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, 2010


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 [  ] No [X]





The
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $184,000 based on the closing sale price of the
registrant’s common stock on June 11, 2010.  Shares of common stock
held by each then current executive officer and director and by each person who
is known by the registrant to own 5% or more of the outstanding common stock
have been excluded from this computation in that such persons may be deemed to
have been affiliates of Salon. This determination of affiliate status is not a
conclusive determination for other purposes.





The
number of outstanding shares of the Registrant's Common Stock, par value $0.001
per share, on June 11, 2010 was 2,437,956 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
              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
              33ITEM
      8.
              Financial
      Statements and Supplementary Data
              34ITEM
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosures
              61ITEM
      9A.
              Controls
      and Procedures
              61ITEM
      9B.
              Other
      Information
              62PART
      IIIITEM
      10.
              Directors
      and Executive Officers of the Registrant
              62ITEM
      11.
              Executive
      Compensation
              65ITEM
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              75ITEM
      13.
              Certain
      Relationships and Related Transactions
              83ITEM
      14.
              Principal
      Accountant Fees and Services
              84PART
      IVITEM
      15.
              Exhibits,
      Financial Statement Schedules and Reports on Form 8-K
              85SIGNATURES
              94
 2
  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.





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, Table Talk and The Well, as well as Open Salon, an
innovative blogging social network.  Among its many quality offerings,
Salon sponsors daily blogs by Editor-in Chief Joan Walsh and independent
bloggers Glenn Greenwald and Joe Conason, 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.




3




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, Broadsheet, 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,
including the following:





News
      & Politics
            Salon
      News & Politics features breaking stories, investigative journalism
      and commentary, as well as interviews with newsmakers, politicians and
      pundits.  News features Salon’s War Room, a daily politics
      blog.Opinion
            Opinion
      features provocative commentary on timely issues, including daily blogs by
      Glenn Greenwald, Joan Walsh and Joe Conason, and
      periodic  columns by authoritative voices of the
      blogosphere.Technology
      & Business
            Technology
      & Business provides smart, opinionated coverage of Internet news and
      digital culture from today's best technology writers, along with in-depth
      features about the business world and the economy. It features Patrick
      Smith's regular Ask the Pilot column, Andrew Leonard’s How the World Works
      blog, and shared content from the GigaOM network.Movies
            Salon’s
      Movie Page spotlights film reviews, especially critics’ picks, and
      provides readers an ability to check movie show times, buy tickets or
      purchase DVDs, and features reviews from film critics Andrew O’Hehir and
      Mary Elizabeth Williams.Life
            Life
      features articles by thought-provoking writers about family life,
      motherhood and women's lives and issues, as well as the women’s news
      digest Broadsheet. Cary Tennis' popular advice column, Since You Asked,
      appears daily.Books
            Books
      includes ahead-of-the-curve daily book reviews and interviews with today's
      most interesting writers. Nationally renowned critic Laura
      Miller   anchors this site, which often includes insightful
      freelance reviews.Food
            Salon's
      new Food section, headed by award winning writer Francis Lam, is rooted in
      the belief that every recipe has a story to tell. It aims to be an
      enlightening, unpretentious and fun resource where readers are treated to
      an array of fascinating and sometimes unexpected food topics, stories,
      recipes and personal experiences.Comics
            The
      Comics section features the works of comic luminary Tom Tomorrow, and
      other independent artists.Store
            The
      Salon Store was launched in December 2009,  as an e-commerce
      test.
              Product
      selection is curated with the unique tastes of the Salon reader in mind.
      Offerings are currently focused primarily on videos and books, with
      planned expansion into food, wines and eclectic items of
      interest.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.




4




Salon has
two online communities, The Well and Table Talk, which allow users to discuss
Salon content and interact with other users.  The Well, a subscription
member-only discussion community in which members use their real names to post
and only members can view the postings, had approximately 2,300 paying
subscribers as of March 31, 2010.  Table Talk is available to all
Internet users.




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




During
fiscal year 2009, Salon launched Open Salon.com, a social network for bloggers,
with content curated by Salon staff.  Open Salon functions like a
real-time magazine cover, where the best content is
spotlighted.  Blogs from Open Salon may be posted on the Salon.com
website.  Open Salon’s audience has grown consistently since its
launch, and has become a reliable source of content and audience
traffic.




Revenue
Sources




No
customer accounted for over 10% of total revenue for the year ended March 31,
2010, 2009 and 2008, which were as follows (in thousands):





Year
      Ended March 31,2010
            
            
            2009
            
            
            2008Amount
            
            
            %
            
            
            Amount
            
            
            %
            
            
            Amount
            
            
            %Advertising
            $
            2,967
            
            
            
            69
            %
            
            $
            5,195
            
            
            
            76
            %
            
            $
            5,434
            
            
            
            72
            %Salon
      Premium
            
            701
            
            
            
            16
            %
            
            
            994
            
            
            
            14
            %
            
            
            1,333
            
            
            
            18
            %All
      Other
            
            623
            
            
            
            15
            %
            
            
            685
            
            
            
            10
            %
            
            
            746
            
            
            
            10
            %Total
            $
            4,291
            
            
            
            100
            %
            
            $
            6,874
            
            
            
            100
            %
            
            $
            7,513
            
            
            
            100
            %





Salon has
generated Internet advertising revenues since its inception.  To
offset the precipitous drop in advertising revenues experienced in 2000 from the
downturn in the economy, the company launched Salon Premium, a subscription
service, in April 2001.  Since that time, the market for Internet
advertising has improved; according to the Interactive Advertising Bureau,
United States online advertising revenues have grown from $9.6 billion in 2004
to $22.7 billion in 2009.  However, during this period of deep
recession, online advertising revenues declined by 3.4% in 2009, and contributed
to a decline in Salon’s ad revenues in fiscal 2010.  According to
industry analysts, online advertising revenues began to pick up in the fourth
quarter of 2009, indicating a bottom has been reached.  According to
market research firm IDC, U.S. online advertising is expected to grow 12.6% in
2010.  Central to Salon’s strategy is to capitalize on the expected
continued shift in spending of advertising budgets to the Web in response to
increased online usage.





An
important factor in increasing advertising revenues in future periods 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.   Additionally, monthly
unique visitors have grown by 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, free access to
the Table Talk on-line discussion forum, and the ability to download content in
text or PDF format.





6


Salon
Premium revenue is recognized ratably over the period that services are
provided.  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.  For the year ended March 31, 2008, Salon received $1.2
million in cash and recognized $1.3 million of revenue for this service
primarily from approximately 27,900 paid new and renewed one year subscriptions
and from approximately 4,400 monthly subscriptions.  Since peaking at
89,100 subscribers in December 2004, paid subscriptions have continued to
decline to 23,500 as of March 31, 2009 and approximately 15,800 as of March 31,
2010.  The drop is expected to continue during the next year,
following longstanding industry trends away from paid Web content.




The other
sources of revenue are primarily 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 $0.4 million each
for the years ended March 31, 2010, March 31, 2009 and March 31,
2008.   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 nascent
e-commerce activities.





Sales
and Marketing




Salon has
sales offices in New York City and Los Angeles, with eight advertising sales and
operations employees as of March 31, 2010, of which five actively solicit
orders.  As of March 31, 2010, Salon has one employee associated with
Salon Premium membership activities.




Salon
incurred advertising expenses of $1.2 million, $0.9 million and $1.1 million for
the years ended March 31, 2010, 2009, and 2008, 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 89% 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.





7




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 adding, for example, a
new food section, and continues to  enhance or create new content
areas and features for its readers.  During fiscal 2010, Salon
launched a re-designed architecture and Website in an effort to accelerate its
continued growth, with increased attention to search engine optimization and
referral traffic.




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 2011 , Salon plans to continue to provide
more creative advertising offerings, improve the technological orientation of
the site to attract more non-standard advertising and expand into additional
advertising categories.  It will also expand the use of ad networks to
fully monetize any unsold remnant inventory.





Enhanced
Website Design





In fiscal
2010, Salon  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. It is anticipated that the site will be more dynamic and
interactive, and that its new modular architecture will allow editors to manage
a real time flow of content presented in a graphically compelling fashion, while
also servicing multiple platforms and devices, and dynamic usability
experiments.





8





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, we reduced full-time headcount from 63 in March 2008, to
53 in March 2009, to 45 in March 2010, and we are continually aiming to match
personnel resources to overall business need given the prevailing advertising
market.  Additionally, we are evaluating opportunities to reduce the
expense of our high-quality content by focusing on reducing cost per page,
seeking less costly sources of content, including greater content aggregation
and the use of popular articles and blogs from Open Salon.




Develop
Content Partnerships





Salon
believes it needs fresh content and new ideas to continue to attract readers to
its Website.  To this end, Salon has made efforts to initiate
partnerships to create content particularly in areas where Salon does not have
facilities or experience, such as video content, and various content
verticals.  Additionally, Salon has made efforts to identify bloggers
who might have a strong affinity with its readers, and who might be interested
in moving their sites to Salon in order to gain a greater reach of readership,
and to gain infrastructure support.





Infrastructure
and Operations




Salon has
created a flexible publishing structure that enables it to develop its content
while responding quickly to news events and take advantage of the ease of
distribution provided by the Internet. Salon content is deployed on its
proprietary software platform and captured in a database for reuse in Web and
other formats.  The content on Salon’s Website has been structured to
facilitate being found by search engines, a key driver in increasing traffic to
Salon’s Website.  During the last two years, Salon has improved the
look and feel of its Website to increase appeal to its audience and contemplates
continued changes to its Website. In 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.





Software
to maintain and manage Salon Premium was created in-house and upgraded in 2003,
again during fiscal 2007, and a major reprogramming effort was conducted in
fiscal year 2010.





Proprietary
Rights




Salon’s
success and ability to compete is dependent in part on the goodwill associated
with its trademarks, trade names, service marks and other proprietary rights and
on its ability to use U.S. laws to protect its intellectual property, including
its original content, content provided by third parties, and content provided by
columnists. Salon has a registered trademark on its name and its
logo.





9


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





Employees




As of
March 31, 2010, Salon has 45 full-time and two part-time
employees.  Salon believes its employee relations are
good.  No employees of Salon are represented by a labor union or are
subject to a collective bargaining agreement. Salon’s future success is highly
dependent on the ability to attract, hire, retain and motivate qualified
personnel.




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.  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 to meet cash needs and, if it
is unable to raise additional cash, Salon’s ability to continue as a going
concern may be adversely affected.





Salon
has relied on related parties for significant investment capital





Salon has been relying on cash
infusions primarily from related parties to fund operations.  The
related parties are generally John Warnock, Chairman of the Board of Salon, and
William Hambrecht.  William Hambrecht is the father of Salon’s former
President and Chief Executive Officer, Elizabeth Hambrecht, a Director of the
Company.  During the year ended March 31, 2010, related parties
provided approximately $2.6 million in new loans.





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




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 94% of all voting securities.
These stockholders therefore own a controlling interest in Salon.  Of
this amount,  approximately 21% is controlled directly or indirectly
by William Hambrecht and approximately 39% 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 9,467 shares of preferred stock to
approximately 10.1 million shares of common stock.  As Salon’s common
stock is normally thinly traded, if these stockholders were to convert their
shares of preferred stock to common stock and sell the resulting shares, the per
share price of Salon’s common stock may be adversely affected.







Salon’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 $25.1 million in potential sales
proceeds as of March 31, 2010, which includes the effect of undeclared dividends
of $6 million.  If a liquidation event were to occur, and preferred
stock dividends were declared, the holders of preferred stock would be entitled
to the first $25.1 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 $25.1 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.





11





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 principals, for its fiscal year ending March 31,
2011.  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.




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





Salon has
been relying on the revenues and cash generated from Salon Premium subscriptions
since its implementation in April 2002.  Salon Premium subscriptions
grew from nothing to a high of approximately 89,100 as of December 31,
2004.  However, since that time, subscriptions have been declining to
approximately 15,800 as of March 31, 2010.  Salon forecasts that these
memberships will continue to decline to approximately 10,000 as of March 31,
2011.  If the decline were to be in excess of anticipated amounts,
Salon’s operations and available cash could be adversely affected.




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




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




·
            successfully
      sell and market its Website auto start Site Pass or other rich media
      advertisements;




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




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




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




·
            successfully
      sell and market its network to
advertisers;




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




·
            maintain
      pricing levels of the advertising it
sells;




·
            increase
      awareness of the Salon brand;




·
            improve
      the technology for serving advertising on its
  Website;




·
            handle
      temporary high volume traffic spikes to its
  Website;




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




·
            attract
      and retain key sales personnel.





12





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





To comply
with the Sarbanes-Oxley Act of 2002 and proposed accounting changes by the
Securities and Exchange Commission, Salon may be required to hire additional
personnel and utilize additional outside legal, accounting and advisory
services, all of which will cause its general and administrative costs to
increase.





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





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




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




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




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




Salon’s
future revenues and operating results, both Generally Accepted Accounting
Principles in the United States (“GAAP”) and non-GAAP, are likely to vary
significantly from quarter to quarter due to a number of factors, many of which
are outside Salon’s control, and any of which could severely harm Salon’s
business. These factors include:




·
            Salon’s
      ability to attract and retain advertisers and
  subscribers;




·
            Salon’s
      ability to attract and retain a large number of
  users;




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




13




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





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





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





15





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, through August 2011, and smaller offices at 1130
Connecticut Ave. NW, Washington, DC, expiring December 31, 2010, and 300
Manhattan Beach Blvd, Manhattan Beach, CA, terminating August 31, 2010. 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 and Related
Stockholder Matters




Information
with respect to the quarterly high and low sales prices for Salon’s common
stock, ticker symbol SLNM.OB, for its fiscal years 2010 and 2009, based on sales
transactions reported by the OTC (Over-The-Counter) Bulletin Board is provided
below:




Fiscal
      Year Ended
            
            
            Fiscal
      Year EndedMarch
      31, 2010
            
            
            March
      31, 2009For
      the quarter ended
            High
            
            Low
            
            
            High
            
            LowJune
      30
            0.40
            
            0.11
            
            
            1.68
            
            1.10September
      30
            0.20
            
            0.11
            
            
            1.98
            
            1.00December
      31
            0.65
            
            0.11
            
            
            1.10
            
            0.16March
      31
            0.35
            
            0.06
            
            
            0.40
            
            0.20




There were 173 holders of record of
Salon common stock as of June 1, 2010.  This number was derived from
Salon’s stockholder records, and does not include beneficial owners of Salon’s
voting common stock whose shares are held in the names of various dealers,
clearing agencies, banks, brokers, and other fiduciaries.  The closing
price of Salon’s common stock on June 3, 2010 was $0.30 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, warrants and rights under all of Salon’s
existing equity compensation plans as of March 31, 2010, including the
Salon Internet, Inc. 1995 Stock Option Plan, the Salon Media Group, Inc. 2004
Stock Plan, the Salon Media Group, Inc. Non-Plan Stock Agreement and the 1999
Employee Stock Purchase Plan.




Plan
      category
            
            Number
      of securities to

                be
      issued upon exercise

                  of
      outstanding options,

                    warrants
      and rights
            
            
            Weighted-average

                exercise
      price of

                  outstanding
      options,

                    warrants
      and rights
            
            
            Number
      of securities

                remaining
      available for

                  future
      issuance under

                    equity
      compensation

                      plans,
      excluding

                        securities
      reflected in

                          column
      (a)(a)
            
            
            (b)
            
            
            (c)Equity
      compensation plans approved
      by security holders
            
            5,460,615
            
            
            $
            0.23
            
            
            1,589,156Equity
      compensation plans not
      approved by security holders
            
            50,000
            
            
            $
            0.35
            
            
            NoneTotal
            
            5,510,615
            
            
            
            N/A
            
            
            1,589,156




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 four companies that includes: Answers
Corp., Quepasa Corp., Thestreet.com Inc. and Tucows Inc.
The graph tracks the performance of a $100 investment in our common stock, in
the peer group, and the index (with the reinvestment of all dividends) from
March 31, 2005 to March 31, 2010.








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,
            
            2010
            
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006Net
      revenues
            
            $
            4,291
            
            
            $
            6,874
            
            
            $
            7,513
            
            
            $
            7,748
            
            
            $
            6,516Net
      loss
            
            $
            (4,861
            )
            
            $
            (4,699
            )
            
            $
            (3,409
            )
            
            $
            (1,566
            )
            
            $
            (1,122
            )Net
      loss attributable to common stockholders (1)
            
            $
            (4,861
            )
            
            $
            (4,699
            )
            
            $
            (3,463
            )
            
            $
            (1,861
            )
            
            $
            (1,349
            )Basic
      and diluted net loss per shareattributable
      to
              common stockholders (2)
            
            $
            (2.30
            )
            
            $
            (2.34
            )
            
            $
            (1.79
            )
            
            $
            (1.10
            )
            
            $
            (1.67
            )Weighted
      average common sharesoutstanding
      used in
              computingper
      shareamounts
      (thousands)(2)
            
            
            2,116
            
            
            
            2,008
            
            
            
            1,940
            
            
            
            1,692
            
            
            
            809Cash
      and cash equivalents
            
            $
            216
            
            
            $
            371
            
            
            $
            818
            
            
            $
            829
            
            
            $
            441Prepaid
      advertising rights
            
            $
            -
            
            
            $
            1,225
            
            
            $
            2,131
            
            
            $
            3,267
            
            
            $
            3,718Total
      assets
            
            $
            1,627
            
            
            $
            3,330
            
            
            $
            4,616
            
            
            $
            5,605
            
            
            $
            5,304Capital
      leases – long-term portion
            
            $
            4
            
            
            $
            34
            
            
            $
            56
            
            
            $
            -
            
            
            $
            -Total
      long-term liabilities
            
            $
            3,076
            
            
            $
            2,706
            
            
            $
            600
            
            
            $
            85
            
            
            $
            120




(1)           
The net losses attributable to common stockholders for the years ended March 31,
2010 and 2009, do not include a preferred deemed dividend, as there was no
issuances of preferred stock. The net loss attributable to common stockholders
for the year ended March 31, 2008 includes a preferred deemed dividend charge of
$54 from the issuance of Series D preferred stock. The charge represents the
difference between the offering price of Salon’s Series D preferred stock and
the fair value of Salon’s common stock into which the preferred stock was
convertible on the date of the transaction and the value of the warrants issued
in the transaction.  The net loss attributable to common stockholders
for the year ended March 31, 2007 includes a preferred deemed dividend charge of
$295 from the issuance of Series D preferred stock. The charge represents the
difference between the offering price of Salon’s Series D preferred stock and
the fair value of Salon’s common stock into which the preferred stock was
convertible on the date of the transaction and the value of the warrants issued
in the transaction. The net loss attributable to common stockholders for the
year ended March 31, 2006 includes a preferred deemed dividend charge of $227
from the issuance of Series D preferred stock. The charge represents the
difference between the offering price of Salon’s Series D preferred stock and
the fair value of Salon’s common stock into which the preferred stock was
convertible on the date of the transaction and the value of the warrants issued
in the transaction.





(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, Table Talk and The Well, and has launched 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 15,800 as of
March 31, 2010.  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
prepaid advertising rights are the most critical to Salon’s financial
statements.  Future results may differ from current estimates if
different assumptions or conditions were to prevail.




Share
Based Compensation




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 stock-based compensation expense of $379,000 and $1,025,000 during
the twelve months ended March 31, 2010 and March 31, 2009,
respectively.  As of March 31, 2010, Salon had an aggregate of
$569,000 of stock compensation remaining to be amortized to expense over the
remaining requisite service period of the underlying awards.  Salon
currently expects this stock compensation balance to be amortized as follows:
$278,000 during fiscal 2011; $176,000 during fiscal 2012; $97,000 during fiscal
2013; and $18,000 during fiscal 2014.  The expected amortization
reflects only outstanding stock option awards as of March 31,
2010.  Salon expects to continue to issue share-based awards to its
employees in future periods.




The full
impact of stock 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 stock awards in order to continue to
attract and retain employees, the total number of stock 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, stock
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, 2010, Salon had an accumulated
deficit of $105.8 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, 2010, March 31, 2009 and March 31, 2008 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, 2010, Salon had net
operating loss carryforwards of $78.1 million for federal income tax purposes
that begin to expire in March 2016, and $31.1 million for California income tax
purposes.  As Salon has been incurring tax losses, $7.1 million of
California net operation loss carryforwards expired as of March 31, 2010, and if
Salon were to incur a tax loss for the year ending March 31, 2011, an additional
$7.1 million operating loss carryforward will expire.  Utilization of
Salon’s net operating loss carryforwards may be subject to a substantial annual
limitation due to ownership change limitations provided by the Internal Revenue
Code and similar California State provisions.  Such an annual
limitation could result in the expiration of the net operating loss
carryforwards before utilization.  A valuation allowance has been
established and, accordingly, no benefit has been recognized for such operating
losses and other deferred tax assets.  The net valuation allowance
increased $1.6 million during the year ended March 31, 2010 to $29.6
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
69%, 76%, and 72% of Salon’s revenues, respectively for the years ended March
31, 2010, 2009 and 2008.  The duration of the advertisements are
generally short term, usually less than ninety days.  Revenues derived
from such arrangements are recognized during the period the advertising space is
provided.  Salon’s obligations typically include a guaranteed minimum
number of impressions, a set number of Site Pass advertisements viewed, or a set
number of days that a Site Pass advertisement will run.  To the extent
minimum guaranteed amounts are not achieved, Salon defers recognition of the
corresponding revenue until the remaining guaranteed amounts are provided, if
mutually agreeable to an advertiser.  If these “make good” impressions
are not agreeable to an advertiser, no further revenue is
recognized.





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




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




Prepaid
Advertising Rights




In
January 2000, Salon sold 1,125,000 shares of common stock to Rainbow Media
Holdings (“Rainbow”) and received $11.8 million of advertising credits that were
to be utilized by December 2009.  As the per share price of Salon’s
common stock declined from the time the agreement was made and the date the
agreement was finalized and signed, the advertising credits were valued for
financial reporting purposes at $8.1 million.  As of March 31, 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, 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.





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
marketing campaigns with select Websites, the average number of unique monthly
Website visitors began to grow in the fourth quarter, up 22% over the prior
period, although flat for the full year.  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 $0.6 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.





26





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.




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
and Other Expenses




Interest
and other expenses 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.


27
  Fiscal
Years Ended March 31, 2009 and 2008





Net
Revenues





Salon’s
net revenue decreased 9% to $6.9 million in the year ended March 31, 2009 from
$7.5 million in the year ended March 31, 2008.





Advertising
revenues decreased 4% to $5.2 million for the year ended March 31, 2009 from
$5.4 million for the year ended March 31, 2008, as overall sales declined in the
third and fourth quarters, due to the economic recession.





Salon
Premium subscription revenues decreased by 25% to $1.0 million for the year
ended March 31, 2009 from $1.3 million for the year ended March 31,
2008.  The drop in Salon Premium revenues recognized for the year
ended March 31, 2009 compared to the year ended March 31, 2008 is attributable
to a substantial reduction in the number of new subscribers.  Salon
acquired approximately 17,600 paid one-year subscriptions for the year ended
March 31, 2009 compared to approximately 27,900 for the year ended March 31,
2008.  As a result, the number of paid subscribers decreased from
approximately 33,900 at March 31, 2008 to approximately 23,450 at March 31,
2009.  Another contributing factor to the decline in Premium
subscriptions is Salon’s continued emphasis on increasing advertising income
over promoting Premium subscriptions.





All other
sources of revenue were $0.7 million for the year ended March 31, 2009 and $0.8
million for the year ended March 31, 2008.  Approximately half of this
revenue was derived from the Well, an online discussion forum.





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.  After Salon made 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 completed
marketing campaigns with select Websites, the average number of unique monthly
Website visitors for the year ended March 31, 2009 increased 10% to 4.8 million
from the year ended March 31, 2008, and attained a record high for fiscal year
2009 of 6.3 million in October 2008.  Aiding the continued growth in
unique visitors to Salon’s Website is the migration of readers to the Internet
from print newspapers.





Salon has
evaluated the balance between its subscription and advertising businesses and
has shifted emphasis toward advertising.  Until recently, a Website
visitor was given a choice of: (1) becoming a Salon Premium subscriber to avoid
having to view advertisements on Salon’s Website or (2) viewing an advertisement
to gain access to all of Salon’s content.  Salon’s management
concluded that this strategy impeded access to Salon’s Website and its ability
to generate advertising impressions.  During the quarter ended
December 31, 2006, Salon changed its Site Pass model to automatically serve
advertisements, enabling a Website visitor to gain a more seamless access to
Salon’s content.  This change has produced an increase in the number
of ad impressions that Salon can serve and improved Salon’s potential to
generate an even greater amount of advertising revenues, offsetting a drop in
Salon Premium subscriptions that traditionally were solicited from the Site Pass
and the relatively small revenue they generate.





28





Production
and Content Expenses




Production
and content expenses during the year ended March 31, 2009 was $5.3 million
versus $5.5 million for the year ended March 31, 2008, a decrease of $0.2
million.  The 4% decrease primarily reflects a decrease in staff and
benefit costs.





Sales
and Marketing Expenses





Sales and
marketing expenses during the year ended March 31, 2009 were $2.9 million versus
$2.8 million for the year ended March 31, 2008, an increase of $0.1
million.  The minimal increase results from lower usage of advertising
credits being offset by higher ad sales salaries, commissions and travel
expenses.





Information
Technology Support Expenses




Information
technology support expenses during the year ended March 31, 2009 remained flat
from one year ago at $0.8 million.  The 13% decrease in salary costs
was primarily due to the reduction in headcount and the capitalization of
development costs for the Open Salon project.





General
and Administrative Expenses




General
and administrative expenses during the year ended March 31, 2009 remained flat
from one year ago at $1.8 million.  The minimal increase was primarily
attributed to stock-based compensation expenses from restricted stock vesting,
as well as an increase in allowance for doubtful accounts.




Separation
Expenses




Separation
expenses were $0.6 million for the year ended March 31, 2009 and consisted of
one-time charges of $0.6 million related to the resignation of Salon’s former
CEO, including $0.3 million in non-cash stock-based compensation from the
accelerated vesting of options.




In
addition, the Company incurred approximately $35,000 of severance expenses
associated with the layoffs of nine employees during the second half of fiscal
2009.




Interest
and Other Expenses




Interest
and other expenses for the years ended March 31, 2009 and 2008, consisted
primarily of accrued interest costs of $194,000 and $37,000, respectively, for
Salon’s outstanding debts and financial obligations, including a borrowing
agreement, several convertible promissory notes, and computer equipment capital
leases.




29





Liquidity
and Capital Resources





Net cash
used in operations was $2.6 million for the year ended March 31, 2010, $2.4
million for the year ended March 31, 2009, and $1.5 million for the year ended
March 31, 2008.  The principal use of cash during the years ended
March 31, 2010, March 31, 2009 and March 31, 2008 was to meet its operating
deficits.





Net cash used in investing activities
was immaterial for the year ended March 31, 2010.  Net cash used in
investing activities for the years ended March 31, 2009 and March 31, 2008 was
$0.3 million to fund the acquisition of computer equipment and internal software
development.





For the
year ended March 31, 2010, net cash provided from financing activities was $2.5
million, consisting primarily of short-term advances 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 long-term
borrowing and $0.2 million in short-term borrowing.  For the year
ended March 31, 2008, net cash provided from financing activities was $1.9
million, which included $1.0 million in short-term borrowings, $0.5 million in
long-term borrowing and $0.4 million from the issuance of 292 shares of
preferred stock.





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





As of
March 31, 2010, Salon has five outstanding capital leases on computer equipment
and does not anticipate entering into similar debt instruments during its year
ending March 31, 2011.  The following summarizes Salon’s contractual
obligations as of March 31, 2010, 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
            
            $
            1,751
            
            
            $
            509
            
            
            $
            871
            
            
            $
            371
            
            
            $
            -Capital
      leases
            
            
            35
            
            
            
            31
            
            
            
            4
            
            
            
            -
            
            
            
            -Capital
      lease interest
            
            
            4
            
            
            
            3
            
            
            
            1
            
            
            
            -
            
            
            
            -Short-term
      borrowing
            
            
            3,800
            
            
            
            3,800
            
            
            
            -
            
            
            
            -
            
            
            
            -Short-term
      borrowing interest
            
            
            113
            
            
            
            113
            
            
            
            -
            
            
            
            -
            
            
            
            -Convertible
      notes
            
            
            2,500
            
            
            
            -
            
            
            
            2,500
            
            
            
            -
            
            
            
            -Convertible
      notes interest
            
            
            809
            
            
            
            538
            
            
            
            271
            
            
            
            -
            
            
            
            -Total
            
            $
            9,012
            
            
            $
            4,994
            
            
            $
            3,647
            
            
            $
            371
            
            
            $
            -





30





Capital
requirements





Salon has
a history of significant losses and expects to incur a net loss from operations
for its year ending March 31, 2011.  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, 2010, March 31, 2009 and March 31, 2008 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 $0.8 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. 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.




Recent
Accounting Pronouncements




Effective
July 1, 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles ” (“SFAS 68”), (Topic 105). The Accounting Standards
Codification (“ASC”) became the single official source of authoritative,
nongovernmental generally accepted accounting principles (“GAAP”) in the United
States. This standard establishes two levels of GAAP, authoritative and
non-authoritative. The FASB Accounting Standards Codification (the
“Codification”) became the source of authoritative, non-governmental GAAP,
except for rules and interpretive releases of the SEC, which are sources of
authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC
accounting literature not included in the Codification became non-authoritative.
The Company adopted SFAS 168 (Topic 105) as of September 30, 2009. As the
Codification was not intended to change or alter existing GAAP, it did not have
any impact on our Condensed Consolidated Financial Statements. However,
references to specific accounting standards in the footnotes to our consolidated
financial statements have been changed to also refer to the appropriate topic of
ASC.





In
December 2007, the FASB issued ASC Topic 805 “Business Combinations” and
ASC Topic 810 “Consolidation.” ASC Topic 805
establishes principles and requirements during business combinations for how the
acquirer:





a.
            Recognizes
      and measures in its financial statements the identifiable assets acquired,
      the liabilities assumed, and any noncontrolling interest in the
      acquiree,b.
            Recognizes
      and measures the goodwill acquired in the business combination or a gain
      from a bargain purchase, and


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




31




ASC Topic
810 sets parameters as to how to report noncontrolling interest in consolidated
financial statements.  Both standards are effective for fiscal years
beginning after December 15, 2008. Salon believes that the adoption of both ASC
standards did not impact Salon’s results of operations, financial position, or
cash flows.




In
January 2010, the FASBissued 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 June
2008, FASB ratified the EITF consensus on EITF Issue No. 07-05,Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity's Own Stock  (“EITF
Issue 07-05”) (Topic 815) which applies to the determination of whether any
freestanding financial instruments or embedded features that have the
characteristics of a derivative, as defined by ASC, Topic 815,Accounting for Derivative
Instruments and Hedging Activities , and to any freestanding financial
instruments are potentially indexed to an entity’s own common
stock.  EITF Issue No. 07-05 (Topic 815) became effective for fiscal
years beginning after December 15, 2008.  The Company adopted EITF
07-05 (Topic 815) as of April 1, 2009.  The adoption of the standard’s
requirements can affect the accounting for warrants and many convertible
instruments containing provisions that protect holders from a decline in the
stock price (or “down round” provisions). We evaluated whether our warrants or
convertible preferred stock contain provisions that protect holders from
declines in our stock price or otherwise could result in modification of the
exercise price and/or shares to be issued under the respective warrant or
preferred stock agreements based on a variable that is not an input to the fair
value of a “fixed-for-fixed” option. The Company determined that the outstanding
warrants at March 31, 2009 to purchase 121,106 shares of common stock previously
treated as equity were no longer afforded equity treatment and would have to be
reclassified to a liability.  Under ASC Topic 815, “Accounting for
Derivative Instruments and Hedging Activities”, which was primarily codified
into ASC Topic 815 “ Derivatives and Hedging,” the fair value of this
liability  would be re-measured at the end of each reporting period
with the change in value reported in the consolidated statement of operations.
Based on the Company’s evaluation of the fair value of these warrants from issue
date through March 31, 2010, the Company determined that the fair value amounts
were not material and therefore, did not record any adjustments for these
warrants under ASC 815 in the accompanying consolidated financial statements.
The Company also determined that while its convertible preferred stock contains
certain down-round provision features, the conversion feature embedded within
its convertible preferred stock does not require bifurcation under the guidance
of ASC 815. Accordingly, the requirements of ASC 815 are not applicable to the
conversion features of the Company’s preferred stock.





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. While we are currently evaluating
the potential impact, if any, of the adoption of ASU 2009-13, the Company does
not expect the adoption of this guidance to have a material impact on the
Company’s consolidated financial statements.





32


In
May 2009, the FASB issued SFAS 165, “Subsequent Events,” which was
primarily codified into ASC Topic 855, which establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. 
This statement sets forth the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements.  The standard also requires the disclosure of the
date through which an entity has evaluated subsequent events and the basis for
that date, that is, whether that date represents the date the financial
statements were issued or were available to be issued.  This statement is
effective for interim or annual reporting periods ending after June 15,
2009.  The Company adopted the standard during the second quarter of fiscal
year 2010, and it did not have a material impact on our interim consolidated
financial statements or related footnotes.





In
February 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-09,
which amends the Subsequent Events Topic of the Accounting Standards
Codification (ASC) to eliminate the requirement for public companies to disclose
the date through which subsequent events have been evaluated. The Company will
continue to evaluate subsequent events through the date of the issuance of the
financial statements, however, consistent with the guidance, this date will no
longer be disclosed. The Company does not expect the adoption of this guidance
to have a material impact on the Company’s consolidated financial statements,
financial condition or liquidity.




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, 2010 and 2009, and is guaranteed by Salon’s Chairman.  Rates
declined throughout most of fiscal 2010.  Salon feels that the impact
of the risk of future rate increases will not have a material
impact.  As Salon conducts all of its business in the United States,
Salon is not subject to foreign exchange risk.





33


ITEM
8.  Consolidated Financial Statements and Supplementary
Data





PageReports
      of Independent Registered Public Accounting Firm
              35Consolidated
      Balance Sheets as of March 31, 2010 and 2009
              36Consolidated
      Statements of Operations for the years ended March 31, 2010, 2009 and
      2008
              37Consolidated
      Statements of Stockholders’ (Deficit) Equity for the years ended March 31,
      2010, 2009 and 2008
              38Consolidated
      Statements of Cash Flows for the years ended March 31, 2010, 2009 and
      2008
              39Notes
      to Consolidated Financial Statements
              40Selected
      Quarterly Financial Data (unaudited)
              60




34


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, 2010 and 2009,
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, 2010.  These consolidated financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor have we been engaged to perform an audit of
the Company’s internal control over financial reporting.  Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Salon Media Group,
Inc. and its subsidiaries as of March 31, 2010 and 2009, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 2010, 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 $105.8
million at March 31, 2010.  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 25,
2010





35








SALON
      MEDIA GROUP, INC.CONSOLIDATED
      BALANCE SHEETS(in
      thousands, except share and per share amounts)March
      31,2010
            
            
            2009AssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            216
            
            
            $
            371Accounts
      receivable, net of allowance of $55 and $112
            
            
            706
            
            
            
            886Prepaid
      advertising rights
            
            
            -
            
            
            
            1,225Prepaid
      expenses and other current assets
            
            
            58
            
            
            
            53Total
      current assets
            
            
            980
            
            
            
            2,535Property
      and equipment, net
            
            
            299
            
            
            
            445Other
      assets, principally deposits
            
            
            148
            
            
            
            150Goodwill
            
            
            200
            
            
            
            200Total
      assets
            
            $
            1,627
            
            
            $
            3,330Liabilities
      and Stockholders’ DeficitCurrent
      liabilities:Short-term
      borrowings
            
            $
            1,000
            
            
            $
            1,000Related
      party advances
            
            
            2,800
            
            
            
            250Accounts
      payable and accrued liabilities
            
            
            1,253
            
            
            
            1,324Deferred
      revenue
            
            
            338
            
            
            
            470Total
      current liabilities
            
            
            5,391
            
            
            
            3,044Convertible
      notes payable
            
            
            2,687
            
            
            
            2,500Other
      long-term liabilities
            
            
            385
            
            
            
            172Capital
      lease,  less current portion
            
            
            4
            
            
            
            34Total
      liabilities
            
            
            8,467
            
            
            
            5,750Commitments
      and contingencies (Note 9)Stockholders’
      deficit:Preferred stock, $0.001 par value, 5,000,000 shares
      authorized,
              9,467 sharesissued
      and outstanding at March 31, 2010 and March 31, 2009
              (liquidationvalue
      of $25,057 at March 31, 2010 and $24,246 at March 31,
2009)
            
            
            -
            
            
            
            -Common
      stock, $0.001 par value, 30,000,000 shares authorized,2,437,956
      shares issued and outstanding at March 31, 2010
                and
      2,021,276 sharesissued
      and outstanding at March 31, 2009
            
            
            2
            
            
            
            2Additional
      paid-in capital
            
            
            99,005
            
            
            
            98,564Accumulated
      deficit
            
            
            (105,847
            )
            
            
            (100,986
            )Total
      stockholders’ deficit
            
            
            (6,840
            )
            
            
            (2,420
            )Total
      liabilities and stockholders’ deficit
            
            $
            1,627
            
            
            $
            3,330




See
accompanying notes to consolidated financial statements.


36


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





Year
      Ended March 31,2010
            
            
            2009
            
            
            2008Net
      revenues
            
            $
            4,291
            
            
            $
            6,874
            
            
            $
            7,513Operating
      expenses:Production
      and content
            
            
            3,698
            
            
            
            5,314
            
            
            
            5,544Sales
      and marketing
            
            
            2,738
            
            
            
            2,925
            
            
            
            2,756Information
      technology support
            
            
            861
            
            
            
            763
            
            
            
            829General
      and administrative
            
            
            1,613
            
            
            
            1,746
            
            
            
            1,756Separation
      expenses
            
            
            -
            
            
            
            631
            
            
            
            -Total
      operating expenses
            
            
            8,910
            
            
            
            11,379
            
            
            
            10,885Loss
      from operations
            
            
            (4,619
            )
            
            
            (4,505
            )
            
            
            (3,372
            )Interest
      and other income (expense)
            
            
            (242
            )
            
            
            (194
            )
            
            
            (37
            )Net
      loss
            
            
            (4,861
            )
            
            
            (4,699
            )
            
            
            (3,409
            )Preferred
      deemed dividend
            
            
            -
            
            
            
            -
            
            
            
            (54
            )Net
      loss attributable to common stockholders
            
            $
            (4,861
            )
            
            $
            (4,699
            )
            
            $
            (3,463
            )Basic
      and diluted net loss per shareattributable
      to common stockholders
            
            $
            (2.30
            )
            
            $
            (2.34
            )
            
            $
            (1.79
            )Weighted
      average shares used in computing basic and diluted net loss per shareattributable
      to common stockholders
            
            
            2,116
            
            
            
            2,008
            
            
            
            1,940





See
accompanying notes to consolidated financial statements.





37





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’Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Deficit
            
            Equity
      (Deficit)Balance, March 31,
      2007
            9,183
            
            $
            -
            
            1,940
            
            $
            2
            
            $
            96,788
            
            $
            (92,824
            )
            $
            3,966Shares
      issued under employee stock plans
            -
            
            
            -
            
            -
            
            
            -
            
            
            1
            
            
            -
            
            
            1Series
      D convertible preferred stock
              andcommon stock warrants issued for cash
            292
            
            
            -
            
            -
            
            
            -
            
            
            350
            
            
            -
            
            
            350Preferred
      deemed dividend on issuance of
              Series D Convertible preferred stock
            -
            
            
            -
            
            -
            
            
            -
            
            
            54
            
            
            (54
            )
            
            -Share-based
      compensation
            -
            
            
            -
            
            -
            
            
            -
            
            
            109
            
            
            -
            
            
            109Net
      loss
            -
            
            
            -
            
            -
            
            
            -
            
            
            -
            
            
            (3,409
            )
            
            (3,409
            )Balance,
      March 31, 2008
            9,475
            
            
            -
            
            1,940
            
            
            2
            
            
            97,302
            
            
            (96,287
            )
            
            1,017Shares
      issued under employee stock plans
            -
            
            
            -
            
            63
            
            
            -
            
            
            1
            
            
            -
            
            
            1Preferred
      stock converted to common stock
            (8
            )
            
            -
            
            18
            
            
            -
            
            
            -
            
            
            -
            
            
            -Share-based
      compensation
            -
            
            
            -
            
            -
            
            
            -
            
            
            1,261
            
            
            -
            
            
            1,261Net
      loss
            -
            
            
            -
            
            -
            
            
            -
            
            
            -
            
            
            (4,699
            )
            
            (4,699
            )Balance,
      March 31, 2009
            9,467
            
            
            -
            
            2,021
            
            
            2
            
            
            98,564
            
            
            (100,986
            )
            
            (2,420
            )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
            )








See
accompanying notes to consolidated financial statements.





38


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


Year
      Ended March 31,2010
            
            
            2009
            
            
            2008Cash
      flows from operating activities:Net loss
            
            $
            (4,861
            )
            
            $
            (4,699
            )
            
            $
            (3,409
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Loss
      from retirement of assets, net
            
            
            1
            
            
            
            4
            
            
            
            -Share-based
      compensation
            
            
            379
            
            
            
            1,025
            
            
            
            313Depreciation
      and amortization
            
            
            227
            
            
            
            210
            
            
            
            102Prepaid
      advertising rights usage
            
            
            1,225
            
            
            
            906
            
            
            
            1,136Changes
      in assets and liabilities:Accounts
      receivable
            
            
            180
            
            
            
            (22
            )
            
            
            143Prepaid
      expenses, other current assets and other assets
            
            
            (3
            )
            
            
            (12
            )
            
            
            (4
            )Accounts
      payable, accrued liabilities and other long-term
    liabilities
            
            
            391
            
            
            
            410
            
            
            
            262Deferred
      revenue
            
            
            (132
            )
            
            
            (235
            )
            
            
            (87
            )Net
      cash used in operating activities
            
            
            (2,593
            )
            
            
            (2,413
            )
            
            
            (1,544
            )Cash
      flows from investing activities:Purchase
      of property and equipment
            
            
            (82
            )
            
            
            (247
            )
            
            
            (313
            )Net
      cash used in investing activities
            
            
            (82
            )
            
            
            (247
            )
            
            
            (313
            )Cash
      flows from financing activities:Proceeds
      from short-term borrowings
            
            
            2,550
            
            
            
            250
            
            
            
            1,000Proceeds
      from long-term borrowings
            
            
            -
            
            
            
            2,000
            
            
            
            500Capital
      lease payments
            
            
            (30
            )
            
            
            (38
            )
            
            
            (5
            )Proceeds
      from issuance of preferred stock, net
            
            
            -
            
            
            
            -
            
            
            
            350Proceeds
      from issuance of common stock, net
            
            
            -
            
            
            
            1
            
            
            
            1Net
      cash provided by financing activities
            
            
            2,520
            
            
            
            2,213
            
            
            
            1,846Net
      decrease in cash and cash equivalents
            
            
            (155
            )
            
            
            (447
            )
            
            
            (11
            )Cash
      and cash equivalents at beginning of year
            
            
            371
            
            
            
            818
            
            
            
            829Cash
      and cash equivalents at end of year
            
            $
            216
            
            
            $
            371
            
            
            $
            818Amount
      paid for interest
            
            $
            9
            
            
            $
            12
            
            
            $
            3Supplemental
      schedule of non-cash investing and financing activities:Preferred
      deemed dividend
            
            $
            -
            
            
            $
            -
            
            
            $
            54Property
      and equipment purchased with capital lease
            
            $
            -
            
            
            $
            12
            
            
            $
            86Stock
      compensation liability
            
            $
            -
            
            
            $
            -
            
            
            $
            204Conversion
      of accrued interest for convertible  notes
    payable
            
            $
            187
            
            
            $
            -
            
            
            $
            -





See
accompanying notes to consolidated financial statements.
  39
  SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




Note
1.    The Company




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






Note
2.    Summary of Significant Accounting Policies




Basis
of presentation




These
consolidated financial statements contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business.  Salon
has incurred losses and negative cash flows from operations since inception and
has an accumulated deficit at March 31, 2010 of $105,847.  In
addition, Salon expects to incur a net loss from operations for its year ending
March 31, 2011.  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 $0.7 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. 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.




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.




40





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.




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 December 31, 2009 expiration date.




Property
and equipment, net




Property
and equipment are recorded at cost.  Maintenance, repairs and minor
renewals are expensed as incurred.  Depreciation is provided on a
straight-line basis over the useful lives of the asset, principally three years
for computer hardware and software, and five years for furniture and office
equipment.  Depreciation of leasehold improvements is provided on a
straight-line basis over the useful life of the asset or the term of the lease,
whichever is shorter.  When property and equipment is retired or
otherwise disposed of, the cost and accumulated depreciation are relieved from
the accounts and the net gain or loss is included in the determination of
income.




Software
development costs





Information
technology support expenses to develop new product offerings for internal use,
such as Open Salon, are capitalized as software development
costs.  Salon has capitalized $95 of expenditures through March 31,
2009, which is included with property and equipment.  No expenses were
capitalized in the current fiscal year.




41





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, 2010, 2009 and 2008 and comprehensive loss
for those periods.





42




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 31,2010
            
            
            2009
            
            
            2008Numerator:Net
      loss attributable to common stockholders
            
            $
            (4,861
            )
            
            $
            (4,699
            )
            
            $
            (3,463
            )Denominator:Weighted
      average shares used incomputing
      basic and diluted net loss pershare
      attributable to common stockholders
            
            
            2,116,000
            
            
            
            2,008,000
            
            
            
            1,940,000Basic
      and diluted net loss per share attributableto
      common stockholders
            
            $
            (2.30
            )
            
            $
            (2.34
            )
            
            $
            (1.79
            )Antidilutive
      securities including options,warrants
      and convertible notes and preferredstock
      not included in loss per share calculation
            
            
            18,238,000
            
            
            
            15,518,000
            
            
            
            12,678,000




43





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







Financial
instruments





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





Income
taxes




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





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.  Two and three customers accounted for 10% or more of trade
accounts receivable at March 31, 2010 and 2009, respectively.  No
customer accounted for 10% or more of total revenue for the fiscal years ended
March 31, 2010, 2009 and 2008, respectively.





Recent
accounting pronouncements





Effective
July 1, 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles ” (“SFAS 68”), (Topic 105). The Accounting Standards
Codification (“ASC”) became the single official source of authoritative,
nongovernmental generally accepted accounting principles (“GAAP”) in the United
States. This standard establishes two levels of GAAP, authoritative and
non-authoritative. The FASB Accounting Standards Codification (the
“Codification”) became the source of authoritative, non-governmental GAAP,
except for rules and interpretive releases of the SEC, which are sources of
authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC
accounting literature not included in the Codification became non-authoritative.
The Company adopted SFAS 168 (Topic 105) as of September 30, 2009. As the
Codification was not intended to change or alter existing GAAP, it did not have
any impact on our Consolidated Financial Statements. However, references to
specific accounting standards in the footnotes to our consolidated financial
statements have been changed to also refer to the appropriate topic of
ASC.





44




SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







In
December 2007, the FASB issued ASC Topic 805 “Business
Combinations”  and ASC Topic 810 “Consolidation.” ASC Topic 805
establishes principles and requirements during business combinations for how the
acquirer:





a.
            Recognizes
      and measures in its financial statements the identifiable assets acquired,
      the liabilities assumed, and any noncontrolling interest in the
      acquiree,b.
            Recognizes
      and measures the goodwill acquired in the business combination or a gain
      from a bargain purchase, and


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





ASC Topic
810 sets parameters as to how to report noncontrolling interest in consolidated
financial statements.  Both standards are effective for fiscal years
beginning after December 15, 2008. Salon believes that the adoption of both ASC
standards did not impact Salon’s results of operations, financial position, or
cash flows.





In
June 2008, FASB ratified the EITF consensus on EITF Issue No. 07-05,Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity's Own Stock  (“EITF
Issue 07-05”) (Topic 815) which applies to the determination of whether any
freestanding financial instruments or embedded features that have the
characteristics of a derivative, as defined by ASC Topic 815,Accounting for Derivative
Instruments and Hedging Activities , and to any freestanding financial
instruments are potentially indexed to an entity’s own common
stock.  EITF Issue No. 07-05 (Topic 815) became effective for fiscal
years beginning after December 15, 2008.  The Company adopted EITF
07-05 (Topic 815) as of April 1, 2009.  The adoption of the standard’s
requirements can affect the accounting for warrants and many convertible
instruments containing provisions that protect holders from a decline in the
stock price (or “down round” provisions). We evaluated whether our warrants or
convertible preferred stock contain provisions that protect holders from
declines in our stock price or otherwise could result in modification of the
exercise price and/or shares to be issued under the respective warrant or
preferred stock agreements based on a variable that is not an input to the fair
value of a “fixed-for-fixed” option. The Company determined that the outstanding
warrants at March 31, 2009 to purchase 121,106 shares of common stock previously
treated as equity were no longer afforded equity treatment and would have to be
reclassified to a liability.  Under ASC Topic 815 “ Derivatives and
Hedging,” the fair
value of this liability  would be re-measured at the end of each
reporting period with the change in value reported in the consolidated statement
of operations. Based on the Company’s evaluation of the fair value of these
warrants from issue date through March 31, 2010, the Company determined that the
fair value amounts were not material and therefore, did not record any
adjustments for these warrants under ASC 815 in the accompanying consolidated
financial statements. The Company also determined that while its convertible
preferred stock contains certain down-round provision features, the conversion
feature embedded within its convertible preferred stock does not require
bifurcation under the guidance of ASC 815. Accordingly, the requirements of ASC
815 are not applicable to the conversion features of the Company’s preferred
stock.





45




SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







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. While we are currently evaluating
the potential impact, if any, of the adoption of ASU 2009-13, the Company does
not expect the adoption of this guidance to have a material impact on the
Company’s consolidated financial statements.





In
September 2009, the FASB ratified ASU 2009-14 (ASU 2009-14) (previously EITF No.
09-3,Certain Revenue
Arrangements That Include Software Elements) . ASU 2009-14 modifies the
scope of Software Revenue Recognition to exclude (a) non-software
components of tangible products and (b) software components of tangible products
that are sold, licensed, or leased with tangible products when the software
components and non-software components of the tangible product function together
to deliver the tangible product’s essential functionality. ASU 2009-14 has an
effective date that is consistent with ASU 2009-13. While we are currently
evaluating the potential impact, if any, of the adoption of ASU 2009-13, 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
February 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-09,
which amends the Subsequent Events Topic of the Accounting Standards
Codification (ASC) to eliminate the requirement for public companies to disclose
the date through which subsequent events have been evaluated. The Company will
continue to evaluate subsequent events through the date of the issuance of the
financial statements, however, consistent with the guidance, this date will no
longer be disclosed.  The Company does not expect the adoption of this
guidance to have a material impact on the Company’s consolidated financial
statements, financial condition or liquidity.





46





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







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.    Borrowing Agreements





In May 2007, Salon entered into a
borrowing agreement with Deutsche Bank Securities, Inc. that allows Salon to
borrow up to $1,000, 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,
2010 and 2009.  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, 2010, and 2009, accrued interest on bank debt totals $113 and $79,
respectively.  As of March 31, 2010 and 2009, the weighted average
interest rate on the Company’s short-term borrowings was 3% and 5%,
respectively.




Convertible
notes payable





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





47




SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







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.





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.





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, 2010, convertible notes payable totaled $2,687, inclusive of $187 in
notes issued as payment in kind of accrued interest thereon. Related parties
hold $2,687 of such notes and aggregate related party interest expense totaled
$149.





48





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, 2010, the Company has received $2.8 million in unsecured,
interest-free cash advances, including $1.8 million from the Company’s Chairman
and $1 million from the father of Salon’s former CEO.  Subsequent to
year end, the Company’s Chairman advanced an additional $845, 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
4.    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, 2010 and March 31, 2009 was $200 and was not found to
be impaired.





Note
5.    Property and Equipment





Year
      Ended March 31,2010
            
            
            2009Property
      and equipment, netComputer
      hardware and software
            
            $
            1,396
            
            
            $
            1,371Leasehold
      improvements
            
            
            82
            
            
            
            82Furniture
      and office equipment
            
            
            279
            
            
            
            2761,757
            
            
            
            1,729Less
      accumulated depreciation and amortization
            
            
            (1,458
            )
            
            
            (1,284
            )$
            299
            
            
            $
            445





Depreciation
and amortization expense for the years ended March 31, 2010, 2009 and 2008 was
$227, $210, and $102 respectively.





Note
6.    Accounts Payable and Accrued Liabilities





Year
      Ended March 31,2010
            
            
            2009Accounts
      payable and accrued liabilitiesAccounts
      payable
            
            $
            343
            
            
            $
            286Salaries
      and wages payable
            
            
            409
            
            
            
            579Accrued
      services
            
            
            33
            
            
            
            25Capital
      lease, current portion
            
            
            31
            
            
            
            33Other
      accrued expenses
            
            
            437
            
            
            
            401$
            1,253
            
            
            $
            1,324





49





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





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, 2010.




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.




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.





50




SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







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, 2010, Salon has approximately 2,128,000 shares authorized to be issued
under the 2004 Plan of which approximately 1,589,000 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, 2010, 2009
and 2008 was $379, $1,025 and $313, which consisted of stock-based compensation
expense related to stock options and restricted stock.





As of
March 31, 2010, the aggregate stock compensation remaining to be amortized
to expenses was $569. Salon expects this stock compensation balance to be
amortized as follows: $278 during fiscal 2011; $176 during fiscal 2012; $97
during fiscal 2013; and $18 during fiscal 2014.  The expected
amortization reflects only outstanding stock option awards as of March 31,
2010.





No
amounts were recorded relating to excess tax benefits from the exercise of
stock-based compensation awards during the year ended March 31, 2010, and as a
result there were no differences in net cash used in operating and financing
activities due to the implementation of ASC 718.





51





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




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 31,2010
            
            2009
            
            2008Risk-free
      interest rates
            
            1.52
      – 2.05%
            
            1.30
      – 3.09%
            
            2.16
      – 5.00%Expected
      lives (in years)
            
            4
            
            4
            
            4Expected
      volatility
            
            156
      – 209 %
            
            92
      – 163 %
            
            94
      – 116 %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.




The
following table summarizes activity under Salon’s plans for the year ended March
31, 2010:




Outstanding

                Stock

                  Options
            
            
            Weighted

                Average

                  Exercise

                    Price
            
            
            Weighted

                Average

                  Remaining

                    Contractual
      Life (Years)
            
            
            Aggregate

                Intrinsic

                  ValueOutstanding
      as of April 1, 2009
            
            
            2,440,000
            
            
            $
            0.35
            
            
            
            
            
            $
            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
            
            
            $
            0





52





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, 2010:





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
            
            
            
            1,881,000
            
            
            
            9.6
            
            
            $
            0.12
            
            
            
            368,000
            
            
            $
            0.12$
            0.16
      - $0.20
            
            
            
            1,500,000
            
            
            
            9.1
            
            
            $
            0.20
            
            
            
            6,000
            
            
            $
            0.20$
            0.35
      - $0.35
            
            
            
            2,127,000
            
            
            
            6.4
            
            
            $
            0.35
            
            
            
            1,561,000
            
            
            $
            0.35$
            5.20
      - $5.20
            
            
            
            2,000
            
            
            
            5.1
            
            
            $
            5.20
            
            
            
            2,000
            
            
            $
            5.205,510,000
            
            
            
            8.2
            
            
            $
            0.23
            
            
            
            1,937,000
            
            
            $
            0.31




The
weighted average fair value per share of the stock option awards in the year
ended March 31, 2010, 2009 and 2008 was $0.14, $0.41, and $0.94,
respectively.  The weighted average fair value of options vested
during the year ended March 31, 2010, 2009 and 2008 was $0.33, $0.63 and $1.75
per share, respectively.




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




Note
9.    Commitments and Contingencies





Salon has
operating lease agreements for its office space in San Francisco, CA that
expires in February 2014, and for its office in Manhattan Beach, CA that expires
in August 2009. In addition, Salon has a sublease agreement for its office in
Washington, D.C. that expires in December 2010. 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 $488, $457, and $530 for the years ended March 31, 2010, 2009, and 2008
respectively.





53





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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






Salon has
five capital leases as of March 31, 2010.  Total future minimum
payments under operating and capital leases, short-term borrowing and
convertible notes in effect at March 31, 2010 are as follows:





Payments
      Due By PeriodTotal
            
            
            Year
      1
            
            
            Year
      2
            
            
            Year
      3
            
            
            Year
      4Operating
      leases
            
            $
            1,751
            
            
            $
            509
            
            
            $
            474
            
            
            $
            397
            
            
            $
            371Capital
      leases
            
            
            35
            
            
            
            31
            
            
            
            4
            
            
            
            -
            
            
            
            -Capital
      lease interest
            
            
            4
            
            
            
            3
            
            
            
            1
            
            
            
            -
            
            
            
            -Short-term
      borrowing
            
            
            3,800
            
            
            
            3,800
            
            
            
            -
            
            
            
            -
            
            
            
            -Short-term
      borrowing interest
            
            
            113
            
            
            
            113
            
            
            
            -
            
            
            
            -
            
            
            
            -Convertible
      notes principal
            
            
            2,500
            
            
            
            -
            
            
            
            1,500
            
            
            
            1,000
            
            
            
            -Convertible
      notes interest
            
            
            31
            
            
            
            14
            
            
            
            14
            
            
            
            3
            
            
            
            -Total
            
            $
            8,234
            
            
            $
            4,470
            
            
            $
            1,993
            
            
            $
            1,400
            
            
            $
            371




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


however,
Salon does have a Director and Officer Insurance Policy that limits Salon’s
exposure and enables Salon to recover a portion of any future amounts
paid.  As a result of the insurance policy coverage, Salon believes
the fair value of these indemnification agreements is minimal.





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





Note
10.    Income Taxes





Salon has
not recorded a provision or benefit for federal or state income taxes for any
period since inception due to incurred operating losses.  At March 31,
2010, Salon has net operating loss carry-forwards of $78,065 and $31,114 for
Federal and California purposes, respectively, available to reduce future
taxable income, if any.  During the year ended March 31, 2010, $7,137
of California net operating loss carry-forwards expired and additional $7,090 is
due to expire as of March 31, 2011, 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.





54




SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




At March
31, 2010, Salon has research and development credit carry-forwards of $12 and $9
for Federal and California income tax purposes, respectively.  The
research and development credit carry-forwards expire beginning in the year
2011.





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




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





March
      31,2010
            
            
            2009Net
      operating losses
            
            $
            28,950
            
            
            $
            27,094Other
            
            
            640
            
            
            
            918Total
      deferred tax assets
            
            
            29,591
            
            
            
            28,012Valuation
      allowance
            
            
            (29,591
            )
            
            
            (28,012
            )Net
      deferred tax asset
            
            $
            -
            
            
            $
            -





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





Year
      Ended March 31,2010
            
            
            2009
            
            
            2008Statutory
      tax benefit
            
            $
            (1,610
            )
            
            $
            (1,598
            )
            
            $
            (1,177
            )State
      taxes, net of federal benefit
            
            
            (276
            )
            
            
            (274
            )
            
            
            (202
            )Permanent
      differences
            
            
            179
            
            
            
            230
            
            
            
            130Other
            
            
            128
            
            
            
            81
            
            
            
            253Total
            
            
            (1,579
            )
            
            
            (1,561
            )
            
            
            (996
            )Change
      in valuation allowance
            
            
            1,579
            
            
            
            1,561
            
            
            
            996$
            -
            
            
            $
            -
            
            
            $
            -





Note
11.    Preferred Stock




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




55





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




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




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




During
the year ended March 31, 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.





56




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, 2010:




Per
      share
            
            
            CommonShares
            
            
            Purchase
            
            
            Conversion
            
            
            EquivalentPreferred
      Stock
            
            Outstanding
            
            
            Price
            
            
            Rate
            
            
            SharesSeries
      A
            
            
            675
            
            
            $
            4,000
            
            
            
            1.801
            
            
            
            1,499,126Series
      B
            
            
            125
            
            
            $
            4,000
            
            
            
            1.489
            
            
            
            335,884Series
      C
            
            
            6,582
            
            
            $
            800
            
            
            
            0.787
            
            
            
            6,692,471Series
      D-1
            
            
            417
            
            
            $
            1,200
            
            
            
            1.698
            
            
            
            294,630Series
      D-2
            
            
            417
            
            
            $
            1,200
            
            
            
            1.964
            
            
            
            254,779Series
      D-3Issued
      on 12/21/05
            
            
            209
            
            
            $
            1,200
            
            
            
            1.698
            
            
            
            147,669Issued
      on 07/27/06
            
            
            208
            
            
            $
            1,200
            
            
            
            2.178
            
            
            
            114,620Series
      D-4Issued
      on 07/27/06
            
            
            42
            
            
            $
            1,200
            
            
            
            2.178
            
            
            
            23,144Issued
      on 09/21/06
            
            
            333
            
            
            $
            1,200
            
            
            
            1.578
            
            
            
            253,225Issued
      on 12/18/06
            
            
            42
            
            
            $
            1,200
            
            
            
            0.892
            
            
            
            56,535Series
      D-5Issued
      on 12/18/06
            
            
            125
            
            
            $
            1,200
            
            
            
            0.891
            
            
            
            168,261Issued
      on 11/19/07
            
            
            292
            
            
            $
            1,200
            
            
            
            1.412
            
            
            
            248,168Total
            
            
            9,467
            
            
            
            
            
            
            
            
            
            
            
            10,088,512




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.


57





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




Warrants
outstanding as of March 31, 2010 that have been issued to holders of Series D
preferred stock are as follows:




Exercise
            
            
            WarrantPrice
            
            
            SharesSeries
      D-5Issued
      on 11/19/07
            
            $
            1.665
            
            
            
            35,040




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





The holders of the Series D preferred
stock are entitled to dividends of 5.0%, as and if declared by the Board of
Directors.  In event of a liquidation, the holders of Series D
preferred stock and the holders of the Series C preferred stock rank in parity,
and are entitled to receive, prior and in preference to any distribution of any
assets or property of Salon to the holders of common stock, and the holders of
Series A and B preferred stock,  and in the case of the Series D
preferred stock, an amount per share equal to $1,200 plus an amount equal to all
declared but unpaid dividends, and in the case of the Series C preferred stock,
$1,600 per share, plus an amount equal to all declared but unpaid dividends,
based on an annual rate of 8%.  If the assets and funds available for
distribution are insufficient to permit the payment to the holders of Series C
and D preferred stock of their full preferential amounts, then the entire assets
and funds of Salon legally available for distribution to stockholders will be
distributed among the holders of Series C and D preferred stock ratably in
proportion to the full preferential amounts which they are entitled to
receive.  After an initial distribution to the holders of Series C and
D preferred stock, the holders of the Series A and B preferred stock, who rank
in parity, are entitled to receive, prior and in preference to any distribution
of any assets or property of Salon to the holders of common stock, an amount per
share equal to $8,000 plus an amount equal to all declared but unpaid dividends,
based on an annual rate of 8%.  If, after the initial distribution to
holders of Series C and D preferred stock, the remaining assets and funds
available for distribution are insufficient to permit the payment to the holders
of Series A and B preferred stock of the full preferential amounts, then the
entire remaining assets and funds of Salon legally available for distribution to
stockholders will be distributed among the holders of Series A and B preferred
stock ratably in proportion to the full preferential amounts which they are
entitled to receive. As of March 31, 2010, 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 675 shares of Series A preferred stock, 125 shares of Series B
preferred stock, 6,582 shares of Series C preferred stock and 2,085 shares of
Series D preferred stock.





58





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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







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 91% 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 94% of
the outstanding shares of common stock and common stock issuable upon conversion
of the shares of preferred stock, all with voting rights.





The
aggregate liquidation preferences of all preferred stockholders 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, the associated warrants, nor the
underlying shares of common stock have been registered for sale under the
Securities Act of 1933, as amended, and may not be offered or sold in the United
States absent registration under such act or an applicable exemption from
registration requirements.





Note
12.    Warrants





During
the years ended March 31, 2010, 2009 and 2008, no warrants were
exercised.





Salon has
warrants to purchase 35,040 shares of common stock outstanding as of March 31,
2010, as follows:




Warrant
            
            Exercise
            
            Grant
            
            ExpirationWarrant
      Holder
            
            Shares
            
            Price
            
            Date
            
            DateThe
      Hambrecht 1980 Revocable Trust
            
            
            35,040
            
            $
            1.665
            
            11/19/07
            
            11/19/10





59





SALON
MEDIA GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




Note
13.    Subsequent Events





Following
year end, through June 14, 2010, the Company has received $845 in unsecured,
interest-free cash advances from the Company’s Chairman. This debt is
exchangeable into securities to be issued in the next financing raised by the
Company from non-related parties.




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




First
            
            
            Second
            
            
            Third
            
            
            FourthQuarter
            
            
            Quarter
            
            
            Quarter
            
            
            Quarter2010: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
            
            
            
            2,4072009:Net
      revenues
            
            $
            1,907
            
            
            $
            1,977
            
            
            $
            1,848
            
            
            $
            1,142Net
      loss attributable tocommon stockholders
            
            $
            (582
            )
            
            $
            (1,281
            )
            
            $
            (1,133
            )
            
            $
            (1,703
            )Basic
      and diluted net loss per shareattributable to common
      stockholders
            
            $
            (0.30
            )
            
            $
            (0.66
            )
            
            $
            (0.57
            )
            
            $
            (0.84
            )Basic
      and diluted shares used in per share calculation
            
            
            1,941
            
            
            
            1,953
            
            
            
            2,004
            
            
            
            2,020




60





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, 2010), 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,
2010.





61


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





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 and Executive Officers of the
Registrant





Salon’s executive officers and
directors as of May 31, 2010 are as follows:





Name
            
            Age
            
            PositionRichard
      Gingras
            
            58
            
            Chief
      Executive Officer, DirectorNorman
      Blashka
            
            56
            
            Executive
      Vice President and Chief Financial OfficerJoan
      Walsh
            
            51
            
            Editor-in-ChiefBenjamin
      Zagorski
            
            30
            
            Vice
      President SalesDeepak
      Desai (1,3)
            
            51
            
            DirectorRobert
      Ellis (1)
            
            74
            
            DirectorElizabeth  Hambrecht
            
            47
            
            DirectorGeorge
      Hirsch(1)
            
            75
            
            DirectorJames
      Rosenfield (2)
            
            81
            
            DirectorDavid
      Talbot
            
            58
            
            DirectorJohn
      Warnock(2)
            
            69
            
            Chairman
      of the Board, Director





(1)
            Member
      of Audit Committee


(2)
            Member
      of Compensation Committee


(3)
            Audit
      Committee financial expert




62


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




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





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





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.





63


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





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




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





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.




64


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.




ITEM
11.  Executive Compensation




Executive
Compensation




The
following table shows, for the fiscal year ended March 31, 2010, the
compensation of Salon’s (i) principal executive officer; (ii) principal
financial officer; and (iii) the three most highly compensated executive
officers other than our principal executive officer and principal financial
officer who were serving as executive officers during the year ended March 31,
2009, collectively the “Named Executive Officers”:




65





Summary
Compensation Table




Name
      and Principal Position
            
            Year
            
            Salary
      ($)
            
            Bonus
      ($)
            
            OptionAwards
      ($) (1)
            
            Non-EquityIncentive
      PlanCompensation
      ($)
            
            Total
      ($)Richard
      Gingras (2)
            
            2010
            
            197,417
            
            32,943
            
            57,445
            
            -
            
            287,805Chief Executive
      OfficerElizabeth
      Hambrecht (3)
            
            2010
            
            16,370
            
            -
            
            1,280
            
            -
            
            17,650Former
      Chief Executive   Officer
            
            2009
            
            65,360
            
            -
            
            3,047
            
            
            
            101,407Norman
      Blashka (4)
            
            2010
            
            169,500
            
            46,875
            
            83,176
            
            -
            
            299,551Executive
      Vice President and Chief Financial Officer
            2009
            
            195,000
            
            -
            
            266,550
            
            -
            
            461,550Joan
      Walsh (5)
            
            2010
            
            194,925
            
            46,875
            
            65,488
            
            -
            
            307,288Editor-in-Chief
            
            2009
            
            219,292
            
            -
            
            272,739
            
            -
            
            492,031Benjamin
      Zagorski (6)
            
            2010
            
            172,370
            
            74,166
            
            6,497
            
            36,539
            
            289,522Vice President Sales
            
            2009
            
            105,000
            
            -
            
            2,831
            
            61,119
            
            168,950




1.
            The
      amounts shown are the compensation costs recognized by Salon in fiscal
      years 2010 and 2009 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.  He also earned a
      fiscal year 2010 bonus of $32,943, which is expected to be paid in stock.
      .His reported compensation above excludes $64,000 earned for consulting
      services prior to May, 2009.





3.
            Ms.
      Hambrecht continues to serve as a company director and consultant. Ms.
      Hambrecht was reappointed Chief Executive Officer in September 2008 and
      served in this position until replaced by Richard Gingras in May
      2009.  Her base annual salary during fiscal 2010 was
      $130,000.  Since May, 2009, she has been retained as a
      consultant at an annual rate of $150,000 per year. She also received
      consulting fees of $33,000 in fiscal
2009.




4.
            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 also earned a fiscal
      year  2010 bonus of $46,875, which is expected to be paid in
      stock.   Included in 2009 option awards is an equity grant
      in lieu of a cash bonus totaling
$73,594.





5.
            Ms.
      Walsh continues to serve as Editor-in-Chief.  Her contractual
      salary of $230,000 has undergone two temporary 10% reductions to
      $186,300.  She also earned a fiscal year 2010 bonus of $46,875,
      which is expected to be paid in stock.  Included in 2009 option
      awards is an equity grant in lieu of a cash bonus totaling
      $73,594.





6.
            Mr.
      Zagorski was promoted to Vice President Sales in December, 2009 at a base
      annual salary of $215,000. His base salary excludes $36,539 in commissions
      earned upon attaining targeted revenue goals for fiscal year
      2010.





66





Grants
of Plan-Based Awards in Fiscal 2010




The
following table presents information on equity awards granted during the 2010
fiscal year:





GRANTS
OF PLAN BASED AWARDS




All
      OtherOption
      Awards:
            
            
            
            
            
            Grant
      DateNumber
      of
            
            
            Exercise
      or
            
            
            Fair
      ValueEstimated
      Future Payouts Under
            
            Securities
            
            
            Base
      Price
            
            
            of
      StockGrant
            
            Equity
      Incentive Plan Awards
            
            Underlying
            
            
            of
      Option
            
            
            and
      OptionName
            
            Date
            
            Threshold
            
            Target
            
            Maximum
            
            Options
            
            
            Awards
      (1)
            
            
            AwardsRichard
      Gingras (2)
            
            05/04/2009
            
            
            
            
            
            
            
            1,416,211
            
            
            $
            0.20
            
            
            $
            250,66905/04/2009
            
            
            
            
            
            
            
            110,345
            
            
            $
            0.29
            
            
            
            22,069Norman
      Blashka (3)
            
            09/24/2009
            
            
            
            
            
            
            
            80,000
            
            
            $
            0.12
            
            
            $
            8,72009/24/2009
            
            
            
            
            
            
            
            183,984
            
            
            $
            0.12
            
            
            $
            20,054Joan
      Walsh (4)
            
            09/24/2009
            
            
            
            
            
            
            
            100,000
            
            
            $
            0.12
            
            
            $
            10,90009/24/2009
            
            
            
            
            
            
            
            183,984
            
            
            $
            0.12
            
            
            $
            20,054Benjamin
      Zagorski (5)
            
            09/24/2009
            
            
            
            
            
            
            
            70,000
            
            
            $
            0.12
            
            
            $
            7,63012/10/2009
            
            
            
            
            
            
            
            310,000
            
            
            $
            0.11
            
            
            $
            32,550





(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)
            110,345
      shares of restricted stock awarded to Mr. Gingras as partial payment of
      consulting fees.




(3)
            183,984
      fully vested options were awarded to Mr. Blashka  in lieu of a
      cash bonus.




(4)
            183,984
      fully vested options were awarded to Ms. Walsh  in lieu of a
      cash bonus.




(5)
            310,000
      shares awarded to Mr. Zagorski were in conjunction with his promotion to
      Vice President Sales.




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.




67





Outstanding
Equity Awards at Fiscal 2010 Year-End




The
following table sets forth the outstanding equity awards for each Named
Executive Officer as of March 31, 2010.




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
            
            
            
            (1)
            1,416,211
            
            
            
            0.20
            
            05/04/2019Elizabeth
      Hambrecht
            
            125,000
            
            
            
            
            
            
            0.35
            
            02/07/201520,313
            
            (2)
            4,687
            
            
            
            0.35
            
            12/07/201648,128
            
            
            21,872
            
            
            
            0.35
            
            06/28/20173,385
            
            
            7,448
            
            
            
            0.35
            
            12/04/2018Norman
      Blashka
            
            158,505
            
            (3)
            207,276
            
            
            
            0.35
            
            01/07/20185,208
            
            
            11,459
            
            
            
            0.35
            
            12/04/2018183,984
            
            (4)
            80,000
            
            
            
            0.12
            
            09/24/2019Joan
      Walsh
            
            5,989
            
            
            13,178
            
            
            
            0.35
            
            12/04/2018142,194
            
            
            32,806
            
            
            
            0.35
            
            12/07/201654,687
            
            (2,5)
            70,313
            
            
            
            0.35
            
            06/05/2018450
            
            
            
            
            
            
            0.35
            
            08/17/2010750
            
            
            
            
            
            
            0.35
            
            11/07/2010335
            
            
            
            
            
            
            0.35
            
            03/22/20111,000
            
            
            
            
            
            
            0.35
            
            05/03/20116,250
            
            
            
            
            
            
            0.35
            
            10/24/2011100,000
            
            
            
            
            
            
            0.35
            
            12/07/2015183,984
            
            (4)
            100,000
            
            
            
            0.12
            
            09/24/2019Ben
      Zagorski
            
            6,234
            
            
            891
            
            
            
            0.35
            
            09/07/20162,681
            
            
            619
            
            
            
            0.35
            
            12/07/20162,994
            
            
            6,589
            
            
            
            0.35
            
            12/04/201870,000
            
            
            
            0.12
            
            09/24/2019(6)
            310,000
            
            
            
            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.




68




(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 2010




No
current Named Executive Officer exercised any option during fiscal year
2010.





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 Executive’s then unvested equity awards shall become
vested.




(2)  If
Executive’s employment is terminated without cause, or Executive 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 Executive’s remaining unvested equity awards shall
become vested.




69


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





In the
event Mr. Blashka’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.  If Mr. Blashka (1) is terminated after June 30, 2008, 50%
of his outstanding options shall be fully vested and exercisable; (2) is
terminated after December 31, 2008, 100% of his outstanding options shall be
fully vested and exercisable; and (3) in the event of a change in control, all
outstanding options and restricted stock become fully vested and
exercisable.





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





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





If Mr.
Zagorski’s employment is involuntarily terminated for a reason other than cause,
after the close of a Change in Control, his 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 2010 fiscal year:




Fees
      Earnedor
      Paid in
            
            
            OptionName
            
            Cash
            
            
            Awards
      (1)
            
            
            TotalDeepak
      Desai
            
            
            -
            
            
            $
            1,251
            
            
            $
            1,251Robert
      Ellis
            
            
            -
            
            
            $
            1,251
            
            
            $
            1,251Elizabeth
      Hambrecht (2)
            
            
            -
            
            
            $
            14,085
            
            
            $
            14,085George
      Hirsch
            
            
            -
            
            
            $
            1,251
            
            
            $
            1,251James
      Rosenfield
            
            
            -
            
            
            $
            1,251
            
            
            $
            1,251David
      Talbot
            
            
            -
            
            
            $
            1,251
            
            
            $
            1,251John
      Warnock
            
            
            -
            
            
            $
            1,251
            
            
            $
            1,251




70




(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 2010 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.





(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 2010, 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.





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 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.





71


Role
of Compensation Committee and Outside Consultants





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





Elements
of Compensation





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





Base
Salary. Salaries for Salon’s executive officers are initially set based
on negotiation with the individual executive officers at the time of recruitment
and with reference to salaries for comparable positions in the industry for
individuals of similar education and background. Salon also considers the
individual’s experience, reputation in his or her industry and expected
contributions to Salon.  Base salary is continuously evaluated to
ensure it is competitive and may be adjusted from time to time if Salon believes
that it is no longer competitive, to match changes to an individual’s job
performance or duties, or to retain an executive.  Cost of living
salary adjustments are also granted to executive officers on an ad hoc
basis.  In each case, Salon takes into account the results achieved by
the executive, his or her future potential, scope of responsibilities and
experience, competitive salary practices, the potential impediment in reaching
profitability if the executive were to leave Salon, and cash
projections.  Salon has not utilized benchmarks or compensation
studies in determining salary levels, but may do so in the future. 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. Each executive is eligible for a
cash bonus.  Due to limited cash, no bonuses have ever been granted in
the past to Salon’s Chief Executive Officer and President, Executive Vice
President and Chief Financial Officer, or Editor-in-Chief. In fiscal 2010, a
cash bonus of $74,166 was reserved for Mr. Zagorski, the Company’s Vice
President Sales, due to the Company achieving certain revenue targets, a portion
of which was in lieu of commissions earned.





In order
to align corporate goals and provide incentives for its Chief Executive Officer,
its Chief Financial Officer, its Editor-in-Chief, and its Vice President Sales,
the Compensation Committee has approved a bonus plan for fiscal
2011.  Fiscal year 2011 target bonuses for these executives are
$150,000, $150,000, $150,000, and $65,000 respectively and are based on meeting
operating and profitability targets which increase the enterprise value of the
Company.




72


In fiscal
2010, Mr. Gingras, Mr. Blashka and Ms. Walsh earned bonuses of $32,943, $46,875
and $46,875, respectively.  The bonuses are payable in cash or stock
at the Company’s option, based on the average closing stock price during the
fiscal year.  The targeted amounts are contractually
set.  The goals were set based on what the Committee perceived to be
synchronized with the overall goal of increasing Salon’s enterprise value. It is
anticipated that the executives will be paid in stock. In September, 2009, Mr.
Blashka and Ms. Walsh each received 183,984 fully-vested options in lieu of cash
as payment of their fiscal 2009 bonuses.





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.




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





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





The
number of stock options Salon granted to executives has varied
widely.  On May 4, 2009, Mr. Gingras was granted 1,416,211 options
upon joining the Company, with the right to receive up to an aggregate amount
equal to 10% of the fully-diluted shares of the Company under certain
circumstances. In September 2009, Mr. Blashka, Ms. Walsh and Mr. Zagorski were
granted 80,000, 100,000, and 70,000 options, respectively, as part of a
company-wide issuance.  On December 12, 2009, Salon granted 310,000
options to its Vice President Sales, Mr. Zagorski in connection with his
promotion to Vice President Sales.  On December 4, 2008, Salon granted
16,667 options to its Chief Financial Officer, Mr. Blashka, 15,000 options to
its then Vice President of Sales and Marketing, Andreas Droste, and 19,167 to
Salon’s Editor-in-Chief, Joan Walsh.





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, 2010,
Salon’s stock option plan allows for the granting of approximately 1,589,000
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.





73





During
fiscal 2010, Mr. Gingras received 110,345 shares of restricted stock as partial
compensation for consulting services.  During fiscal 2009 Mr. Blashka,
Ms. Walsh and Mr. Droste received  57,143, 65,714, and 51,429 shares
of restricted stock, respectively, in return for agreeing to temporary salary
reductions. Ms. Hambrecht was granted 200,000 shares when she was reappointed as
Chief Executive Officer.





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





Retirement and
Other Benefits.  Salon has a 401(k) savings plan for its
employees that allows for matching contributions and profit
sharing.  Due to limited cash, Salon has never made matching or profit
sharing contributions and has no intent to do so in the 2010 fiscal year.Salon does not have a
deferred compensation plan for any employee.





Named
Executive Officer Cash Compensation




Elizabeth
Hambrecht served as CEO from September 2008 until replaced by Mr, Gingras in
May, 2009, during which time she received a base annual salary of $130,000. She
also received $33,000 earned for consulting services prior to her appointment as
CEO. Ms. Hambrecht’s resignation did not affect her service as a director of the
Company’s board of directors.  She was not eligible for a
bonus.





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





Norman
Blashka, Executive Vice President and CFO, 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 2010, Mr. Blashka
received cash compensation of $170,000. He also earned a fiscal year 2010 bonus
of $46,875, which is expected to be paid in stock.





Joan
Walsh, Editor-in-Chief, has a contractual salary of $230,000.  To
support the Company’s operations, Ms. Walsh agreed to a temporary ten percent
salary reduction in January 2009, and again in September2009. She received cash
compensation of $200,000 during fiscal year 2010.  She also earned a
fiscal year 2010 bonus of $46,875, which is expected to be paid in
stock.





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
$197,000 during fiscal year 2010. He also earned a fiscal year 2010 bonus of
$32,943, which is expected to be paid in stock, and received $64,000 for
consulting services performed prior to his appointment as CEO.




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 2010, Mr. Zagorski received cash compensation of $172,000. He also earned
$37,000 in commissions for meeting certain revenue targets, and earned a bonus
of $74,166.





74




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 22 of this Annual Report on Form 10-K.




Security
Ownership of Certain Beneficial Owners and Management





The
following table sets forth information regarding the beneficial ownership of
Common Stock and Common Stock equivalents of Salon as of June 1, 2010
(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.




75




Amount
      andNature
      ofBeneficial
            
            PercentName
      and Address of Beneficial Owner (1)
            
            Ownership
      (2)
            
            of
      Class (3)William
      R. Hambrecht (4)
            
            4,003,633
            
            84.9%Shea
      Ventures LLC (5)
            
            1,694,485
            
            47.7%Octavia
      LLC (6)
            
            375,210
            
            13.4%Adobe
      Systems Incorporated (7)
            
            335,900
            
            12.1%Robert
      McKay(ex-Director) (8)
            
            313,393
            
            11.5%Wenner
      Media LLC (9)
            
            272,620
            
            10.1%Constellation
      Ventures (10)
            
            180,181
            
            7.0%Nancy
      & Timothy Armstrong  (11)
            
            147,716
            
            5.7%HVS
      Boxers, LLC (12)
            
            144,489
            
            5.6%Executive
      Officers and DirectorsJohn
      Warnock (13)
            
            6,089,556
            
            87.3%Elizabeth
      Hambrecht (14)
            
            751,937
            
            26.0%David
      Talbot (15)
            
            281,071
            
            10.3%Joan
      Walsh (16)
            
            587,947
            
            19.9%James
      Rosenfield (17)
            
            39,472
            
            1.6%George
      Hirsch (18)
            
            40,325
            
            1.6%Robert
      Ellis (19)
            
            34,593
            
            1.4%Deepak
      Desai (20)
            
            32,093
            
            15.3%Norman
      Blashka (21)
            
            430,614
            
            5.1%Richard
      Gingras (22)
            
            523,406
            
            18.4%Benjamin
      Zagorski (23)
            
            13,577
            
            0.6%All
      executive officers and directors as a group (11 persons)
            
            8,824,591
            
            96.1%





(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 2,437,956 shares of Common Stock outstanding as of June 1,
      2010, shares of Common Stock underlying options exercisable within
      sixty (60) days of June 1, 2010, 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 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.




76




(4)
              Mr.
      Hambrecht has an ownership interest in WR Hambrecht + Co., LLC and WR
      Hambrecht + Co., Inc. (together the “Hambrecht Entities”) and is the
      Chairman and Chief Executive Officer of those
      entities.   The Hambrecht Entities own 35,822 shares of
      Common. Elizabeth Hambrecht, a director of Salon and Salon’s former
      President and Chief Executive Officer, has a pecuniary ownership interest
      in the Hambrecht Entities.  Mr. Hambrecht individually owns
      405,385 shares of Common Stock, 939,614 shares of Common Stock that Mr.
      Hambrecht has the right to acquire upon conversion of 50 shares of series
      A Preferred Stock and 378 shares of Series C Preferred Stock and 584
      shares of Series D Preferred Stock and 35,040 shares of Common Stock
      issuable upon exercise of immediately exercisable warrants. He also holds
      a promissory note convertible into 1,140,702 shares of Common Stock.
      Includes ownership by The Sarah and William Hambrecht Foundation of 32,005
      shares of Common Stock and 276,481 shares of common stock that the
      Foundation has the right to acquire upon conversion of 75 shares of Series
      A Preferred Stock and 108 shares of Series C Preferred
      Stock.  William Hambrecht and Elizabeth Hambrecht are Directors
      and have voting rights in the Sarah & William Hambrecht
      Foundation.  Includes ownership by HAMCO Capital Corporation,
      consisting of 20,782 shares of Common Stock and 171,658 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
      857,149 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 986,480
      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 130,148 shares of Common Stock that the trust
      has the right to acquire upon conversion of 128 shares of Series C
      Preferred Stock. Includes 398,491 shares of Common Stock issuable upon
      conversion of a promissory note held by the trust.  Edward Shea
      is the Manager of the stockholder and a Trustee of the trust, and is also
      a Director of Ironstone Group, Inc. mentioned under item
      (4).


(6)
            Consists
      of 17,805 shares of Common Stock held by the
      stockholder.  Includes 357,405 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.




(7)
            Includes
      335,900 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.




(8)
            Consists
      of 4,200 shares of Common Stock held by the Robert McKay Family
      Partnership, 7,840 shares of Common Stock held by the McKay Investment
      Group and 2,921 shares of Common Stock in the Elaine McKay Family
      Partnership.  Includes 298,432 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.




(9)
            Consists
      of 18,424 shares of Common Stock held by the
      stockholder.  Includes 254,196 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.




(10)
            Consists
      of 33,084 shares of Common Stock held by Constellation Venture Capital, LP
      and 7,096 shares of Common Stock held by Constellation Venture Offshore,
      LP.  Includes 115,557 shares of Common Stock that Constellation
      Venture Capital has the right to acquire upon conversion of 52 shares of
      Series A Preferred Stock and 24,444 shares of Common Stock that
      Constellation Venture Capital Offshore, LP has the right to acquire upon
      conversion of 11 shares of Series A Preferred
  Stock.




(11)
            Includes
      147,716 shares of Common Stock that the stockholder has the right to
      acquire upon conversion of 209 shares of Series D Preferred
      Stock.




(12)
            Consists
      of 6,709 shares of Common Stock.  Includes 137,780 shares of
      Common Stock that the stockholder has the right to acquire upon conversion
      of 62 shares of Series A Preferred
Stock.




(13)
            Consists
      of 410,426 shares of Common Stock held by the Chairman of the Board of
      Salon. Includes 4,504,335 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 1,140,702 shares of Common
      Stock issuable upon conversion of a promissory note.  Includes
      34,093 shares subject to options that may be exercised within sixty (60)
      days of June 1, 2010.


77
  (14)
              Consists
      of 296,607 shares of Common stock held by the
      Director.  Includes 249,686 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 205,644 shares subject to options that may be
      exercised within sixty (60) days of June 1, 2010.  Excludes her
      proportional beneficial ownership of amounts owned by the Hambrecht
      Entities and HAMCO Capital described in footnote
      (4).


(15)
            Consists
      of 384 shares of Common Stock, of which 128 shares are held by Camille
      Peri, Mr. Talbot's spouse, and 256 shares held in trust for the benefit of
      Mr. Talbot's children.  Mr. Talbot disclaims beneficial
      ownership of the shares held individually by his spouse and in trust for
      his children. Includes 280,687 shares subject to options that may be
      exercised within sixty (60) days of June 1,
  2010.




(16)
            Includes
      65,714 shares of Common Stock and 522,233 shares subject to options that
      may be exercised within sixty (60) days of June 1,
  2010.




(17)
              Includes
      39,472 shares subject to options that may be exercised within sixty (60)
      days of June 1, 2010.
 (18)
                Consists
      of 732 shares of Common Stock held by the Director and 39,593 shares
      subject to options that may be exercised within sixty (60) days of June 1,
      2010.
 
 (19)
                  Consists
      of 500 shares of Common Stock held by the Director and 34,093 shares
      subject to options that may be exercised within sixty (60) days of June 1,
      2010.


(20)
            Includes
      32,093 shares subject to options that may be exercised within sixty (60)
      days of June 1, 2010.




(21)
            Includes
      57,143 shares of Common Stock and 373,471 shares subject to options that
      may be exercised within sixty (60) days of June 1,
  2010.




(22)
            Includes
      110,345 shares of Common Stock and 413,061 shares subject to options that
      may be exercised within sixty (60) days of June 1,
  2010.




(22)
            Includes
      13,577 shares subject to options that may be exercised within sixty (60)
      days of June 1, 2010.  78
  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, 2010 (a) by each stockholder who is known by
Salon to be the beneficial owner of more than 5% of the outstanding shares of
Series A Preferred Stock, (b) by each director and nominee,
(c) by the Named Executive Officers, and (d) by all current executive
officers and directors of Salon as a group.




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




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




(2)
            Includes
      75 shares held by the Sarah & William Hambrecht Foundation that are
      convertible into 166,669 shares of Common Stock, subject to
      adjustment.  Also includes 50 shares held by WR Hambrecht + Co.
      LLC that are convertible into 111,112 shares of Common Stock, subject to
      adjustment.  Mr. Hambrecht is the father of Elizabeth Hambrecht,
      a director of Salon and Salon’s former President and Chief Executive
      Officer. Ms. Hambrecht has an ownership interest in WR Hambrecht + Co. LLC
      and is a Director of and has voting rights in the Sarah & William
      Hambrecht Foundation.




(3)
            Shares
      held by the named stockholder are convertible into 277,782 shares of
      Common Stock, subject to
adjustment.




(4)
            Includes
      52 shares held by Constellation Venture Capital, LP that are convertible
      to 115,557 shares of Common Stock and 11 shares held by Constellation
      Venture Capital (Offshore), LP that are convertible to 24,444 shares of
      Common Stock, all subject to
adjustment.




(5)
            Shares
      held by the named stockholder are convertible into 160,652 shares of
      Common Stock, subject to adjustment.  79
  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, 2010 (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 335,900 shares of
      Common Stock, subject to
adjustment.




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




Series C
Preferred Stock




The following table sets forth
information regarding the beneficial ownership of Salon’s Series C
Preferred Stock as of June 1, 2010 (a) by each stockholder who is known by
Salon to be the beneficial owner of more than 5% of the outstanding shares of
Series C Preferred Stock, (b) by each director and nominee,
(c) by the Named Executive Officers, and (d) by all current executive
officers and directors of Salon as a group.




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




80




(2)
            Shares
      held by the named stockholder are convertible into 3,532,311 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 109,812 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 129,131 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 857,149
      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 838,846 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 708,698
      shares of Common Stock, subject to adjustment.  Includes 128
      shares owned by the E&M RP Trust that are convertible into 130,148
      shares of Common Stock, subject to
adjustment.




(5)
            Shares
      held by the named stockholder are convertible into 160,652 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 31,520 shares of Common
      Stock.  Stockholder is the President and Chief Executive Officer
      of the registrant.




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




Series D
Preferred Stock




The following table sets forth
information regarding the beneficial ownership of Salon’s Series D-1, D-2,
D-3, D-4 and D-5 Preferred Stock (the “Series D Preferred Stock”) as of June 1,
2010 (a) by each stockholder who is known by Salon to be the beneficial
owner of more than 5% of the outstanding shares of Series D Preferred
Stock, (b) by each director and nominee, (c) by the Named Executive
Officers, and (d) by all current executive officers and directors of Salon
as a group.




Amount
      andNature
      ofBeneficial
            
            PercentName
      and Address of Beneficial Owner(1)
            
            Ownership
            
            of
      ClassJohn
      Warnock (2,6)
            
            874
            
            41.9%William
      R. Hambrecht (3)
            
            647
            
            31.0%Elizabeth
      Hambrecht (4,6)
            
            334
            
            16.0%Nancy
      & Timothy Armstrong (5)
            
            209
            
            10.0%All
      executive officers and directors as a group (2 persons)
(6)
            
            1,208
            
            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.




81




(2)
            Shares
      held by the named stockholder, who is the Chairman of the Board of Salon,
      are convertible into 694,242 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
      444,158 shares of common stock, subject to adjustment.  Includes
      63 shares held by HAMCO Capital Corporation that are convertible to 42,527
      shares of common stock, subject to adjustment.  Mr. Hambrecht
      and Elizabeth Hambrecht, both have an ownership interest in HAMCO
      Capital.  Mr. Hambrecht disclaims beneficial ownership of the
      shares held directly by HAMCO Capital Corporation other than his
      proportionate ownership interest. Ms. Hambrecht disclaims beneficial
      ownership of the shares held directly by HAMCO Capital Corporation other
      than her proportionate ownership
interest.




(4)
            Shares
      held by the Officer are convertible into 218,166 shares of Common Stock,
      subject to adjustment.




(5)
            Shares
      held by the named stockholder are convertible into 147,716 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.


82
  ITEM
13.  Certain Relationships and Related Transactions





In May
2007, Salon entered into a line of credit with Deutsche Bank Securities, Inc.
for borrowings of up to $1 million plus accrued interest.  This
agreement is guaranteed in its entirety by John Warnock, Salon’s Chairman. As of
March 31, 2009 and March 31, 2010, the line was fully drawn.  Accrued
interest thereon is $113.




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




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




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




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




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.




During
fiscal 2010, Mr. Warnock and Mr. Hambrecht provided working capital in the form
of unsecured, interest free cash advances in the amounts of $1,800 and $750,
respectively




Subsequent
to year end 2010, through June 14, 2010, Mr. Warnock has provided an additional
$845 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 office, Elizabeth Hambrecht, under which she will be
compensated at the annual rate of $150,000, payable half in cash and half in
Salon stock. The agreement may be terminated at any time by either the Company
or the advisor.




83





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, 2010.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,
2009 were $99,627 and for March 31, 2010 are estimated to be approximately
$116,023.  In addition, the aggregate corporate tax filing fees for
the year ended March 31, 2010 are estimated to be approximately $9,500. 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, 2010, 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.


84


PART
IV





ITEM
15.  Exhibits, Financial Statement Schedules





1.        Financial
Statements





The
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 Schedules





None.





3.        Exhibits





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





ExhibitNumber
            
            Description of Document2.1(7)
            
            Agreement
      and Plan of Reorganization dated as of May 5, 2000, among Salon.com, a
      Delaware corporation, Target Acquisition Corporation, a Delaware
      corporation and wholly-owned subsidiary of Salon, MP3Lit.com, a Nevada
      corporation and Gary Hustwit, Valerie Hustwit and William
      Hustwit.3.2(3)
            
            Restated
      Certificate of Incorporation of Salon as of June 17, 1999 with Certificate
      of Amendment of Article Fourth as of June 24, 1999.3.3.1
      (40)
            
            Certificate
      of Amendment to Restated Certificate of Incorporation, dated as of
      November 19, 2004.3.4(3)
            
            Form
      of Bylaws of Salon adopted June 24, 1999.3.4(10)
            
            Certificate
      of Designation of Preferences and Rights of the Series A Preferred Stock
      dated as of August 8, 2001.3.4.1(12)
            
            Certificate
      of Designation of Preferences and Rights of the Series B Preferred Stock,
      dated as of February 8, 2002.3.4.2(36)
            
            Certificate
      of Designation of Preferences and Rights of the Series C Preferred Stock,
      dated as of December 23, 2003.3.4.3(38)
            
            Certificate
      of Designation of Preferences and Rights of the Series D-1 Preferred
      Stock, Series D-2 Preferred Stock, Series D-3 Preferred Stock, Series D-4
      Preferred Stock and Series D-5 Preferred Stock dated as of June 1,
      2004.3.4.4(54)
            
            Amendment
      to the Certificate of Designation of Preferences and Rights of the Series
      D-1 Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred
      Stock, Series D-4 Preferred Stock and Series D-5 Preferred Stock dated as
      of November 19, 20074.1(1)
            
            Third
      Amended and Restated Rights Agreement dated April 14,
  1999.4.1(8)
            
            Fourth
      Amended and Restated Rights Agreement dated January 12,
    2000.4.2(1)
            
            Second
      Amended and Restated Voting Agreement dated April 14,
  1999.4.2(5)
            
            Bylaws
      of the Company are incorporated by reference to Exhibit 3.4 to the
      Company’s Registration Statement on Form
S-1.  85
  4.2.1(10)
            
            Securities
      Purchase Agreement dated as of August 9, 2001 between Salon Media Group,
      Inc. and the Purchasers listed on Exhibit A attached
    thereto.4.2.2(10)
            
            Securities
      Rights Agreement dated as of August 9, 2001 between Salon Media Group,
      Inc. and the Purchasers listed on Exhibit A attached
    thereto.4.2.3(10)
            
            Form
      of Common Stock Purchase Warrant dated August 9, 2001 issued by Salon
      Media Group, Inc.4.2.4(11)
            
            Securities
      Purchase Agreement dated as of September 13, 2001 between Salon Media
      Group, Inc. and the Purchasers listed on Exhibit A attached
      thereto.4.2.5(11)
            
            Securities
      Rights Agreement dated as of September 13, 2001 between Salon Media Group,
      Inc. and the Purchasers listed on Exhibit A attached
    thereto.4.2.6(11)
            
            Form
      of Common Stock Purchase Warrant dated September 13, 2001 issued by Salon
      Media Group, Inc.4.2.7(12)
            
            Securities
      Purchase Agreement dated as of February 14, 2002 between Salon Media
      Group, Inc. and Adobe Systems Incorporated.4.2.8(12)
            
            Securities
      Rights Agreement dated as of February 14, 2002 between Salon Media Group,
      Inc. and Adobe Systems Incorporated.4.2.9(12)
            
            Form
      of Common Stock Purchase Warrant dated February 14, 2002 issued by Salon
      Media Group, Inc.4.2.10(13)
            
            Note
      and Warrant Purchase Agreement dated as of July 24,
  2002.4.2.11(13)
            
            Form
      of Convertible Promissory Note, dated July 24, 2002 issued by Salon Media
      Group, Inc.4.2.12(13)
            
            Form
      of Common Stock Purchase Warrant, dated July 24, 2002 issued by Salon
      Media Group, Inc.4.2.13(14)
            
            Note
      dated as of October 3, 2002.4.2.14(15)
            
            Note
      and Warrant Purchase Agreement dated as of December 18,
    2002.4.2.15(15)
            
            Form
      of Convertible Promissory Note, dated December 18, 2002 issued by Salon
      Media Group, Inc.4.2.16(15)
            
            Form
      of Common Stock Purchase Warrant, dated December 18, 2002 issued by Salon
      Media Group, Inc.4.2.17(16)
            
            Note
      and Warrant Purchase Agreement dated as of January 26,
    2003.4.2.18(16)
            
            Form
      of Convertible Promissory Note, dated January 26, 2003 issued by Salon
      Media Group, Inc.4.2.19(16)
            
            Form
      of Common Stock Purchase Warrant, dated January 26, 2003 issued by Salon
      Media Group, Inc.4.2.20(17)
            
            Note
      and Warrant Purchase Agreement dated as of February 11,
    2003.4.2.21(17)
            
            Form
      of Convertible Promissory Note, dated February 11, 2003 issued by Salon
      Media Group, Inc.4.2.22(17)
            
            Form
      of Common Stock Purchase Warrant, dated February 11, 2003 issued by Salon
      Media Group, Inc.4.2.23(18)
            
            Form
      of Note and Warrant Purchase Agreement used during March
    2003.4.2.24(18)
            
            Form
      of Convertible Promissory Note used during March 2003 by Salon Media
      Group, Inc.  86
  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.  87
  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.  88
  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.  89
  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 May 4,
2009  90
  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, 2001.12
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on March 13, 2002.  91
  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, 2003.33
            
            Incorporated
      by reference to the exhibit filed with Salon’s Quarterly Report on Form
      10-Q filed on February 6, 2004.  92
  34
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on November 17, 2003.35
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on November 26, 2003.36
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on January 14, 2004.37
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on February 25, 2004.38
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on June 16, 2004.39
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on October 6, 2004.40
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on December 13, 2004.41
            
            Incorporated
      by reference to the exhibits filed with Salon’s Registration Statement on
      Form S-8 filed on January 14, 2005.42
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on January 19, 2005.43
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on February 4, 2005.44
            
            Incorporated
      by reference to the exhibits filed with Salon’s Annual Report on
      Form   10-K filed on June 29, 2005.45
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on November 10, 2005.46
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on December 22, 2005.47
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on June 9, 2006.48
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on July 31, 2006.49
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on September 26, 2006.50
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on December 20, 2006.51
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on September 14, 200752
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on November 20, 200753
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on January 9, 200854
            
            Incorporated
      by reference to the exhibits filed with Salon’s Current Report on Form 8-K
      filed on April 9, 2008




93








SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




SALON MEDIA GROUP, INC.











By:  /s/ Richard
Gingras


Richard Gingras


Chief
Executive Officer





94




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
      25, 2010Richard
      Gingras
            
            (Principal
      Executive Officer)/s/
      Norman Blashka
            
            Executive
      Vice President and
            
            June
      25, 2010Norman
      Blashka
            
            Chief
      Financial Officer(Principal
      Accounting Officer)/s/
      Deepak Desai
            
            Director
            
            June
      25, 2010Deepak
      Desai




/s/
      Robert Ellis
            
            Director
            
            June
      25, 2010Robert
      Ellis/s/
      Elizabeth Hambrecht
            
            Director
            
            June
      25, 2010Elizabeth
      Hambrecht/s/
      George Hirsch
            
            Director
            
            June
      25, 2010George
      Hirsch/s/
      James H. Rosenfield
            
            Director
            
            June
      25, 2010James
      H. Rosenfield/s/
      David Talbot
            
            Director
            
            June
      25, 2010David
      Talbot/s/
      John Warnock
            
            Chairman
      of the Board, Director
            
            June
      25, 2010John
      Warnock