
7,513


$
7,748Net loss

$
(2,584
)

$
(4,861
)

$
(4,699
)

$
(3,409
)

$
(1,566
)Net loss attributable to commonstockholders (1)

$
(2,584
)

$
(4,861
)

$
(4,699
)

$
(3,463
)

$
(1,861
)Basic and diluted net loss per shareattributable to commonstockholders (2)

$
(0.84
)

$
(2.30
)

$
(2.34
)

$
(1.79
)

$
(1.10
)Weighted average common sharesoutstanding used in computingper share amounts (thousands)(2)


3,086



2,116



2,008



1,940



1,692Cash and cash equivalents

$
386


$
216


$
371


$
818


$
829Prepaid advertising rights

$
-


$
-


$
1,225


$
2,131


$
3,267Total assets

$
1,636


$
1,627


$
3,330


$
4,616


$
5,605Total long-term liabilities

$
1,380


$
3,030


$
2,706


$
600


$
85




(1)
The net losses attributable to common stockholders for the years ended March 31, 2011, 2010 and 2009 do not include a preferred deemed dividend as there were no deemed dividend changes. 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.
 (2)
The share and per share results for the year ended prior to March 31, 2007 reflects 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


22




ITEM 7.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, The Well, and 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.  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 10,900 as of March 31, 2011.  Salon expects this downward trend to continue, as it is placing greater emphasis on its advertising sales to generate revenue. Revenue from membership to 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, for hosting links to a third party’s personals/dating Websites, and operating its emerging e-commerce activities.





Operating 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.




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.




23




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 accounting for debt and equity 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




Salon accounts for share-based compensation under ASC 718 and recognizes the fair value of stock awards on a straight-line basis over the requisite service period of the award, which is the standard vesting term of four years.





Salon recognized share-based compensation expense of $295,000 and $379,000 during the twelve months ended March 31, 2011 and March 31, 2010, respectively.  As of March 31, 2011, Salon had an aggregate of $335,000 of share-based compensation remaining to be amortized to expense over the remaining requisite service period of the underlying awards.  Salon currently expects this share-based compensation balance to be amortized as follows: $198,000 during fiscal 2012; $111,000 during fiscal 2013; $24,000 during fiscal 2014 and $2,000 during fiscal 2015.  The expected amortization reflects only outstanding stock option awards as of March 31, 2011.  Salon expects to continue to issue share-based awards to its employees in future periods.




The full impact of share-based compensation in the future is dependent upon, among other things, the timing of when Salon hires additional employees, the effect of new long-term incentive strategies involving share-based awards in order to continue to attract and retain employees, the total number of share-based awards granted, the fair value of the stock awards at the time of grant and the tax benefit that Salon may or may not receive from stock-based expenses.  Additionally, share-based compensation requires the use of an option-pricing model to determine the fair value of stock option awards.  This determination of fair value is affected by Salon’s stock price as well as assumptions regarding a number of highly complex and subjective variables.  These variables include, but are not limited to, Salon’s expected stock price volatility over the term of the awards.





Liquidity




Salon has incurred significant net losses and negative cash flows from operations since its inception.  As of March 31, 2011, Salon had an accumulated deficit of $108.4 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, Inc., Salon’s independent accountants for the years ended March 31, 2011, March 31, 2010 and March 31, 2009 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.




24




Income Taxes




Salon has not recorded a provision for federal or state income taxes since inception due to recurring operating losses.  At March 31, 2011, Salon had net operating loss carryforwards of $79.7 million for federal income tax purposes that begin to expire in March 2016, and $25.2 million for California income tax purposes.  As Salon has been incurring tax losses, $7.1 million of California net operating loss carryforwards expired as of March 31, 2011, and if Salon were to incur a tax loss for the year ending March 31, 2012, an additional $2.1 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 decreased $0.5 million during the year ended March 31, 2011 to $29.1 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.




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 78%, 69%, and 76% of Salon’s revenues, respectively for the years ended March 31, 2011, 2010 and 2009.  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 and other promotional items including books and merchandise, 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, 2010, Salon has fully utilized the advertising credits of Rainbow and NBC.




25





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.





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 not been found to be impaired.




Results of Operations




Fiscal Years Ended March 31, 2011 and 2010





Net Revenues





Salon’s net revenue increased 7% to $4.6 million in the year ended March 31, 2011 from $4.3 million in the year ended March 31, 2010.





Advertising revenues increased 21% to $3.6 million for the year ended March 31, 2011 from $3.0 million for the year ended March 31, 2010, due to greater traffic and an improved economy.





Salon Premium subscription revenues decreased by 33% to $0.5 million for the year ended March 31, 2011 from $0.7 million for the year ended March 31, 2010.  The drop in Salon Premium revenues recognized for the year ended March 31, 2011 compared to the year ended March 31, 2010 is attributable to a substantial reduction in the number of new subscribers.  Salon acquired approximately 7,700 paid one-year subscriptions for the year ended March 31, 2011 compared to approximately 12,000 for the year ended March 31, 2010.  As a result, the number of paid subscribers decreased from approximately 15,800 at March 31, 2010 to approximately 10,900 at March 31, 2011.  As a result of this trend, Salon has continued to emphasize increasing advertising income over promoting Premium subscriptions.





An important factor in increasing advertising revenues in future periods, including Salon’s typically 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 increasing the quantity of content, the average number of unique monthly Website grew by  12% for the full year, to approximately 5.4 million.  Aiding the continued growth in unique visitors to Salon’s Website is the migration of readers to the Internet from print newspapers.





All other sources of revenue were $0.5 million for the year ended March 31, 2011 and $0.6 million for the year ended March 31, 2010.  Approximately 71% of this revenue was derived from subscriptions to the Well, an online discussion forum.




26





Production and Content Expenses




Production and content expenses during the year ended March 31, 2011 were $3.2 million versus $3.7 million for the year ended March 31, 2010, a decrease of $0.5 million.  The 14% decrease primarily reflects a decrease in staff and related salary and benefit costs, as well as a reduction in freelance costs.





Sales and Marketing Expenses





Sales and marketing expenses during the year ended March 31, 2011 were $1.5 million versus $2.7 million for the year ended March 31, 2010, a decrease of $1.2 million.  The 47% decrease primarily reflects the cessation of utilization of advertising credits in the prior year.





Information Technology Support Expenses




Information technology support expenses during the year ended March 31, 2011 remained flat from one year ago at approximately $0.9 million.





General and Administrative Expenses




General and administrative expenses during the year ended March 31, 2011 were $1.3 million versus $1.6 million for the year ended March 31, 2010, a decrease of $0.3 million.  The 17% decrease was primarily attributed to lower stock-based compensation expenses, executive bonuses, consulting fees and bad debt expenses.




Separation Expenses




Separation expenses were nil for the years ended March 31, 2011 and March 31, 2010.




Interest Expense




Interest expense for the year ended March 31, 2011 increased slightly to approximately $0.3 million from $0.2 million one year ago, due to higher accrued interest costs for Salon’s bank debt and convertible promissory notes.




27




Fiscal Years Ended March 31, 2010 and 2009





Net Revenues





Salon’s net revenue decreased 38% to $4.3 million in the year ended March 31, 2010 from $6.9 million in the year ended March 31, 2009.





Advertising revenues decreased 43% to $3.0 million for the year ended March 31, 2010 from $5.2 million for the year ended March 31, 2009, as overall sales declined in the first and fourth quarters, during the economic recession.





Salon Premium subscription revenues decreased by 29% to $0.7 million for the year ended March 31, 2010 from $1.0 million for the year ended March 31, 2009.  The drop in Salon Premium revenues recognized for the year ended March 31, 2010 compared to the year ended March 31, 2009 is attributable to a substantial reduction in the number of new subscribers.  Salon acquired approximately 12,000 paid one-year subscriptions for the year ended March 31, 2010 compared to approximately 17,600 for the year ended March 31, 2009.  As a result, the number of paid subscribers decreased from approximately 23,450 at March 31, 2009 to approximately 15,755 at March 31, 2010.  As of June 1, 2010, Salon had approximately 14,700 paid subscribers. As a result, Salon has continued to emphasize increasing advertising income over promoting Premium subscriptions.





All other sources of revenue were $0.6 million for the year ended March 31, 2010 and $0.7 million for the year ended March 31, 2009.  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, 2010 were $3.7 million versus $5.3 million for the year ended March 31, 2009, a decrease of $1.6 million.  The 31% decrease primarily reflects a decrease in staff and related salary and benefit costs, as well as a reduction in freelance costs.





Sales and Marketing Expenses





Sales and marketing expenses during the year ended March 31, 2010 were $2.7 million versus $2.9 million for the year ended March 31, 2009, a decrease of $0.2 million.  The 7% decrease results from higher usage of advertising credits being offset by lower ad sales salaries, commissions and travel expenses.





Information Technology Support Expenses




Information technology support expenses during the year ended March 31, 2010 remained flat from one year ago at $0.8 million.





General and Administrative Expenses




General and administrative expenses during the year ended March 31, 2010 were $1.6 million versus $1.7 million for the year ended March 31, 2009, a decrease of $0.1 million.  The 6% decrease was primarily attributed to lower stock-based compensation expenses, executive bonuses and bad debt expenses.




28




Separation Expenses




Separation expenses were nil for the year ended March 31, 2010 versus $0.6 million for the year ended March 31, 2009, which consisted of one-time charges 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 Expense




Interest expense for the year ended March 31, 2010 remained flat at approximately $0.2 million from one year ago which consisted primarily of accrued interest costs for Salon’s outstanding debts and financial obligations, including bank debt, several convertible promissory notes, and computer equipment capital leases.






Liquidity and Capital Resources





Net cash used in operations was $2.0 million for the year ended March 31, 2011, $2.6 million for the year ended March 31, 2010, and $2.4 million for the year ended March 31, 2009.  The principal use of cash during the years ended March 31, 2011, March 31, 2010 and March 31, 2009 was to meet its operating deficits.





Net cash used in investing activities was immaterial for the years ended March 31, 2011 and March 31, 2010.  Net cash used in investing activities for the year ended March 31, 2009 was $0.3 million to fund the acquisition of computer equipment and internal software development.





For the year ended March 31, 2011, net cash provided from financing activities was $2.2 million, consisting primarily of long-term borrowings from related parties.  For the year ended March 31, 2010, net cash provided from financing activities was $2.5 million, consisting primarily of long-term borrowings from related parties.  For the year ended March 31, 2009, net cash provided from financing activities was $2.2 million, which included $2.0 million in convertible notes and $0.2 million in related party advances.





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.




29





As of March 31, 2011, Salon has five outstanding capital leases on computer equipment and does not anticipate entering into similar debt instruments during its year ending March 31, 2012.  The following summarizes Salon’s contractual obligations as of March 31, 2011, and the effect these contractual obligations are expected to have on Salon’s liquidity and cash flows in future periods (in thousands):





Payments Due By PeriodTotal


1 Year

or less


1 - 3

Years


3 - 5

Years


More than

5 YearsOperating leases

$
1,249


$
480


$
769


$
-


$
-Capital leases


4



4



-



-



-Short-term borrowing


1,000



1,000



-



-



-Short-term borrowing interest


148



148



-



-



-Related party advances


5,055



5,055Convertible notes principal


2,889



1,733



1,156



-



-Convertible notes interest


839



766



73



-



-Total

$
11,184


$
9,186


$
1,998


$
-


$
-




Capital requirements





Salon has a history of significant losses and expects to incur a net loss from operations for its year ending March 31, 2012.  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, 2011, March 31, 2010 and March 31, 2009 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, and related party advances 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 $0.4 million in related party advances  received subsequent to year end, Salon estimates it will require approximately $1.5-$2.0 million in additional funding to meet its operating needs. During fiscal 2010, in the face of reduced revenues resulting from the recession’s impact on advertising budgets, the Company implemented significant organizational changes that lowered its breakeven level. Additional cost savings achieved in fiscal 2011 have further reduced fixed costs. However, if planned revenues are less than expected, then Salon will not meet its operating targets and the projected 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.




30





Recent Accounting Pronouncements





In September 2009, the FASB ratified Accounting Standards Update (ASU) 2009-13 (ASU 2009-13) (previously Emerging Issues Task Force (EITF) Issue No. 08-1,Revenue Arrangements with Multiple Deliverables (EITF 08-1)). ASU 2009-13 superseded EITF 00-21 and addresses criteria for separating the consideration in multiple-element arrangements. ASU 2009-13 will require companies to allocate the overall consideration to each deliverable by using a best estimate of the selling price of individual deliverables in the arrangement in the absence of vendor-specific objective evidence or other third-party evidence of the selling price. ASU 2009-13 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and early adoption will be permitted. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.





In January 2010, the FASB issued ASU No. 2010-06,Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 amends ASC 820 and clarifies and provides additional disclosure requirements on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons for and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). Other than requiring additional disclosures, adoption of this new guidance will not have a material impact on our financial statements.





In December 2010, the FASB issued ASU No. 2010-28 Intangibles-Goodwill & Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. ASU 2010-28 amends the goodwill impairment test to address entities with reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that, as a result of any adverse qualitative factors, goodwill impairment exists. We are currently evaluating the potential impact on the Company’s consolidated financial statements, if any, of the adoption of ASU 2010-28.








ITEM 7A.  Quantitative and Qualitative Disclosures About Market Risk




Salon maintains all of its cash in immediately available cash deposits at its bank.  These funds are not subject to market risk and no interest is paid on such funds.  In May 2007, Salon entered into a credit agreement with Deutsche Bank Securities, Inc. that allows Salon to borrow up to $1.0 million, plus accrued interest, at a rate of prime less 0.25% which will subject Salon to interest rate risk. The line of credit has been fully drawn as of March 31, 2011 and 2010, and is guaranteed by Salon’s Chairman.  Rates remained at a constant level throughout most of fiscal 2011.  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.




31





ITEM 8.  Consolidated Financial Statements and Supplementary Data





PageReport of Independent Registered Public Accounting Firm
33Consolidated Balance Sheets as of March 31, 2011 and 2010
34Consolidated Statements of Operations for the years ended March 31, 2011, 2010 and 2009
35Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended March 31, 2011, 2010 and 2009
36Consolidated Statements of Cash Flows for the years ended March 31, 2011, 2010 and 2009
37Notes to Consolidated Financial Statements
38Selected Quarterly Financial Data (unaudited)
55




32





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, 2011 and 2010, 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, 2011.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits 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, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2011, 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 $108.4 million at March 31, 2011.  These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters 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, Inc.


San Francisco, California


June 29, 2011




33




SALON MEDIA GROUP, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share amounts)March 31,2011


2010AssetsCurrent assets:Cash and cash equivalents

$
386


$
216Accounts receivable, net of allowance of $57 and $55


728



706Prepaid expenses and other current assets


73



58Total current assets


1,187



980Property and equipment, net


127



299Other assets, principally deposits


122



148Goodwill


200



200Total assets

$
1,636


$
1,627Liabilities and Stockholders’ DeficitCurrent liabilities:Short-term borrowings

$
1,000


$
1,000Advances from related parties


5,055



2,800Convertible notes


1,733



-Accounts payable and accrued liabilities


1,237



1,299Deferred revenue


233



338Total current liabilities


9,258



5,437Convertible notes payable, less current portion


1,156



2,687Deferred rent


224



343Total liabilities


10,638



8,467Commitments and contingencies (Note 9)Stockholders’ deficit:Preferred stock, $0.001 par value, 5,000,000 shares authorized, 9,404 sharesissued and outstanding at March 31, 2011 and 9,467 shares issued andoutstanding at March 31, 2010 (liquidation value of $25,356 atMarch 31, 2011 and $25,057 at March 31, 2010)


-



-Common stock, $0.001 par value, 30,000,000 shares authorized, 3,282,576shares issued and outstanding at March 31, 2011 and 2,437,956 sharesissued and outstanding at March 31, 2010


3



2Additional paid-in capital


99,426



99,005Accumulated deficit


(108,431
)


(105,847
)Total stockholders’ deficit


(9,002
)


(6,840
)Total liabilities and stockholders’ deficit

$
1,636


$
1,627See accompanying notes to consolidated financial statements.





34





SALON MEDIA GROUP, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)Year Ended March 31,2011


2010


2009Net revenues

$
4,573


$
4,291


$
6,874Operating expenses:Production and content


3,182



3,698



5,314Sales and marketing


1,463



2,738



2,925Information technology support


914



861



763General and administrative


1,343



1,613



1,746Separation expenses


-



-



631Total operating expenses


6,902



8,910



11,379Loss from operations


(2,329
)


(4,619
)


(4,505
)Interest expense


(255
)


(242
)


(194
)Net loss attributable to common stockholders

$
(2,584
)

$
(4,861
)

$
(4,699
)Basic and diluted net loss per share attributable tocommon stockholders

$
(0.84
)

$
(2.30
)

$
(2.34
)Weighted average shares used in computing basicand diluted net loss per share attributableto common stockholders


3,086



2,116



2,008





See accompanying notes to consolidated financial statements.
  35
 
 
 SALON MEDIA GROUP, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY


(in thousands, except Preferred Stock Shares)





Preferred Stock


Common Stock


Additional

Paid-In


Accumulated


Total

Stockholders’

EquityShares


Amount


Shares


Amount


Capital


Deficit


(Deficit)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
)Shares issued under restricted stock plans


-



-



526



-



-



-



-Shares of common stock cancelled


-



-



(109
)


-



-



-



-Share-based compensation


-



-



-



-



441



-



441Net loss


-



-



-



-



-



(4,861
)


(4,861
)Balance, March 31, 2010


9,467



-



2,438



2



99,005



(105,847
)


(6,840
)Preferred shares surrendered


(63
)


-



-



-



-



-



-Shares issued under restricted stock plans


-



-



845



1



126



-



127Share-based compensation


-



-



-



-



295



-



295Net loss


-



-



-



-



-



(2,584
)


(2,584
)Balance, March 31, 2011


9,404


$
-



3,283


$
3


$
99,426


$
(108,431
)

$
(9,002
)




See accompanying notes to consolidated financial statements.




36




SALON MEDIA GROUP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)Year Ended March 31,2011


2010


2009Cash flows from operating activities:Net loss

$
(2,584
)

$
(4,861
)

$
(4,699
)Adjustments to reconcile net loss to net cash used in operating activities:Loss from retirement of assets, net


2



1



4Share-based compensation


295



379



1,025Depreciation and amortization


207



227



210Prepaid advertising rights usage


-



1,225



906Changes in assets and liabilities:Accounts receivable


(22
)


180



(22
)Prepaid expenses, other current assets and other assets


11



(3
)


(12
)Accounts payable, accrued liabilities and deferred rent


152



391



410Deferred revenue


(105
)


(132
)


(235
)Net cash used in operating activities


(2,044
)


(2,593
)


(2,413
)Cash flows from investing activities:Purchase of property and equipment


(37
)


(82
)


(247
)Net cash used in investing activities


(37
)


(82
)


(247
)Cash flows from financing activities:Proceeds from short-term borrowings and advances


2,255



2,550



250Proceeds from long-term borrowings


-



-



2,000Capital lease payments


(4
)


(30
)


(38
)Proceeds from issuance of common stock, net


-



-



1Net cash provided by financing activities


2,251



2,520



2,213Net (decrease) increase in cash


170



(155
)


(447
)Cash at beginning of year


216



371



818Cash at end of year

$
386


$
216


$
371Amount paid for interest

$
3


$
9


$
12Supplemental schedule of non-cash investing and financing activities:Property and equipment purchased with capital lease

$
-


$
-


$
12Conversion of accrued interest for convertible  notes payable

$
202


$
187


$
-




See accompanying notes to consolidated financial statements.
  37


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 an online community 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, 2011 of $108,431.  In addition, Salon expects to incur a net loss from operations for its year ending March 31, 2012.  During the last three years, Salon has relied on cash from the issuance of bank debt, convertible notes and preferred stock, and related-party advances 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 $0.4 million in related party advances received subsequent to year end, Salon estimates it will require between $1.5-$2.0 million in additional funding to meet its operating needs. During fiscal year 2010, in the face of reduced revenues resulting from the recession’s impact on advertising budgets, the Company implemented significant organizational changes which lowered its breakeven level. Additional cost savings achieved in fiscal 2011 have further reduced fixed costs. However, if planned revenues are less than expected, then we will not meet our operating targets and our projected 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. These financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.





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 ASC 280, Segment Reporting.  Based upon definitions contained within ASC 280, 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.




38




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.




Cash and cash equivalents





Cash and cash equivalents consist of cash on deposit with banks and investments that are readily convertible into cash and have original maturities of three months or less. There were no cash equivalents at March 31, 2011 and 2010.







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.




Prepaid advertising rights




Prepaid advertising rights are carried at cost less accumulated amortization, with amortization commensurate to the usage of such rights.  All remaining credits were utilized prior to their expiration during fiscal 2010.




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, the unamortized portion of which is included with property and equipment.  No expenses were capitalized in fiscal years 2011 and 2010.




39




SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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




Goodwill




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




Impairment of long-lived assets




Salon periodically evaluates the potential impairment of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  At the 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 their respective subscription periods.  Salon Premium subscriptions are generally for one year periods.  Well subscriptions are generally only for one month.





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, 2011, 2010 and 2009 and comprehensive loss for those periods.




40


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, ASC 718 Compensation – Stock Compensation (ASC 718).  Under ASC 718, 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.  Salon recognizes compensation cost related to options granted on a straight-line basis over the applicable vesting period.




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 31,2011


2010


2009Numerator:Net loss attributable to common stockholders

$
(2,584
)

$
(4,861
)

$
(4,699
)Denominator:Weighted average shares used incomputing basic and diluted net loss pershare attributable to common stockholders


3,086,000



2,116,000



2,008,000Basic and diluted net loss per share attributableto common stockholders

$
(0.84
)

$
(2.30
)

$
(2.34
)Antidilutive securities including options,warrants and convertible notes and preferredstock not included in loss per share calculation


18,142,000



18,238,000



15,518,000




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. The fair value of long- term convertible notes and advances approximates fair value, based on borrowing rates currently available to the Company for loans with similar terms.




41




SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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




Income taxes




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





Concentrations of credit risk





Financial instruments that potentially subject Salon to concentrations of credit risk consist principally of trade accounts receivable.Salon performs ongoing credit evaluations of its customers, 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 approximately 46% of trade accounts receivable at March 31, 2011. Two customers accounted for approximately 31% of trade accounts receivable at March 31, 2010. One customer accounted for more than 10% of total revenue for fiscal year ended March 31, 2011.  No customer accounted for 10% or more of total revenue for the fiscal years ended March 31, 2010 and 2009, respectively.





Recent accounting pronouncements





In September 2009, the FASB ratified Accounting Standards Update (ASU) 2009-13 (ASU 2009-13) (previously Emerging Issues Task Force (EITF) Issue No. 08-1,Revenue Arrangements with Multiple Deliverables (EITF 08-1)). ASU 2009-13 superseded EITF 00-21 and addresses criteria for separating the consideration in multiple-element arrangements. ASU 2009-13 will require companies to allocate the overall consideration to each deliverable by using a best estimate of the selling price of individual deliverables in the arrangement in the absence of vendor-specific objective evidence or other third-party evidence of the selling price. ASU 2009-13 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and early adoption will be permitted. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.





In January 2010, the FASB issued ASU No. 2010-06,Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 amends ASC 820 and clarifies and provides additional disclosure requirements on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons for and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements).   Other than requiring additional disclosures, adoption of this new guidance will not have a material impact on our financial statements.




42





SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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





In December 2010, the FASB issued ASU No. 2010-28 Intangibles-Goodwill & Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. ASU 2010-28 amends the goodwill impairment test to address entities with reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that, as a result of any adverse qualitative factors, goodwill impairment exists. We are currently evaluating the potential impact on the Company’s consolidated financial statements, if any, of the adoption of ASU 2010-28.





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.





Note 3. Goodwill





In accordance with ASC 360, Goodwill is not amortized but is tested for impairment annually during the Company’s fourth quarter, or when events and circumstance occur indicating that the asset might be impaired.  The carrying value of goodwill at March 31, 2011 and March 31, 2010 was $200 and was not found to be impaired.





Note 4. Property and Equipment





Year Ended March 31,2011


2010Property and equipment, netComputer hardware and software

$
1,404


$
1,396Leasehold improvements


82



82Furniture and office equipment


273



2791,759



1,757Less accumulated depreciation and amortization


(1,632
)


(1,458
)$
127


$
299





Depreciation and amortization expense for the years ended March 31, 2011, 2010 and 2009 was $207, $227, and $210 respectively.




43




SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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





Note 5.  Borrowing Agreements





Short-term borrowings





In May 2007, Salon entered into a borrowing agreement with Deutsche Bank Securities, Inc. that allows Salon to borrow up to $1,000, plus accrued interest, 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, 2011 and 2010.  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, 2011, and 2010, accrued interest on bank debt totals $148 and $113, respectively.  During the fiscal years ending March 31, 2011 and 2010, the weighted average interest rate on the Company’s short-term borrowings was 3%.




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 $1.68.  In addition, in the event the Company obtains third-party financing in excess of $500, the holders of this $1,000 convertible notes payable have a right to exchange these notes for the same instrument issued in such third-party financing. The value of this embedded derivative was determined to be insignificant and no amount has been recorded.





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.





On April 4, 2009, Salon issued to each of its Chairman and the father of Salon’s then CEO a convertible promissory interest note in exchange for loans with a principal amount of $38, an aggregate of $75.  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, 2009 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 $1.68.




44





SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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




On May 15, 2009, Salon issued to another investor a convertible promissory interest note in exchange for loans with a principal amount of $38.  The note bears an interest rate of 7.50 percent per annum, payable annually, in cash or in kind, and matures on March 31, 2012.  The note issued on May 15, 2009 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, 2009, Salon issued to each of its Chairman and the father of Salon’s former CEO and current Director a convertible promissory interest note in exchange for loans with a principal amount of $38, an aggregate of $75.  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, 2009 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.





On April 4, 2010, Salon issued to each of its Chairman and the father of Salon’s former CEO and current Director a convertible promissory interest note in exchange for loans with a principal amount of $40, an aggregate of $81.  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, 2010 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 $1.68.





On May 15, 2010, Salon issued to another investor a convertible promissory interest note in exchange for loans with a principal amount of $40.  The note bears an interest rate of 7.50 percent per annum, payable annually, in cash or in kind, and matures on March 31, 2012.  The note issued on May 15, 2010 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, 2010, Salon issued to each of its Chairman and the father of Salon’s former CEO and current Director a convertible promissory interest note in exchange for loans with a principal amount of $40, an aggregate of $81.  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, 2010 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.





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, 2011 and 2010, convertible notes payable totaled $2,889 and $2,687, inclusive of $389 and $187, respectively, in notes issued as payment in kind of accrued interest thereon. As of March 31, 2011 and 2010, related parties hold $2,311 and $2,150 of such notes and aggregate related party interest expense totaled $170 and $149, respectively.




45




SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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




Related Party Advances





As of March 31, 2011 and 2010, the Company has received $5.1 million and $2.8 million in unsecured, interest-free cash advances, including $3.2 million and $1.8 million from the Company’s Chairman and $1.9 million and $1 million, respectively, from the father of Salon’s former CEO.  Subsequent to year end, each advanced an additional $175, to be used for working capital.  This debt is payable on demand, and is exchangeable into securities to be issued in the next financing raised by the Company from non-related parties.




Note 6. Accounts Payable and Accrued Liabilities





Year Ended March 31,2011


2010Accounts payable and accrued liabilitiesAccounts payable

$
337


$
343Salaries and wages payable


230



409Accrued services


22



33Capital lease, current portion


4



31Accrued Interest


308



265Other accrued expenses


336



218$
1,237


$
1,299




Note 7.  401(k) Savings Plan





Salon’s 401(k) Savings Plan (the “401(k) Plan”) is a defined contribution retirement plan intended to qualify under Sections 401(a) and 401(k) of the Internal Revenue Code. All full-time employees of Salon are eligible to participate in the 401(k) Plan pursuant to its terms.  Participants may contribute from 1% to 20% of compensation, subject to statutory limitations.  Employer matching contributions are discretionary based on a certain percentage of a participant’s contributions as determined by management of Salon.  Salon has not made any discretionary contributions to the 401(k) Plan through March 31, 2011.





Note 8. Employee Stock Option Plan




Salon has two stock option plans approved by stockholders.  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.  In May 2009, Salon’s Board of Directors further 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 4,500,000 to 7,675,000 shares.




46




SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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




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 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 became fully vested on January 1, 2010.  Non-Plan restricted stock awards are considered outstanding at the time of vesting.





Salon has granted options pursuant to plans not approved by stockholders.  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. The 75,000 options granted to the then Senior Vice President – Publisher have been forfeited following the departure of the executive.




As of March 31, 2011, Salon has approximately 1,355,000 shares authorized to be issued under the 2004 Plan of which approximately 866,000 shares remain available for future grant.





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.





Stock based compensation expense recognized for the years ended March 31, 2011, 2010 and 2009 was $295, $379 and $1,025, which consisted of stock-based compensation expense related to stock options and restricted stock.





As of March 31, 2011, the aggregate stock compensation remaining to be amortized to expenses was $335. Salon expects this stock compensation balance to be amortized as follows: $198 during fiscal 2012; $111 during fiscal 2013; $24 during fiscal 2014 and $2 during fiscal 2015.  The expected amortization reflects only outstanding stock option awards as of March 31, 2011.




47





SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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





No amounts were recorded relating to excess tax benefits from the exercise of stock-based compensation awards during the year ended March 31, 2011, and as a result there were no differences in net cash used in operating and financing activities due to the implementation of ASC 718.





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 31,2011

2010

2009Risk-free interest rates

1.25 – 1.70%

1.52 – 2.05%

1.30 – 3.09%Expected lives (in years)

4

4

4Expected volatility

254 – 279 %

156 – 209 %

92 – 163 %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.




48




SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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




The following table summarizes activity under Salon’s plans for the years ended March 31, 2009, 2010 and 2011:




Outstanding

Stock

Options

Weighted

Average

Exercise

Price

Weighted

Average

Remaining Contractual

Life (Years)

Aggregate

Intrinsice

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

$0.36Vested and expected to vest at March 31, 2009
1,370,000

$0.35



$67,000Outstanding as of April 1, 2009
2,440,000

$.035



$0Granted
3.391,000

$0.15Exercised
-

-Expired or forfeited
(321,000)

$0.39Outstanding at March 31, 2010
5,510,000

$0.23

8.2

$0Exercisable at March 31, 2010
1,937,000

$0.31



$0Vested and expected to vest at March 31, 2010
3,391,000

$0.22

8.8

$0Outstanding as of April 1, 2010
5,510,000

$0.23



$0Granted
304,000

$0.11Exercised
-

-Expired or forfeited
(442,000)

$0.20Outstanding at March 31, 2011
5,372,000

$0.23

7.3

$1,459Exercisable at March 31, 2011
3,280,000

$0.26

6.6

$799Vested and Expected to vest at March 31, 2011
3,394,000

$0.20

8.1

$1,019





49





SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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




The following table summarizes information about stock options outstanding at March 31, 2011:





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$0.08 - $0.12



1,864,000



8.7


$
0.12



862,000


$
0.12$0.16 - $0.20



1,492,000



8.1


$
0.20



703,000


$
0.20$0.29 - $0.35



2,013,000



5.5


$
0.35



1,712,000


$
0.35$5.20 - $5.20



3,000



4.1


$
5.20



3,000


$
5.205,372,000



7.3


$
0.23



3,280,000


$
0.26




The weighted average fair value per share of the stock option awards in the year ended March 31, 2011, 2010 and 2009 was $0.11, $0.14, and $0.41, respectively.  The weighted average fair value of options vested during the year ended March 31, 2011, 2010 and 2009 was $0.31, $0.33 and $0.63 per share, respectively.




The total intrinsic value of options exercised during the year ended March 31, 2011, 2010 and 2009 were nil as none were exercised.




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 2011. In addition, Salon’s operating lease for its office space in New York was signed for the period June 2008 through August 2011.  Rent expense under operating lease agreements was $463, $488, and $457 for the years ended March 31, 2011, 2010, and 2009 respectively.





Salon has five capital leases as of March 31, 2011.  Total future minimum payments under operating and capital leases, short-term borrowing and convertible notes in effect at March 31, 2011 are as follows:




Payments Due By PeriodTotal


Year 1


Year 2


Year 3


Year 4Operating leases

$
1,249


$
480


$
397


$
372


$
-Capital leases


4



4



-



-



-Short-term borrowing


1,000



1,000



-



-



-Short-term borrowing interest


148



148



-



-



-Related party advances


5,055



5,055



-



-



-Convertible notes principal


2,889



1,733



1,156



-



-Convertible notes interest


839



766



73



-



-Total

$
11,184


$
9,186


$
1,998


$
372


$
-





50





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 $147 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, 2011, Salon has net operating loss carry-forwards of $79,739 and $25,170 for Federal and California purposes, respectively, available to reduce future taxable income, if any.  During the year ended March 31, 2011, $7,090 of California net operating loss carry-forwards expired and additional $2,094 is due to expire as of March 31, 2012, 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, 2011, 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 ended March 31, 2012, and the California credits carry forward indefinitely.





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





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





March 31,2011


2010Net operating losses

$
28,580


$
28,950Other


512



640Total deferred tax assets


29,092



29,591Valuation allowance


(29,092
)


(29,591
)Net deferred tax asset

$
-


$
-




51




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 31,2011


2010


2009Statutory tax benefit

$
(879
)

$
(1,610
)

$
(1,598
)State taxes, net of federal benefit


(151
)


(276
)


(274
)Permanent differences


93



179



230Other


436



128



81Total


(499
)


(1,579
)


(1,561
)Change in valuation allowance


499



1,579



1,561$
-


$
-


$
-





Note 11. Preferred Stock




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.





During the year ended March 31, 2011, sixty-three shares of Series A preferred stock were surrendered by one stockholder in a non-cash transaction.




52





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, 2011:




Per share


CommonPreferred Stock

Shares

Outstanding


Purchase

Price


Conversion

Rate


Equivalent

SharesSeries A


612



$4,000



1.792



1,366,275Series B


125



$4,000



1.483



337,251Series C


6,582



$800



0.786



6,699,471Series D-1


417



$1,200



1.690



296,031Series D-2


417



$1,200



1.953



256,260Series D-3Issued on 12/21/05


209



$1,200



1.690



148,371Issued on 07/27/06


208



$1,200



2.164



115,363Series D-4Issued on 07/27/06


42



$1,200



2.164



23,294Issued on 09/21/06


333



$1,200



1.571



254,331Issued on 12/18/06


42



$1,200



0.890



56,636Series D-5Issued on 12/18/06


125



$1,200



0.890



168,561Issued on 11/19/07


292



$1,200



1.407



249,121Total


9,404











9,970,965




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.




53




SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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




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, 2011, no dividend has been declared to the holders of preferred stock.





If, after initial preferential liquidation payments to the holders of Series A, B, C and D preferred stock, any assets remain available for distribution, such assets are to be distributed ratably among the holders of common stock and preferred stock, based on the shares of common stock then held by them and issuable upon conversion of the shares of preferred stock then held by them, until aggregate distributions per share reach $12,000 for the holders of Series A and B preferred stock, $2,400 for the holders of Series C Preferred Stock and $3,600 for the holders of Series D preferred stock.  Salon has currently outstanding 612 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 92% of this group of stockholders.





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 95% of the outstanding shares of common stock and common stock issuable upon conversion of the shares of preferred stock, all with voting rights.




54




SALON MEDIA GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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




The aggregate liquidation preferences of all preferred stockholders shall include a set price for each share plus an amount equal to all accumulated and accrued dividends whether or not declared.





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




Note 12. Subsequent Events





Following year end, through June 1, 2011, the Company has received $0.4 million in unsecured, interest-free cash advances from the Company’s Chairman and the father of Salon’s former CEO. This debt is exchangeable into securities to be issued in the next financing raised by the Company from non-related parties.




Note 14. Selected Quarterly Financial Data (unaudited)(in thousands, except per share data)First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter2011:Net revenues

$
1,154


$
1,367


$
962


$
1,090Net loss attributable tocommon stockholders

$
(817
)

$
(523
)

$
(724
)

$
(520
)Basic and diluted net loss per shareattributable to common stockholders

$
(0.33
)

$
(0.16
)

$
(0.22
)

$
(0.16
)Basic and diluted shares used in per share calculation


2,494



3,283



3,283



3,2832010:Net revenues

$
989


$
1,025


$
1,413


$
864Net loss attributable tocommon stockholders

$
(1,255
)

$
(1,079
)

$
(1,701
)

$
(826
)Basic and diluted net loss per shareattributable to common stockholders

$
(0.62
)

$
(0.53
)

$
(0.85
)

$
(0.34
)Basic and diluted shares used in per share calculation


2,021



2,021



1,996



2,407




55




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





None.




ITEM 9A.  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, 2011), 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, 2011.




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 rules of the SEC that permit us to provide only management’s report in this annual report.




56





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.





ITEM 9B.  Other Information





None.








PART III





ITEM 10.   Directors, Executive Officers and Corporate Governance





Salon’s executive officers and directors as of May 31, 2011 are as follows:





Name

Age

PositionRichard Gingras

59

Chief Executive Officer, DirectorNorman Blashka

57

Executive Vice President and Chief Financial OfficerKerry Lauerman

42

Editor-in-ChiefBenjamin Zagorski

31

Vice President SalesDeepak Desai (1,3)

52

DirectorRobert Ellis (1)

75

DirectorElizabeth  Hambrecht

48

DirectorGeorge Hirsch(1)

76

DirectorJames Rosenfield (2)

82

DirectorDavid Talbot

59

DirectorJohn Warnock(2)

70

Chairman of the Board, Director





(1)
Member of Audit Committee


(2)
Member of Compensation Committee


(3)
Audit Committee financial expert




57





Richard Gingras was appointed Chief Executive Officer and a Director in May 2009.  He has resigned, effective July 8, 2011.  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.





Kerry Lauerman was appointed Editor-in-Chief in November 2010.  From January 2000 to November 2010, he held a number of senior positions in the company, including Executive Editor, Culture Editor and Washington Bureau Chief. Mr. Lauerman also founded and launched Salon's blog network, Open Salon, in 2008. Prior to joining Salon, Mr. Lauerman held editing jobs for ten years with The New York Times Magazine, Mother Jones, Forbes and the Owensboro (Ky.) Messenger-Inquirer. Mr. Lauerman holds a Bachelor of Arts in both English and Journalism from the University of Indiana Bloomington.





Benjamin Zagorski was appointed Vice President Sales in December 2009, after being promoted from his position as Ad Sales Manager, which he held from September 2006 through December 2009.  Prior to joining Salon, Mr. Zagorski held the position of Account Executive with The New York Times from May 2005 to August 2006.   From September 2003 to April 2005, he held the position of Ad Sales Executive with CitySearch, a division of IAC/InterActiveCorp. Mr. Zagorski holds a Bachelor of Science in Entrepreneurial Management from the Wharton School of Business of the University of Pennsylvania.





Deepak Desai has served as a Director of Salon since September 2004.   He is currently Chief Strategy Officer at Universal HealthCare Group Inc, which he joined in May 2011. Mr. Desai joined GlobalEnglish Corporation in June 2002 as its Chief Financial Officer and from December 2005 to January 2011 he served as its President and Chief Executive Officer.  From December 2001 to May 2002, Mr. Desai was the interim Chief Financial Officer for Pointcross, Inc., and from July 2001 to October 2001, he was the interim Co-Chief Executive Officer of Yesasia.com Ltd.  From August 1999 to June 2001, Mr. Desai was the Chief Financial Officer of Asiacontent.com Ltd.  From July 1987 to July 1999, Mr. Desai held various positions with Time Warner, Inc., including General Manager and Chief Financial Officer with Time Life Asia, Associate Business Manager, Financial Manager and Assistant Business Manager with Time Inc. and Senior Auditor with Time Warner Inc.  Mr. Desai is a Certified Public Accountant, received a Bachelor of Commerce in Accounting from the University of Bombay, India and an M.B.A. with a Finance emphasis from the Wharton School of Business of the University of Pennsylvania.




58





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.’sInternet 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 has served as Director of Salon since 2003, as well 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.





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.




59




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.”





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.




60




ITEM 11.  Executive Compensation




Executive Compensation




The following table shows, for the fiscal year ended March 31, 2011, the compensation of Salon’s (i) principal executive officer; (ii) principal financial officer; and (iii) the three most highly compensated executive officers, collectively the “Named Executive Officers”:




Summary Compensation Table




Non-EquityOption

Incentive PlanName and Principal Position

Year

Salary

($)

Bonus

($)

Awards

($) (1)

Compensation

($)

Total

($)Richard Gingras (2)

2011

207,000

7,500

62,667

-

277,167Chief Executive Officer

2010

197,417

32,943

57,445

-

287,805Norman Blashka (3)

2011

162,000

7,500

64,212

-

233,712Executive Vice President and Chief Financial Officer

2010

169,500

46,875

83,176

-

299,551Kerry Lauerman (4)

2011

116,667

6,575

2,022

-

125,264Editor-in-Chief

2010

100,000

9,000

2,084

-

111,084Joan Walsh (5)

2011

163,013

-

27,298

-

190,311Former Editor-in-Chief

2010

194,925

46,875

65,488

-

307,288Benjamin Zagorski (6)

2011

215,000

13,778

11,774

30,609

271,161Vice President Sales

2010

172,370

74,166

6,497

36,539

289,572




1.
The amounts shown are the compensation costs recognized by Salon in fiscal years 2011 and 2010 for options and restricted stock awards, as determined pursuant to ASC 718 Compensation – Stock Compensation, excluding any estimates of future forfeitures.  For a discussion of the assumptions used to calculate the value of the option awards, see Note 8 of the Notes to the Consolidated Financial Statements.





2.
Mr. Gingras was appointed Chief Executive Officer in May 2009 at a base annual salary of $230,000.  In October 2009, Mr. Gingras agreed to a temporary 10% salary reduction to $207,000.  His fiscal year 2010 bonus of $32,943 was paid in stock. His reported 2010 compensation above excludes $64,000 earned for consulting services prior to May, 2009.  He has resigned, effective July 8, 2011.





3.
Mr. Blashka continues to serve as Executive Vice President and Chief Financial Officer. His contractual salary of $200,000 has undergone two temporary 10% reductions to $162,000.  Mr. Blashka’s fiscal year  2010 bonus of $46,875 was paid in stock.





4.
Mr. Kerry Lauerman was appointed Editor-in-Chief in November 2010 at a base annual salary of $140,000.





5.
Ms. Walsh relinquished her position as Editor-in-Chief in November 2010 and continues to serve as Editor-at-Large at a reduced salary.  Her prior contractual salary of $230,000 has undergone two temporary 10% reductions to $186,300.  Her fiscal year 2010 bonus of $46,875 was paid in stock.





6.
Mr. Zagorski was promoted to Vice President Sales in December, 2009 at a base annual salary of $215,000. His non-equity compensation represents sales commissions.





61





Grants of Plan-Based Awards in Fiscal 2011




The following table presents information on equity awards granted during the 2011 fiscal year:





GRANTS OF PLAN BASED AWARDS




Estimated Future Payouts Under

All Other

Option Awards:

Number of

Securities

Exercise or

Base Price

Grant Date

Fair Value

of StockGrant

Equity Incentive Plan Awards

Underlying

of Option

and OptionName

Date

Threshold

Target

Maximum

Options

Awards (1)

AwardsKerry Lauerman (2)

10/07/2010







100,000

$0.10

$9,900




(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.




(2)
100,000 shares were granted to Mr. Lauerman in connection with his promotion to Editor-in-Chief.




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.




62





Outstanding Equity Awards at Fiscal 2011 Year-End




The following table sets forth the outstanding equity awards for each Named Executive Officer as of March 31, 2011.




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 ($)

DateRichard Gingras

649,096


(1)  767,115




0.20

05/04/2019Norman Blashka

231,661


(3)  134,120




0.35

01/07/20189,375


7,292




0.35

12/04/2018213,984


(4)    50,000




0.12

09/24/2019Kerry Lauerman

500







0.35

05/03/20113,500







0.35

10/24/201126,000







0.35

05/16/20153,300







0.35

12/07/20164,687


3,646




0.35

12/04/201822,500


37,500




0.12

09/24/2019100,000




0.10

10/07/2020Joan Walsh

1,000







0.35

05/03/20116,250







0.35

10/24/2011100,000







0.35

02/07/2015175,000







0.35

12/07/201685,937


(2,5)   39,063




0.35

06/05/201810,781


8,386




0.35

12/04/2018221,484


(4)    62,500




0.12

09/24/2019Ben Zagorski

7,125







0.35

09/07/20163,300







0.35

12/07/20165,390


4,193




0.35

12/04/201826,250


43,750




0.12

09/24/201996,875


(6)  213,125




0.11

12/10/2019




(1)
If the employment of Mr. Gingras is terminated without cause, 24 months of unvested options shall be vested and exercisable as of the date of his employment termination; and, in the event of a change in control, 50% of all of his unvested options shall be vested and exercisable; and, in the event Mr. Gingras resigns for good reason within three months before or twelve months after the closing of a change in control, then his remaining unvested options shall become fully vested.




63




(2)
Option vests 1/48th per month starting January 7, 2008 provided the grantee continues to be employed by Salon.




(3)
207,277 options vest 1/48th per month, 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’s employment is terminated for other than cause, 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.




(4)
Options awarded in lieu of cash bonus and vested on date of grant.




(5)
Options vest if Ms. Walsh’s employment 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 in the event of a change in control, all outstanding options shall become fully vested and exercisable.




(6)
Options vest if Mr. Zagorski’s employment is involuntarily terminated for other than cause after a change in control.





Option Exercises during Fiscal Year 2011




No current Named Executive Officer exercised any option during fiscal year 2011.





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 plans.





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 his then unvested equity awards shall become vested.




(2) If his employment is terminated without cause, or he resigns for Good Reason, as defined in the underlying agreement, including a material reduction in authority or compensation or a relocation of more than fifty miles, within three (3) months before or twelve (12) months after the closing of a Change in Control, then his remaining unvested equity awards shall become vested.




(3) The Company (or its successor in interest) will pay him 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 Mr. Gingras 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.  This cash payment 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.




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In the event Mr. Blashka’s employment is terminated for a reason other than cause, he will be entitled to a severance payment of six month’s salary and benefits  and 100% of his outstanding options shall be fully vested and exercisable.  Additionally, in the event of a change in control, all outstanding options and restricted stock become fully vested and exercisable.





In the event Mr. Lauerman is terminated for other than cause following a change of control, he will be entitled to a severance payment of four months continued salary and the immediate vesting of his unvested options.





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





If Mr. Zagorski’s employment is involuntarily terminated for a reason other than cause, after the close of a Change in Control, his then outstanding options shall be fully vested and exercisable.





Compensation of Directors




The following table details the total compensation by Salon’s non-employee directors for its 2011 fiscal year:




Fees

Earnedor Paid in


OptionName

Cash


Awards (1)


TotalDeepak Desai


-



$1,097



$1,097Robert Ellis


-



$1,251



$1,251Elizabeth Hambrecht (2)


$75,000



$14,261



$89,261George Hirsch


-



$1,097



$1,097James Rosenfield


-



$1,097



$1,097David Talbot


-



$1,097



$1,097John Warnock


-



$1,097



$1,097





(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 2011 for option awards, as determined pursuant to ASC 718, excluding any estimates of future forfeitures.  For a discussion of the assumptions used to calculate the value of the option awards, see Note 8 of Notes to the Consolidated Financial Statements.





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(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 2011, as determined pursuant to ASC 718, excluding any estimates of future forfeitures.  From May 2009 through September 2010, Ms. Hambrecht was retained as a consultant by the Company. Her accrued and unpaid consulting fees for fiscal year 2011 were $75,000. For a discussion of the assumptions used to calculate the value of the option awards, see Note 8 of Notes to the Consolidated Financial Statements.





Compensation Committee Interlocks and Insider Participation




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




Compensation Discussion and Analysis




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





Objectives and Challenges of Salon’s Compensation Program





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




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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 generally 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.





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 may 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. In each of the last two years, executives have agreed to substantial temporary salary reductions to help reduce operating losses and cash outflows.





Bonuses and Non-Equity Incentive Plan Compensation. Certain named executives are eligible for a cash bonus.  Due to limited cash, historically no meaningful cash bonuses have been granted in the past to Salon’s Chief Executive Officer and President, Executive Vice President and Chief Financial Officer, or Editor-in-Chief. In fiscal 2011, a cash bonus of $13,778 was paid to Mr. Zagorski, the Company’s Vice President Sales, due to the Company achieving certain revenue targets.  Messrs. Gingrich and Blashka also received cash bonuses of $7,500. Mr. Lauerman received a bonus of $6,575.





In order to align corporate goals and provide incentives for its named executive officers, it is anticipated that the Compensation Committee will approve bonus plans for fiscal 2012 consistent with those implemented in fiscal 2011, and be based on meeting operating and profitability targets which increase the enterprise value of the Company.





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 and irregularly.  During fiscal 2011, only Mr. Lauerman received 100,000 additional options, in connection with his promotion to Editor-in Chief.





In May 2009, the Board of Directors, subject to the approval of stockholders, increased the shares available under the 2004 Plan by 4,500,000 to fulfill its obligations to Mr. Gingras and potential future hires.  As of March 31, 2011, Salon’s stock option plan allows for the granting of approximately 866,000 shares of common stock.





Restricted Stock.In October 2007, Salon’s stockholders 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 2011, Mr. Blashka and Ms. Walsh each received 312,500 shares of restricted stock in lieu of a cash bonus for the prior year. Mr. Gingras likewise received 219,620 shares.





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 2011 fiscal year.Salon does not have a deferred compensation plan for any employee.


Named Executive Officer Cash Compensation




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


To support the Company’s operations, Mr. Gingras agreed to a temporary ten percent salary reduction in October 2009. He received cash compensation of $207,000 in salary and $7,500 in cash bonuses during fiscal 2011.





Norman Blashka, Executive Vice President and CFO, has a contractual salary of $200,000.  To support the Company’s operations during a period of limited cash, Mr. Blashka agreed to a temporary ten percent salary reduction in January 2009, and again in September 2009. During fiscal 2011, Mr. Blashka received cash compensation of $162,000, plus a cash bonus of $7,500.




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Kerry Lauerman, who was promoted to Editor-in-Chief in November 2010, earns a base salary of $140,000.  During fiscal 2011, Mr. Lauerman received cash compensation of $116,667, including a cash bonus of $6,500.





Benjamin Zagorski joined Salon on September 1, 2006, as Sales Manager at a base annual salary of $95,000.  On January 1, 2009, Mr Zagorski was promoted to Vice President Sales, at a base annual salary of $215,000.  During fiscal 2011, Mr. Zagorski received a salary of $215,000. He also earned $31,000 in commissions for meeting certain revenue targets, and earned a bonus of approximately $14,000.




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 to 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 ASC 718 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


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





Equity Compensation Plan Information




Information regarding Equity Compensation Plans may be found in Part II, Item 5, commencing on page 21 of this Annual Report on Form 10-K.




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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, 2011 (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)

4,059,285

73.4%Shea Ventures LLC (5)

1,726,678

39.2%Joan Walsh (6)

998,013

25.6%Octavia LLC (7)

376,148

10.3%Adobe Systems Incorporated (8)

337,265

9.3%Robert McKay(ex-Director) (9)

314,269

8.8%Wenner Media LLC (10)

272,886

7.7%Executive Officers and DirectorsJohn Warnock (11)

6,185,910

79.0%Elizabeth Hambrecht (12)

774,467

20.6%David Talbot (13)

275,342

7.7%James Rosenfield (14)

44,458

1.3%George Hirsch (15)

43,190

1.3%Robert Ellis (16)

37,458

1.1%Deepak Desai (17)

34,958

1.1%Richard Gingras (18)

1,097,079

27.1%Norman Blashka (19)

857,103

22.7%Kerry Lauerman (20)

70,181

2.1%Benjamin Zagorski (21)

171,405

5.0%All executive officers and directors as a group (11 persons)

9,591,551

93.7%





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




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




(3)
Calculated on the basis of 3,282,576 shares of Common Stock outstanding as of June 1, 2011, shares of Common Stock underlying options exercisable within sixty (60) days of June 1, 2011, shares of Common Stock that a stockholder 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, if any, 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.




70




(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 Stock. 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, 945,534 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. He also holds  promissory notes convertible into 1,226,257 shares of Common Stock. Includes ownership by The Sarah and William Hambrecht Foundation of 32,005 shares of Common Stock and 277,453 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 172,006 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 858,046 shares of Common Stock that Ironstone has the right to acquire upon conversion of 843 shares of Series C Preferred Stock.  Mr. Hambrecht has an ownership interest in Ironstone Group, Inc.  Mr. Hambrecht and Ms. Hambrecht disclaim beneficial ownership of the shares of Salon’s Common Stock held directly by the Hambrecht Entities, HAMCO Capital and Ironstone, other than their proportionate ownership interest.




(5)
Consists of 101,265 shares of Common Stock held by the stockholder and 988,650 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 130,284 shares of Common Stock that the trust has the right to acquire upon conversion of 128 shares of Series C Preferred Stock. Includes 428,378 shares of Common Stock issuable upon conversion of  promissory notes 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. described in footnote (4).




(6)
Includes 378,214 shares of Common Stock and 619,799 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.




(7)
Consists of 17,805 shares of Common Stock held by the stockholder.  Includes 358,343 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)
Includes 337,265 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.




(9)
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 299,308 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.




(10)
Consists of 18,424 shares of Common Stock held by the stockholder.  Includes 254,462 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 410,426 shares of Common Stock held by the Chairman of the Board of Salon. Includes 4,512,269 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. Includes 1,226,257 shares of Common Stock issuable upon conversion of  promissory notes.  Includes 36,958 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.




(12)
Consists of 296,607 shares of Common stock held by the Director.  Includes 250,864 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 226,996 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.  Excludes her proportional beneficial ownership of amounts owned by the Hambrecht Entities and HAMCO Capital described in footnote (4).




71




(13)
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 274,958 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.




(14)
Includes 44,458 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.


(15)
Consists of 732 shares of Common Stock held by the Director and 42,458 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.




(16)
Consists of 500 shares of Common Stock held by the Director and 36,958 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.




(17)
Includes 34,958 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.




(18)
Includes 329,965 shares of Common Stock and 767,114 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.




(19)
Includes 369,643 shares of Common Stock and 487,460 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.




(20)
Includes 4,500 shares of Common Stock and 65,681 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.




(21)
Includes 171,405 shares subject to options that may be exercised within sixty (60) days of June 1, 2011.






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, 2011 (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 (2,5)

125

20.4%John Warnock (3,5)

125

20.4%Shea Ventures LLC (3)

125

20.4%McKay Investment Group (4,)

62

10.1%Octavia LLC (4)

62

10.1%HVS Boxers LLC (4)

62

10.1%All executive officers and directors as a group (1 persons)

125

20.4%




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




(2)
Includes 75 shares held by the Sarah & William Hambrecht Foundation that are convertible into 167,526 shares of Common Stock, subject to adjustment.  Also includes 50 shares held by WR Hambrecht + Co. LLC that are convertible into 111,684 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.




72




(3)
Shares held by the named stockholder are convertible into 279,210 shares of Common Stock, subject to adjustment.




(4)
Shares held by the named stockholder are convertible into 138,488 shares of Common Stock, subject to adjustment.




(5)
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 A Preferred Stock.






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, 2011 (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 337,265 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.




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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, 2011 (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 (3,7)

1,456


22.1%Shea Ventures LLC (4)

825


12.5%Elaine McKay Family Partnership (5)

158


2.4%Elizabeth Hambrecht (6,7)

31


.5%All executive officers and directors as a group (2 persons)

3,505


53.3%





*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.




(2)
Shares held by the named stockholder are convertible into 3,536,005 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 109,927 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 129,266 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 858,046 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 839,724 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 709,440 shares of Common Stock, subject to adjustment.  Includes 128 shares owned by the E&M RP Trust that are convertible into 130,284 shares of Common Stock, subject to adjustment.




(5)
Shares held by the named stockholder are convertible into 160,820 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 31,553 shares of Common Stock.  Stockholder is a Director 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.




74




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, 2011 (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 (3,6)

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)

1,208


57.9%




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




(2)
Shares held by the named stockholder, who is the Chairman of the Board of Salon, are convertible into 697,054 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 446,104 shares of common stock, subject to adjustment.  Includes 63 shares held by HAMCO Capital Corporation that are convertible to 42,740 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 Director are convertible into 219,311 shares of Common Stock, subject to adjustment.




(5)
Shares held by the named stockholder are convertible into 148,411 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.





ITEM 13.  Certain Relationships and Related Transactions, and Director Independence





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, 2010 and March 31, 2011, the line was fully drawn.  Accrued interest thereon is $148.




75




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.




On April 4, 2009 Salon issued to each of its Chairman and the father of Salon’s then CEO a convertible promissory interest note in exchange for loans with a principal amount of $38, an aggregate of $75.  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, 2009 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 $1.68.





On October 31, 2009 Salon issued to each of its Chairman and the father of Salon’s former CEO and current Director a convertible promissory interest note in exchange for loans with a principal amount of $38, an aggregate of $75.  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, 2009 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.




On April 4, 2010 Salon issued to each of its Chairman and the father of Salon’s former CEO and current Director a convertible promissory interest note in exchange for loans with a principal amount of $40, an aggregate of $81.  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, 2010 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 $1.68.





On May 15, 2010 Salon issued to another investor a convertible promissory interest note in exchange for loans with a principal amount of $40.  The note bears an interest rate of 7.50 percent per annum, payable annually, in cash or in kind, and matures on March 31, 2012.  The note issued on May 15, 2010 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, 2010 Salon issued to each of its Chairman and the father of Salon’s former CEO and current Director a convertible promissory interest note in exchange for loans with a principal amount of $40, an aggregate of $81.  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, 2010 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.





During fiscal 2011, Messrs. Warnock and Hambrecht provided working capital in the form of unsecured, interest free cash advances in the amounts of $1,140 and $1,115, respectively.  As of March 31, 2011, aggregate advances by Mr. Warnock and Mr. Hambrecht were $3,190 and $1,865, respectively.




76




Subsequent to year end 2011, through June 1, 2011, Messrs. Warnock and Mr. Hambrecht each provided an additional $175 to meet Salon’s working capital requirements. These unsecured, interest-free advances are 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 officer, 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 was terminated by mutual agreement on September 30, 2010. Ms. Hambrecht earned $75,000 under this agreement during fiscal 2011.




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




Salon has primarily 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, 2011.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.




ITEM 14.  Principal Accountant Fees and Services




Burr Pilger Mayer, Inc. is Salon’s independent registered accountant.  The aggregate audit fees billed by Burr Pilger Mayer, Inc. for year ended March 31, 2010 were $118,023 and for March 31, 2011 are estimated to be approximately $114,150.  In addition, the aggregate corporate tax filing fees for the year ended March 31, 2011 are estimated to be approximately $9,000. Fiscal year 2009 was the first year Burr Pilger Mayer, Inc. was engaged to perform corporate tax filing services.  Except for corporate tax filing services, Burr Pilger Mayer, Inc. 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, 2011, 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.




77





PART IV





ITEM 15.  Exhibits, Financial Statement Schedules





1.
Financial StatementsThe information concerning Salon’s financial statements and the Report of Burr Pilger Mayer, Inc., 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 SchedulesNone.3.
ExhibitsThe 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-1.4.2.1(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.  78
  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.  79
  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.  80
  4.2.61(30)

Common Stock Purchase Warrant dated October 30, 2003 by Salon Media Group, Inc. with Ironstone Group, Inc.4.2.62(30)

Convertible Promissory Note dated October 30, 2003 by Salon Media Group, Inc. with John Warnock.4.2.63(30)

Common Stock Purchase Warrant dated October 30, 2003 by Salon Media Group, Inc. with John Warnock.4.2.64(30)

Note and Warrant Purchase Agreement dated November 12, 2003.4.2.65(30)

Convertible Promissory Note dated November 12, 2003 by Salon Media Group, Inc.4.2.66(30)

Common Stock Purchase Warrant dated November 12, 2003 by Salon Media Group, Inc.4.2.67(31)

Note and Warrant Purchase Agreement dated November 24, 2003.4.2.68(31)

Convertible Promissory Note dated November 24, 2003 by Salon Media Group, Inc. and John Warnock.4.2.69(31)

Common Stock Purchase Warrant dated November 24, 2003 by Salon Media Group, Inc. for John Warnock.4.2.70(31)

Convertible Promissory Note dated November 24, 2003 by Salon Media Group, Inc. and HAMCO Capital Corporation.4.2.71(31)

Common Stock Purchase Warrant dated November 24, 2003 by Salon Media Group, Inc. for HAMCO Capital Corporation.4.2.72(32)

Note and Warrant Purchase Agreement dated December 10, 2003.4.2.73(32)

Convertible Promissory Note dated December 10, 2003 by Salon Media Group, Inc. and Wenner Media LLC.4.2.74(32)

Common Stock Purchase Warrant dated December 10, 2003 by Salon Media Group, Inc. for Wenner Media LLC.4.2.75(32)

Note and Warrant Purchase Agreement dated December 11, 2003.4.2.76(32)

Convertible Promissory Note dated December 10, 2003 by Salon Media Group, Inc. and John Warnock.4.2.77(32)

Common Stock Purchase Warrant dated December 10, 2003 by Salon Media Group, Inc. for John Warnock.4.2.78(36)

Securities Purchase Agreement dated as of December 30, 2003 between Salon MediaGroup, Inc. and the Purchasers listed on the Schedule of Purchasers attached thereto.4.2.79(36)

Form of Common Stock Purchase Warrant dated December 30, 2003 issued by Salon Media Group, Inc.4.2.80(37)

Securities Purchase Agreement dated as of February 10, 2004 between Salon Media Group, Inc. and the Purchasers listed on the Schedule of Purchasers attached thereto.4.2.81(37)

Form of Common Stock Purchase Warrant dated February 10, 2004 issued by Salon Media Group, Inc.4.2.82(38)

Securities Purchase Agreement dated as of June 4, 2004 between Salon Media Group, Inc. and the Purchasers listed on the Schedule of Purchasers attached thereto.4.2.83(38)

Form of Common Stock Purchase Warrant dated June 4, 2004 issued by Salon Media Group, Inc.4.2.84(39)

Amendment No. 1 to Securities Purchase Agreement dated as of September 30, 2004.4.2.85(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.  81
  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.  82
  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)

Employment Agreement with Joan Walsh dated May 13, 200810.40 (56)

Separation Agreement with Christopher Neimeth dated November 12, 200810.41 (57)

Employment Agreement with Richard Gingras dated May1, 2009  83
  10.42 (58)

Amendment to Employment Agreement with Joan Walsh dated November 2, 2010.16.1 (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, Inc., 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 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 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.  84
  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.  85
  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, 2007  86
  53

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 Current 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, 200958

Incorporated by reference to the exhibits filed with Salon’s Current Report on Form 10-Q filed on February 14, 2011





87





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./s/ Richard GingrasRichard Gingras

Chief Executive Officer





88





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 29, 2011Richard Gingras

(Principal Executive Officer)/s/ Norman Blashka

Executive Vice President and

June 29, 2011Norman Blashka

Chief Financial Officer(Principal Accounting Officer)/s/ Deepak Desai

Director

June 29, 2011Deepak Desai




/s/ Robert Ellis

Director

June 29, 2011Robert Ellis/s/ Elizabeth Hambrecht

Director

June 29, 2011Elizabeth Hambrecht/s/ George Hirsch

Director

June 29, 2011George Hirsch/s/ James H. Rosenfield

Director

June 29, 2011James H. Rosenfield/s/ David Talbot

Director

June 29, 2011David Talbot/s/ John Warnock

Chairman of the Board, Director

June 29, 2011John Warnock