SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

________________

FORM 10-Q

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2016

or

[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission file number 0-26395

SALON MEDIA GROUP, INC.

(Exact name of Registrant as specified in its charter)

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

870 Market Street

San Francisco, CA 94102

(Address of principal executive offices)

(415) 870-7566

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 Par Value

(Title of Class)

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

Indicate by check mark 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  [ X ]  No  [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐   Accelerated filer   ☐Non-accelerated filer ☐   Smaller reporting company ☑

Indicate by check mark whether the Registrant is a shell company as defined by Rule 12b-2 of the act.

Yes [  ] No [X]

The number of outstanding shares of the Registrant's Common Stock, par value $0.001 per share, on February 1, 2017 was 150,000,000 shares.

FORM 10-Q

SALON MEDIA GROUP, INC.

INDEX

PART I	FINANCIAL INFORMATION	Page Number
ITEM 1:	Financial Statements
	Balance Sheets as of December 31, 2016 (unaudited) and March 31, 2016	3
	Statements of Operations for the three months and nine months ended December 31, 2016 and 2015 (unaudited)	4
	Statements of Cash Flows for the nine months ended December 31, 2016 and 2015 (unaudited)	5
	Notes to Financial Statements (unaudited)	6
ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3:	Quantitative and Qualitative Disclosures About Market Risk	22
ITEM 4:	Controls and Procedures	22
PART II	OTHER INFORMATION
ITEM 1:	Legal Proceedings	23
ITEM 1A:	Risk Factors	23
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
ITEM 3.	Defaults upon Senior Securities	31
ITEM 4.	Mine Safety and Disclosures	31
ITEM 5.	Other Information	31
ITEM 6:	Exhibits	31
	Signatures	32

2

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SALON MEDIA GROUP, INC.

BALANCE SHEETS

(in thousands, except share and par value amounts)

	December 31,			March 31,
	2016			2016 (1)
	(unaudited)
Assets
Current assets:
Cash	$	137		$	189
Accounts receivable, net of allowance of $15 and $20		793			1,348
Prepaid expenses and other current assets		288			127
Total current assets		1,218			1,664
Property and equipment, net		319			69
Other assets, principally deposits		103			301
Total assets	$	1,640		$	2,034
Liabilities, Mezzanine Equity and Stockholders' Deficit
Current liabilities:
Short-term borrowings	$	1,000		$	1,000
Related party advances		100			7,991
Convertible promissory notes		750			-
Accounts payable and accrued liabilities		2,782			1,257
Total current liabilities		4,632			10,248
Deferred rent		60			69
Total liabilities		4,692			10,317
Commitments and contingencies (See Note 5)
Mezzanine equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, 268,840 shares issued and outstanding as of December 31, 2016 and 1,075 shares issued and outstanding as of March 31, 2016 (liquidation preference value of $667 as of December 31, 2016)		-			-
Additional paid-in capital		4,282			-
Total mezzanine equity		4,282			-
Stockholders’ deficit:
Common stock, $0.001 par value, 150,000,000 shares authorized, 150,000,000 shares issued and outstanding as of December 31, 2016 and 76,245,442 shares issued and outstanding as of March 31, 2016		150			76
Additional paid-in capital		125,054			116,192
Accumulated deficit		(132,538	)		(124,551	)
Total stockholders' deficit		(7,334	)		(8,283	)
Total liabilities, mezzanine equity and stockholders' deficit	$	1,640		$	2,034

(1) Derived from the Company’s audited financial statements.

The accompanying notes are an integral part of these financial statements.

3

SALON MEDIA GROUP, INC.

STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2016			2015			2016			2015
Net Revenue	$	1,226		$	1,950		$	3,516		$	5,329
Operating expenses:
Production and content		1,152			996			3,093			2,905
Sales and marketing		209			394			708			1,252
Technology		283			342			890			1,069
General and administrative		562			459			1,498			1,464
Total operating expenses		2,206			2,191			6,189			6,690
Loss from operations		(980	)		(241	)		(2,673	)		(1,361	)
Interest expense, net		(4,432	)		(10	)		(4,454	)		(30	)
Net loss		(5,412	)		(251	)		(7,127	)		(1,391	)
Preferred deemed dividend		(860	)		-			(860	)		-
Net loss attributable to common stockholders	$	(6,272	)	$	(251	)	$	(7,987	)	$	(1,391	)
Basic and diluted net loss per share	$	(0.06	)	$	(0.00	)	$	(0.09	)	$	(0.02	)
Weighted average shares used in computing basic and diluted net loss per share		113,938			76,245			88,859			76,245

The accompanying notes are an integral part of these financial statements.

4

SALON MEDIA GROUP, INC.

STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended
	December 31,
	2016			2015
Cash flows from operating activities:
Net loss	$	(7,127	)	$	(1,391	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense and change in allowance for doubtful accounts		(5	)		39
Depreciation		27			25
Stock-based compensation		412			262
Changes in assets and liabilities:
Accounts receivable		560			(611	)
Prepaid expenses and other assets		37			37
Accounts payable, accrued liabilities and deferred rent		699			(61	)
Non-cash interest expense		4,420			-
Net cash used in operating activities		(977	)		(1,700	)
Cash flows from investing activities:
Purchase of property and equipment		(277	)		(34	)
Net cash used in investing activities		(277	)		(34	)
Cash flows from financing activities:
Proceeds from convertible promissory notes		750			-
Proceeds from related party advances		450			1,665
Net proceeds from issuance of common stock		2			-
Net cash provided by financing activities		1,202			1,665
Net decrease in cash		(52	)		(69	)
Cash, beginning of period		189			229
Cash, end of period	$	137		$	160
Supplemental schedule of non-cash financing activities:
Conversion of unsecured advances into preferred stock	$	2,688		$	-
Conversion of unsecured advances into common shares	$	5,653		$	-
Preferred deemed dividend in connection with preferred stock financing	$	860		$	-
Conversion of stock options to liabilities	$	818		$	-

The accompanying notes are an integral part of these financial statements.

5

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

(unaudited)

1. The Company and Significant Accounting Policies

The Company

Salon Media Group, Inc. (“Salon”, the “Company”, “Our” or “We”) is an internet news and social networking company that produces Salon.com, a content Website. Salon was originally incorporated in July 1995 in California and reincorporated in Delaware in June 1999. Salon operates in one business segment.

Basis of Presentation

These interim financial statements are unaudited and have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly Salon's financial position, results of operations and cash flows for the periods presented. These financial statements and related notes should be read in conjunction with the audited financial statements for the fiscal year ended March 31, 2016, which are included in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016 filed with the Securities and Exchange Commission (“SEC”) on June 24, 2016. Pursuant to the rules of the SEC, these financial statements do not include all disclosures required by generally accepted accounting principles (“GAAP”). The results for the nine-month period ended December 31, 2016 are not necessarily indicative of the expected results for any other interim period or for the fiscal year ending March 31, 2017.

These financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred losses and negative cash flows from operations since inception and had an accumulated deficit as of December 31, 2016 of $132,538. In addition, we expect to incur a net loss from operations for the fiscal year ending March 31, 2017. The Company has operated principally with the assistance of interest-free advances from related parties. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Our operating forecast for the remainder of the fiscal year ending March 31, 2017 anticipates smaller operating losses. We estimate we will require approximately $0.75 million in additional funding to meet our operating needs for the balance of our fiscal year. Operating costs for the nine months ended December 31, 2016 decreased by 7% compared to the same period in last year, reflecting additional steps we have taken to better match our operating expense with revenues. However, we commenced collective bargaining with the Writers Guild of America, East, Inc. (“WGAE”) in November 2015 and until the negotiations are finalized we will not have a clear idea of any potential increase in our budget.  If planned revenues continue to be less than expected, or if planned expenses are more than expected, the cash shortfall may be higher, which will result in a commensurate increase in required financing.

Cash

Cash consists of cash on deposit with banks and have original maturities of three months or less.

6

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

(unaudited)

Concentration of Credit Risk

Financial instruments that potentially subject Salon to concentration of credit risk consist primarily of trade accounts receivable.  We perform ongoing credit evaluations of our customers, but do not require collateral.  We provide an allowance for credit losses that we periodically adjust to reflect our management’s expectation of future losses.

Four customers individually accounted for more than 10% of net revenues for the three months ended December 31, 2016 ranging from approximately 11% to 27%. One customer accounted for approximately 24% of total revenue for the three months ended December 31, 2015. One customer accounted for approximately 25% of net revenues for the nine months ended December 31, 2016. One customer accounted for approximately 26% of net revenues for the nine months ended December 31, 2015. Five customers individually accounted for more than 10% of total accounts receivable as of December 31, 2016 ranging from approximately 13% to 17%. Five customers individually accounted for more than 10% of total accounts receivable as of March 31, 2016 ranging from approximately 10% to 17%.

Stock-Based Compensation

We account for stock-based compensation using the fair value method of accounting. The estimated fair value of the stock options granted is amortized on a straight-line basis over the vesting period of the stock. The vested options as of December 31, 2016 were reclassified from equity to liabilities and re-measured at fair value, such amounts totaled $818 at December 31, 2016. The liability will be reclassified back to equity once adequate authorized shares are approved by the shareholders. A summary of our stock incentive plans is discussed in Note 3 to our financial statements.

We granted options to acquire a total of 300,900 shares under the Salon Media Group, Inc. 2014 Stock Incentive Plan (the “2014 Stock Incentive Plan”) during the nine months ended December 31, 2016. We also granted 12,654,318 shares pursuant to plans not approved by shareholders during the nine months ended December 31, 2016. We did not grant any options during the three months ended December 31, 2016. 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:

	Nine months ended December 31,
	2016			2015
Risk-free interest rates	1.10%	-	1.15%		1.40%
Expected term (in years)	4.0	-	6.3		4
Expected volatility		393%			388%
Dividend yield		0%			0%

As noted above, the vested options as of December 31, 2016 were reclassified from equity to liabilities and re-measured at fair value. We applied the expected term of 6.3 years during the nine months ended December 31, 2016, to more appropriately estimate expectations of exercise behavior of the options. We will consistently apply this going forward until we are able to develop a refined method of estimating the period of time until option exercise. The expected stock price volatility is based on historical volatility of Salon’s stock over a period equal to the expected term of the options. The risk-free interest rate is based on the implied yield available on U.S. Treasury securities with a term equivalent to the service period of the stock options. We have not paid dividends in the past.

7

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

(unaudited)

As of December 31, 2016, the aggregate stock compensation remaining to be amortized to expense was $2,117. Salon expects this stock compensation balance to be amortized as follows: $128 during the remainder of fiscal year 2017; $646 during fiscal year 2018; $628 during fiscal year 2019; $590 during fiscal year 2020 and $125 during fiscal year 2021. The expected amortization reflects outstanding stock option awards as of December 31, 2016 expected to vest.

Reclassifications

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

Recently Issued Accounting Pronouncements

We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

2. Borrowing Agreements

Short-term Borrowings

In May 2007, we finalized a borrowing agreement with Deutsche Bank Securities, Inc. that allows us to borrow up to $1,000 at a rate of prime less 0.25%. In September 2016, this credit agreement was transferred to Raymond James and Associates, Inc. (“Raymond James”) after Deutsche Bank Securities, Inc. sold its accounts. Our obligations under this agreement are guaranteed in their entirety by our former Chairman, John Warnock. The line of credit has been fully drawn as of December 31, 2016. Raymond James may demand repayment of amounts borrowed at any time. Additionally, Mr. Warnock may also choose to terminate his guarantee, which would trigger a demand for repayment. As of December 31, 2016, accrued interest on short-term borrowings totaled approximately $370.

As of December 31, 2016 and 2015, the weighted-average interest rate on the Company’s short-term borrowings was constant at approximately 3.5%.

Convertible Promissory Notes (Bridge Financing Agreement)

During the nine months ended December 31, 2016, we issued $200, $100 of which was issued to a related party, in convertible promissory notes that are convertible into shares of Common Stock upon our next private equity securities sales to one or more investors, in a transaction or a series of related transactions, resulting in aggregate proceeds to the Company of at least $1,000. The notes bear interest on the outstanding principal at the rate of two percent (2%) per annum.

Demand Promissory Notes

During the nine months ended December 31, 2016, we issued $550 in demand promissory notes that are convertible into shares of Common Stock upon our next private equity securities sales to one or more investors, in a transaction or a series of related transactions, resulting in aggregate proceeds to the Company of at least $1,000. The notes bear interest at the rate of four percent (4%) per annum. Additionally, $250 of the issued notes contain a conversion price that is deemed beneficial to the holders of the notes. Accordingly, the Company recorded non-cash interest expense of $250 for the additional value of the beneficial conversion feature in December 2016, the period of adjustment.

8

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

(unaudited)

Related Party Advances

During each of the nine months ended December 31, 2016 and 2015, we received unsecured, interest-free cash advances totaling $350 and $1,665, respectively, to fund operations from Mr. Warnock. During the nine months ended December 31, 2016, we received unsecured, interest-free cash advances totaling $100 from William Hambrecht, Director and father of our Chief Financial Officer, as proceeds for the purchase of our shares of Series A Mandatorily Convertible Voting Preferred Stock (the “Series A Preferred Stock”) described in Note 6 of this Quarterly Report on Form 10-Q (“Form 10-Q”). We did not receive any cash advances from Mr. Hambrecht during 2015. During the quarter ended December 31, 2016, $8,341 of advances were converted to Preferred and Common Stock.

3. Stock Option Plans

We have two equity incentive plans, the Salon Media Group, Inc. 2004 Stock Plan (the “2004 Stock Plan”) and the 2014 Stock Incentive Plan, as described in Note 7, “Employee Stock Option Plan,” of the notes to financial statements in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016. The 2004 Stock Plan expired on November 17, 2014 and no additional options may be issued under the 2004 Stock Plan.

We have granted options pursuant to plans not approved (“Non-Plan”) by shareholders. On June 9, 2016, we granted to our Chief Executive Officer an option to purchase 12,654,318 shares of Common Stock pursuant to the terms and conditions of the Salon Media Group, Inc. Non Plan Stock Option agreement, with vesting in equal monthly installments over a four-year period commencing with the grant date. We did not grant any Non-Plan options during the three months ended December 31, 2016.

The following table summarizes activities under the 2004 Stock Plan, the 2014 Stock Incentive Plan and Non-Plan for the nine months ended December 31, 2016:

	Outstanding Stock Options			Weighted- Average Exercise Price		Aggregate Intrinsic Value
Balance as of March 31, 2016		7,242,000		$	0.15	$	124
Options granted under all plans and non-plan		12,955,000		$	0.24
Exercised		(29,000	)	$	0.05
Expired and forfeited		(974,000	)	$	0.18
Outstanding as of December 31, 2016		19,194,000		$	0.21	$	109
Vested as of December 31, 2016		7,434,000		$	0.16	$	109
Vested and expected to vest as of December 31, 2016		11,988,000		$	0.21	$	109

Options totaling 12,955,218 shares were awarded during the nine months ended December 31, 2016. Options totaling 72,015 shares were awarded during the nine months ended December 31, 2015. The weighted-average fair value of options granted during each of the nine month periods ended December 31, 2016 and 2015 was $0.23 per share and $0.17 per share, respectively. The weighted-average fair value of options vested during each of the nine month periods ended December 31, 2016 and 2015 was $0.22 per share and $0.18 per share, respectively. A total of 28,541 shares of options were exercised during the nine months ended December 31, 2016.

9

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

(unaudited)

Our Board of Directors (the “Board”) also approved a resolution on June 12, 2014 to amend the 2014 Stock Incentive Plan to comply with certain California Code of Regulations and Internal Revenue Service regulations. As of December 31, 2016, options totaling 2,748,567 were awarded to date under the 2014 Plan.

We recognized stock-based compensation expense of $412 and $262 during the nine months ended December 31, 2016 and 2015, respectively. 

Due to insufficient total authorized shares of our Common Stock as of December 31, 2016, the vested options as of December 31, 2016 with a fair value of $818 were reclassified from equity to liabilities and re-measured at fair value and are presented under accounts payable and accrued liabilities. We expect the approval to increase the total authorized shares and amendment to our Restated Certificate of Incorporation to be completed during the next quarter ending March 31, 2017 and the liabilities to be reclassified back to equity.

4. Net Loss Per Share

Basic net loss per share is computed using the weighted-average number of shares of Common Stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number of Common Stock and Common Stock equivalents outstanding during the period, as follows:

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2016			2015			2016			2015
Numerator:
Net loss	$	(6,272	)	$	(251	)	$	(7,987	)	$	(1,391	)
Denominator:
Weighted average shares used in computing basic and diluted net loss per share		113,938,000			76,245,000			88,859,000			76,245,000
Basic and diluted net loss per share	$	(0.06	)	$	-		$	(0.09	)	$	(0.02	)
Antidilutive securities including options and preferred stock not included in net loss per share calculation		116,388,000			8,920,000			116,388,000			8,920,000

5. Commitments and Contingencies

On October 17, 2012, we signed an office lease agreement to relocate our San Francisco headquarters to 870 Market Street, San Francisco, California. The five-year lease for approximately 2,405 square feet, commenced on December 1, 2012 and will terminate on November 30, 2017.

On April 16, 2014, we entered into an office lease for corporate offices at 132 West 31^st Street, New York, New York consisting of 6,523 square feet in rentable space. The lease commenced on July 1, 2014 and will expire on September 30, 2019. Upon execution of the lease, a deposit with Silicon Valley Bank in the form of a letter of credit of $204 was required. The term of the lease is five years with an effective base monthly rent expense of approximately $26. In August 2016, we informed our landlord of our intention to move out of the office space at 132 West 31^st Street, and we engaged a property agent to find a sub-tenant for this space. In January 2017, we were asked to vacate the office space at 132 West 31^st Street due to nonpayment of our monthly rent, and on January 30, 2017 we released the letter of credit of $204 to the landlord. We continue to be in discussions with the landlord of 132 West 31^st Street to mitigate any future liabilities associated with this lease.

10

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

(unaudited)

The following summarizes our office lease commitments and short-term borrowings as of December 31, 2016:

	Payments Due By Period
	Total		1 Year or Less		1 - 3 Years
Operating leases		995	$	410	$	585
Short-term borrowing		1,000		1,000		-
Interest on short-term borrowing		370		370		-
Related party advances		100		100		-
Convertible promissory notes		750		750		-
Total	$	3,215	$	2,630	$	585

6. Preferred Stock - Mezzanine Equity

As part of our committed efforts to raise capital, on January 24, 2017, we entered into a Purchase Agreement (the “Purchase Agreement”) with various investors to issue and sell to the investors in a private placement (the “Private Placement”) an aggregate principal amount of up to $1 million of the Company’s Series A Preferred Stock that will automatically convert into shares of common stock, par value $0.001 (the “Common Stock”), upon the filing of the Company’s Certificate of Amendment of Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. The Company has authorized the issuance and sale in the Private Placement of up to 2,417,471 shares of the Series A Preferred Stock, each of which is convertible into 100 shares of Common Stock, at the purchase price of $1.24 per share. We expect completion of the purchase and sale of the Series A Preferred Stock will occur in two stages and be completed during the quarter ending March 31, 2017. The holders of the shares of Series A Preferred Stock will not be entitled to receive dividends.

The terms of the Purchase Agreement stipulated that all previously issued Series C Preferred Stock and related party advances, with certain stated exceptions, are required to be exchanged into shares of Common Stock. On November 14, 2016, we entered into a stock exchange agreement (the “Stock Exchange Agreement”) with holders of our Series C Preferred Stock and related parties, including William Hambrecht, to exchange their 1,075 outstanding Series C shares and $8,341 in aggregate advances into 17,200,000 shares and 83,410,000 shares of Common Stock, respectively. However, the total of these exchanges when added to our Common Stock outstanding as of November 14, 2016, exceeded the 150,000,000 total authorized shares of Common Stock and would require authorization from a majority of shareholders to amend the Company’s Restated Certificate of Incorporation to authorize additional shares of Common Stock. Accordingly, Mr. Hambrecht and the Company agreed to amend the Stock Exchange Agreement so that Mr. Hambrecht would receive proportionately 268,840 shares of Series A Preferred Stock that automatically convert into 26,884,000 shares of Common Stock upon the increased share capitalization. Due to insufficient total authorized shares of our Common Stock as of December 31, 2016, these Series A Preferred shares are disclosed under mezzanine equity on our balance sheet. We expect the amendment to the Restated Certificate of Incorporation and the resulting increase in authorized shares of Common Stock to be completed during the quarter ending March 31, 2017 at which time Preferred Stock will be reclassified from mezzanine equity to stockholders’ deficit.

In event of a liquidation, the holders of the Series A Preferred Stock 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 by reason of their ownership, an amount per share equal to two (2) times the original issue price of $1.24 per share of Series A Preferred Stock. If the assets and funds available for distribution are insufficient to permit the payment to the holders of Series A 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 A Preferred Stock ratably in proportion to the full preferential amounts which they are entitled to receive. As of December 31, 2016, dividends were never declared to the holders of Series A and Series C Preferred Stock.

11

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

(unaudited)

After payment of the full preferential amounts has been made to the holders of the shares of Series A Preferred Stock pursuant to the Certificate of Designation, if any remaining assets of the Company are available for distribution to stockholders, the holders of shares of Common Stock and Series A Preferred Stock shall be entitled to receive the remaining assets of the Company available for distribution to stockholders ratably in proportion to the shares of Common Stock then held by them and the shares of Common Stock to which they have the right to acquire upon conversion of the shares of Series A Preferred Stock held by them. Following the initial close of the Private Placement on January 26, 2017, the Series A Preferred Stock accounts for approximately 46% of outstanding shares on an as converted basis and assuming an increase in authorized share capital so that all shares can convert to Common Stock.

The holders of the shares of Series A Preferred Stock are entitled to vote together with the holders of the shares of Common Stock as though part of that class, and they are entitled to vote on all matters and to that number of votes equal to the largest number of whole shares of Common Stock into which the shares of Series A Preferred Stock could be converted.

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

The exchange rate and common equivalent shares of our Series A Preferred Stock as of December 31, 2016 are as follows:

			Per share		Common
	Shares		Exchange		Equivalent
Preferred Stock	Outstanding		Rate		Shares
Series A		268,840		100.000		26,884,000
Total		268,840				26,884,000

Preferred Deemed Dividend

In connection with the January 24, 2017 private placement of shares of the Company’s Common Stock, the conversion price of the Series C Preferred Stock was reduced effective November 14, 2016, from $0.15 to $0.10 per share of Series C Preferred Stock. Following this adjustment, each share of Series C Preferred Stock was convertible into the number of shares of Common Stock obtained by dividing two (2) times the Series C original issue price, $800, by the adjusted conversion price of $0.10 per share, resulting in each share of Series C Preferred Stock being convertible into approximately 17,200,000 Common Stock. The adjusted conversion price generated additional value to the convertibility feature of the Series C Preferred Stock. Accordingly, the Company recorded a non-cash preferred deemed dividend of approximately $0.86 million for the additional value of the beneficial conversion feature in December 2016, the period of the adjustment.

12

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

(unaudited)

7. Subsequent Events

On January 4, 2017, we received $50 in the form of a Demand Promissory Note from a related party. The Note bears interest at the rate of 4% per annum and the entire principal plus any accrued interest is due upon demand by the holder of the Note.

Purchase Agreement

On January 24, 2017, we entered into the Purchase Agreement with Hambrecht 1980 Revocable Trust, Spear Point Capital LLC, Hershey Strategic Capital LP, Jordan Hoffner, Pershing LLC as Custodian, Jordan Jon Hoffner IRA Rollover, Larry Hoffner, Eu Revocable Trust, TEC Opportunities Fund I LP, and Thomas R. Wolzien IRA R/O E*TRADE as custodian (each, a “Purchaser” and together, the “Purchasers”) to issue and sell to the Purchasers in the Private Placement an aggregate principal amount of up to $1 million of the Company’s Series A Preferred Stock that will automatically convert into shares Common Stock upon the filing of the Company’s Certificate of Amendment of Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. The Company has authorized the issuance and sale in the Private Placement of up to 2,417,471 shares of the Series A Preferred Stock, at the purchase price of $1.24 per Share. In addition, prior to executing the Purchase Agreement, the Company agreed to issue 448,153 shares of the Series A Preferred Stock pursuant to the Stock Exchange Agreement and the Bridge Financing (as discussed in “2. Borrowing Agreements – Convertible Promissory Notes (Bridge Financing Agreement)”).

We expect that the completion of the purchase and sale of the shares of Series A Preferred Stock will occur in two stages, each a “Closing.” The initial Closing (the “Initial Closing”) occurred on January 26, 2017. The final Closing (the “Final Closing”) shall occur no later than February 23, 2017, or as soon thereafter as may be practicable. The Final Closing will include only investors who have indicated interest in participating in the Private Placement.

In addition to certain customary representations and warranties, indemnification rights and closing conditions, the Purchase Agreement contained (i) certain demand and piggyback registration rights, (ii) a right of Spear Point Capital Fund LP, a Purchaser, to propose for election three (3) directors to the Board, and (iii) the condition that all related party advances and shares of Series C Preferred Stock were converted into shares of Common Stock or Series A Preferred Stock, where, upon the Initial Closing, the only outstanding capital stock of the Company will be Common Stock and the shares of Series A Preferred Stock.

The shares of Series A Preferred Stock have the following rights and privileges. The shares (i) shall have a par value of $0.001, (ii) shall not be entitled to receive any dividends, (iii) shall carry a number of votes equal to the number of shares of Common Stock issuable upon their conversion into Common Stock, and (iv) shall be convertible, on a 100:1 basis, into shares of Common Stock.

On January 25, 2017, the Company obtained an Irrevocable Proxy from each of William Hambrecht and John Warnock, stockholders who collectively own approximately 82.44% of the outstanding shares of Common Stock of the Company, pursuant to which each such stockholder caused such shares to be voted in favor of the approval of the Company’s Certificate of Amendment of Restated Certificate of Incorporation, and there exists a vote sufficient to adopt such amendment.

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SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

(unaudited)

The issuance of the shares of Series A Preferred Stock pursuant to the Purchase Agreement is being made in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) thereof.

The Purchase Agreement was filed as Exhibit 10.1 to the Current Report on Form 8-K filed on January 27, 2017 and incorporated by reference herein.

Board of Directors

The Board, having obtained sufficient vote by the directors and having accepted the resignation of four (4) previously serving directors, elected three (3) new directors to the Board: (i) Richard MacWilliams, (ii) Rodney Bienvenu, and (iii) Trevor Colhoun. Previously serving directors, Deepak Desai, George Hirsch, James Rosenfield, and John Warnock resigned from the Board upon the election of Mr. MacWilliams, Mr. Bienvenu, and Mr. Colhoun. The Board currently consists of (i) Jordan Hoffner, (ii) William Hambrecht, (iii) Richard MacWilliams, (iv) Rodney Bienvenu, and (v) Trevor Colhoun. 

Lease settlement

In August 2016, we informed our landlord at our office space at 132 West 31^st Street, New York, New York, of our intention to move out of the premises, and we engaged a property agent to find a sub-tenant for this space. The lease for this space commenced on July 1, 2014 and will expire on September 30, 2019. In January 2017, we were asked to vacate the office space at 132 West 31^st Street due to nonpayment of our monthly rent, and on January 30, 2017 we released the letter of credit of $204 to the landlord. We continue to be in discussions with the landlord of 132 West 31^st Street to mitigate any future liabilities associated with this lease.  

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 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 "Risk 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.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Form 10-Q should be considered in conjunction with the audited financial statements, which are included in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016 (the “Fiscal 2016 Annual Report”) filed with the Securities and Exchange Commission. Matters of interest therein include, but are not limited to, our disclosure of critical accounting policies.

Overview

Salon is an online news website that has driven the national discussion since 1995 through fearless journalism and commitment to making the conversation smarter.  Our award-winning content combines original investigative stories and provocative personal essays with quick-take commentary, articles, and original editorial video about politics, race, religion, culture, entertainment, sustainability, innovation, technology and business.

We have a history of significant losses and expect to incur a loss from operations, based on generally accepted accounting principles, for our fiscal year ending March 31, 2017 and potentially for future years. BPM LLP, Salon’s independent registered public accounting firm for the years ended March 31, 2016, 2015, and 2014, included a “going-concern” audit opinion on the financial statements for those years. The audit opinions report substantial doubt about our ability to continue as a going concern, citing issues such as the history of losses, liquidity issues and absence of current profitability. Our stock price and investment prospects have been and could continue to be adversely affected, thus limiting financing choices and raising concerns about the realization of value on assets and operations.

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During the December 2016 quarter, we continued a shift in our strategy as led by the appointment on May 23, 2016 of Jordan Hoffner as our new Chief Executive Officer. The new strategy focuses on diversifying our product and editorial mix with video production and distribution as key drivers. In addition, major efforts have been made to broaden our editorial coverage in order to attract a larger and more diversified audience, which in turn can be packaged for advertisers who increasingly are utilizing programmatic advertising channels to reach the audience they are targeting. Our focus on high quality editorial continued to drive a significant audience to our Website, which was boosted by the U.S. Presidential election and a strong news cycle. However, we faced stiff competition from both new and larger websites for online advertising campaigns, while industry trends shifted toward increased use of agency and software-based approaches to buying online advertising. As a result, our direct ad sales have continued to decline and we have increasingly relied on third-party agencies to sell ads on our Website through programmatic advertising open marketplaces. The highlights of our December 2016 quarter are listed below:

Highlights from Quarter ended December 31, 2016 

● Our December 2016 quarter continued to be impacted by industry trends that have prevailed in the past year; direct advertising revenue continued to decline and software-based “programmatic” advertising sales and video advertising products have dominated the digital advertising landscape as, according to an eMarketer report dated September 26, 2016, the market size of programmatic advertising spending in the United States will be $31.7 billion which represents 78% of all digital ad spending. As a result of a continued decline in our direct advertising, our revenues fell 37% to $1.2 million in the quarter ended December 31, 2016 versus $2.0 million in the same period in 2015, and decreased 34% to $3.5 million for the nine months ended December 31, 2015 versus $5.3 million in the same period in the prior year. We have begun to make the necessary changes to our infrastructure to capture the greater programmatic opportunity. In addition, we have also launched video content on our Website to attract high cost-per-thousand-impression (“CPM”) video advertising, and have implemented technology to allow better management of our advertising inventory and better targeting for our advertisers. This has allowed us to improve our CPM by approximately 10% in December 2016 compared to the same month last year. However, the higher CPMs were offset by a decline in traffic from the same period last year, which led to a smaller inventory of ad products to sell, and a decline in revenues.

● Net losses were $6.3 million during the three months ended December 31, 2016, and $8.0 million for the nine months ended December 31, 2016, an increase from $0.3 million and $1.4 million, respectively, during the same periods last year. The increase in losses resulted from a decrease in revenues, a less significant decrease in operating expenses to $2.2 million and $6.2 million for the corresponding periods, non-cash preferred deemed dividend and interest expense in connection with our preferred stock financing.

● Average unique visitors to the Salon.com Website during the December 2016 quarter was 13.2 million, a decrease of 16% compared to the quarter ended December 31, 2015, and an increase of 11% compared to the quarter ended September 30, 2016, according to data compiled by Google Analytics. We attribute the decline since the December 2015 quarter primarily to changes in the algorithms used by Facebook to promote news content, which led to lower referral traffic from Facebook. We also had a decline in referral traffic major sites like Yahoo and Twitter, and implemented software to remove non-human traffic, which also contributed to the decline. We attribute the rise in traffic to our Website since the September 2016 quarter to be a result of improved Search Engine Optimization (SEO) and social media operations, original reporting and the busy news cycle around the Presidential election. Our strong growth in search traffic that has in part offset the decline in referral traffic by Facebook over the course of the last several quarters.

● We have continued to roll out our strategy to produce original video content focused on news, politics and entertainment under the banner of “Salon Talks”. Our goal is to add high quality diversified content to our Website, and to attract premium video advertising that commands higher CPMs as compared to display advertising. We achieved nearly 30 million video views during the December quarter, compared to roughly 300,000 in the December 2015 quarter. We have begun a process to upgrade our video technology so we can better monetize these video views with high CPM pre-roll advertising. As a result of our efforts, we received positive critical recognition as we were selected as a finalist for Magazine Industry Newsletter's (“MIN”) 2016 Best of the Web Awards in the category of Scripted/Unscripted Video or Series for our Salon Talks video series.

● Editorial highlights from this quarter focused primarily on coverage of the 2016 Presidential election. 47 of the Top 50 stories in the December 2016 quarter were about the Presidential election and the resulting Trump Presidency. Other notable stories included a first-hand reporting of the Standing Rock protests, a widely-read article about the launch of reality TV show focused on the KKK, and a video depicting racist remarks by a Kentucky fire chief that went viral on social media. We were proud that our exclusive reporting of the Standing Rock protests was widely linked to by social media and other media sources, and contributors, Heather Digby Parton and Carrie Sheffield were both referenced by “The Week” magazine for their political analysis. In addition, our original reporting on the Hamilton Electors via exclusive interviews was picked up broadly by other news outlets.

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● We continued collective bargaining with the WGAE for our editorial staff during the quarter.

● Social media continues to be a major source of referral traffic, despite a decline in traffic from this source due to changes in the algorithms used by Facebook to promote publisher content. We will continue to optimize content to be shared on social media with a special focus on our mobile platforms, and continue to test ad products that monetize page views that are outside of our publishing platform. In addition, we have been actively using Facebook Live to bolster our video offerings. In December 2016, we had approximately 945,000 Facebook “likes,” and 910,000 Twitter followers.

● Mobile users accounted for an average of 65% of all users in the December 2016 quarter, which is down slightly from 68% in September 2016 quarter and up from 57% in the December 2015 quarter. Over the past fiscal year, we have tested new mobile advertising products and upgraded the ad experience for both our users and advertising customers, with the goal to better monetize our mobile traffic.

● We continually work toward leaner, more efficient technological systems through automation, improved architecture and adoption of emerging best practices. In the past quarter, we continued to implement improvements to our ad technology platform, our ad delivery and our ability to monetize user information while also expanding our video offerings.

Sources of Revenue

Most of Salon’s net revenues are derived from advertising from the sale of promotional space on its Website. The sale of promotional space is generally for less than ninety days in duration. Advertisers pay for advertising based on a CPM. The primary factors in our ability to increase our advertising revenues in future periods are growth in our audience and the addition of higher CPM ad products such as pre-roll video. Attracting more unique visitors to our Website is important because these returning users generate additional page views, and each page view becomes a potential platform for advertisements. Advertising comprises banners, video, rich media and other interactive ads. CPM varies by platform and CPMs for mobile have been less than for desktop; however, in the recent quarter they have been increasing. Videos and sponsored content on mobile devices continue to grow in popularity and can demand a higher CPM. We believe that continuing to add videos and sponsored content to our mobile platform and improving and optimizing the platform’s design will help increase revenues from our mobile platform.

We also generate revenue from the licensing of content that previously appeared in our Website, and from traffic referrals to third party websites.

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Expenses

Production and content expenses consist primarily of salaries and related expenses for our editorial and production staff, payments to freelance writers and artists, bandwidth costs associated with serving pages andadserving costs.

Sales and marketing expenses consist primarily of salaries, commissions, bonuses and related personnel costs, travel, and other costs associated with our sales force, and business development efforts. They also include marketing promotions.

Technology expenses consist primarily of salaries and related personnel costs associated with the development, testing and enhancement of our software to manage our Website, as well as our marketing and sales efforts.

General and administrative expenses consist primarily of salaries and related personnel costs, accounting and legal fees, rents, and other fees associated with operating a publicly traded company. Certain shared overhead expenses are allocated to other departments.

Interest expense includes accrued interest on our outstanding debt and non-cash interest resulted from the conversion feature of our promissory notes.

In accordance with Accounting Standards Codification (“ASC”) 718, “Stock Compensation” (ASC 718), our expenses include stock-based compensation expenses related to stock option and restricted stock grants to employees, non-employee directors and consultants. These costs are included in the various departmental expenses.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires us to utilize accounting policies and make estimates and assumptions that affect our reported amounts. Our significant accounting policies are described in Note 2 to the financial statements in our Fiscal 2016 Annual Report. We believe accounting policies and estimates related to revenue recognition and stock-based compensation are the most critical to our financial statements. Future results may differ from current estimates if different assumptions are used or different conditions were to prevail.

Revenue Recognition

We recognize revenues once persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is reasonably assured. Revenues are recognized ratably over the period in which our obligations are fulfilled. Payments received before our obligations are fulfilled are classified as “Deferred revenues” in our balance sheet.

Advertising revenues, derived from the sale of promotional space on our Website, comprised 80% and 86% of our revenues, respectively, for the nine months ended December 31, 2016 and 2015. The duration of the advertisements is generally short-term, usually less than ninety days. Revenues derived from such arrangements are recognized during the period the advertising space is provided. Our obligations typically include a guaranteed minimum number of impressions. To the extent minimum guaranteed amounts are not achieved, we defer 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.

Accounting for Stock-Based Compensation

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

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We recognized stock-based compensation expense of $412,000 and $262,000 during the nine months ended December 31, 2016 and 2015, respectively. As of December 31, 2016, we had an aggregate of $2,117,000 of stock compensation remaining to be amortized to expense over the remaining requisite service period of the underlying awards. We currently expect this stock compensation balance to be amortized as follows: $128,000 during the remainder of fiscal 2017; $646,000 during fiscal 2018; $628,000 during fiscal 2019; $590,000 during fiscal 2020 and $125,000 during fiscal 2021. The expected amortization reflects only outstanding stock option awards as of December 31, 2016 expected to vest. We expect to continue issuing stock-based awards to our employees in future periods.

Due to insufficient total authorized shares of our Common Stock as of December 31, 2016, the vested options as of December 31, 2016 totaling $818,000 were reclassified from equity to liabilities and re-measured at fair value. We expect the approval to increase the total authorized shares and amendment to our Restated Certificate of Incorporation to be completed during the next quarter ending March 31, 2017 at which point the liabilities will be reclassified back to equity.

The full impact of stock-based compensation in the future is dependent upon, among other things, the timing of when we hire 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, achievement of specific goals for performance-based grants, the fair value of the stock awards at the time of grant and the tax benefit that we 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 our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards.

Results of Operations for the Three and Nine Months Ended December 31, 2016 Compared to the Three and Nine Months Ended December 31, 2015

Net revenue

Net revenue decreased 37% to approximately $1.2 million for the three months ended December 31, 2016 from approximately $2.0 million for the three months ended December 31, 2015. Net revenue decreased 34% to approximately $3.5 million for the nine months ended December 31, 2016 from approximately $5.3 million for nine months ended December 31, 2015.

Advertising revenues decreased 47% to approximately $0.9 million for the three months ended December 31, 2016 from approximately $1.7 million for the three months ended December 31, 2015. Direct ad sales were approximately 19% and programmatic ad sales were approximately 81% of total advertising revenue for the three months ended December 31, 2016.

Advertising revenues decreased 39% to approximately $2.8 million for the nine months ended December 31, 2016 from approximately $4.6 million for the nine months ended December 31, 2015. Direct ad sales were approximately 18% and programmatic ad sales were approximately 82% of total advertising revenue for the nine months ended December 31, 2016. The decrease in total advertising revenue was a result of transitions in both our editorial and advertising sales teams, lower average traffic and a continued significant industry shift by advertisers from direct sales advertising to software-based programmatic advertising.

Revenues from all other sources, mostly referral fees, increased 58% to approximately $0.4 million for the three months ended December 31, 2016, and decreased 7% to approximately $0.7 million for the nine months ended December 31, 2016. The overall decreases were attributed to lower revenues from a renewed referral fee customer agreement.

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Expenses

Production and content

Production and content expenses increased 16% to approximately $1.2 million for the three months ended December 31, 2016 from approximately $1.0 million for the three months ended December 31, 2015. Production and content expenses increased 6% to approximately $3.1 million for the nine months ended December 31, 2016 from approximately $2.9 million for the nine months ended December 31, 2015. The increases were mainly attributed to the production of video content and increased internet hosting.

Sales and marketing

Sales and marketing expenses decreased 47% to approximately $0.2 million for the three months ended December 31, 2016 from approximately $0.4 million for the three months ended December 31, 2015. Sales and marketing expenses decreased 43% to approximately $0.7 million for the nine months ended December 31, 2016 from approximately $1.3 million for the nine months ended December 31, 2015. The decreases were mainly attributed to personnel changes.

Technology

Technology expenses remained relatively flat from a year ago at approximately $0.3 million for the three months ended December 31, 2016. Technology expenses decreased 17% to approximately $0.9 million for the nine months ended December 31, 2016 from approximately $1.0 million for the nine months ended December 31, 2015. The decreases were mainly attributed to personnel changes.

General and administrative

General and administrative expenses increased 22% to approximately $0.6 million for the three months ended December 31, 2016 from approximately $0.5 million for the three months ended December 31, 2015. This increase was mainly attributed to higher stock compensation costs. General and administrative expenses remained relatively flat from a year ago at approximately $1.5 million for the nine months ended December 31, 2016.

Interest expense, net

Interest expense for the three and nine months ended December 31, 2016 were $4.4 million and $4.5 million respectively, compared to an immaterial $0.01 million and $0.03 million for the same periods a year ago. These increases were mainly attributed to non-cash interest from the beneficial conversion feature of our convertible promissory notes.

Liquidity and capital resources

Net cash used in operations was approximately $1.0 million for the nine months ended December 31, 2016. The principal uses of cash during the nine months ended December 31, 2016 were to fund the $7.1 million net loss, $4.4 million non-cash interest expense and the net activities from various working capital and non-cash items for the period. The accounts receivable, net as of December 31, 2016 of approximately $0.8 million, represent primarily advertising sales during the period, and are expected to be collected within the next four months.

Net cash used in investing activities was approximately $0.3 million for the nine months ended December 31, 2016. The principal use of cash in these investing activities was to re-design of our Website and, to a lesser extent, purchase of computing equipment.

Net cash provided by financing activities was approximately $1.2 million and $1.7 million for the nine months ended December 31, 2016 and 2015, respectively, reflecting mainly cash advances from related parties and convertible promissory notes.

We estimate we will require approximately $0.75 million in additional funding to meet our operating needs for the remaining three months ending March 31, 2017. However, we commenced collective bargaining with the WGAE and until the negotiations are finalized we will not have a clear idea of any potential increase in our budget. If planned revenues are less than expected, or if planned expenses are more than expected, the cash shortfall may be higher, which will result in a commensurate increase in required financing.  During the current and previous fiscal years, we have relied on funding from related parties. In this fiscal year through February 14, 2017, Mr. Warnock, our former Chairman who resigned subsequent to December 31, 2016, has provided $0.35 million in cash advances.

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During the nine months ended December 31, 2016, we issued $200 in convertible promissory notes that are convertible into Common Stock upon our next equity securities sales to one or more investors, in a transaction or a series of related transactions, resulting in aggregate proceeds to the Company of at least $1,000. The notes bear interest on the outstanding principal at the rate of two percent (2%) per annum, $100 of which was issued to a related party.

During the nine months ended December 31, 2016, we issued $550 in demand promissory notes. The notes bear interest at the rate of four percent (4%) per annum and the entire principal plus any accrued interest is due upon demand by the holder.

During the nine months ended December 31, 2016, William Hambrecht provided $100 in advance as part of a financing to be finalized in the next quarter. If we were not able to obtain additional funding from related parties or others, we would be required to curtail or discontinue operations, or consider other alternatives.

Off-Balance-Sheet Arrangements

We have no off-balance-sheet arrangements.

Contractual Obligations

The following summarizes our contractual obligations as of December 31, 2016:

	Payments Due By Period
	Total		1 Year or Less		1 - 3 Years
Operating leases		995	$	410	$	585
Short-term borrowing		1,000		1,000		-
Interest on short-term borrowing		370		370		-
Related party advances		100		100		-
Convertible promissory notes		750		750		-
Total	$	3,215	$	2,630	$	585

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We maintain all of our 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, we entered into a credit agreement with Deutsche Bank Securities, Inc. that allows us to borrow up to $1.0 million at a rate of prime less 0.25% which subjects us to interest rate risk. In September 2016, this credit agreement was sold to Raymond James. We feel that the risk of a rate change is not material as we contemplate having a maximum of only $1.0 million of variable rate debt outstanding during our fiscal year ending March 31, 2017. As of December 31, 2016, we had $1.0 million plus accrued interest outstanding under this agreement, payable on demand. As we conduct all of our business in the United States, we are not subject to foreign exchange risk.

Item 4. Controls and Procedures

Evaluation of Our Disclosure Controls and Internal Controls

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 Form 10-Q (December 31, 2016), as is defined in Rule 13a-15(e) promulgated under the Exchange Act. 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 Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’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 Form 10-Q, our disclosure controls and procedures were effective.

Our management has concluded that the financial statements included in this Form 10-Q 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.

Changes in Internal Controls Over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the period covered by this Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

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. The Risk Factors set forth below have not materially changed from those included in our Fiscal 2016 Annual Report.

Salon has historically lacked significant revenues and has a history of losses

We have a history of significant losses and expect to incur a loss from operations, based on generally accepted accounting principles, for our fiscal year ending March 31, 2016 and to be determined in future years. Even if we attain profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If revenues grow more slowly than we anticipate, or continue to decline as we saw in the quarter ended December 31, 2016, or operating expenses exceed expectations, financial results will most likely be severely harmed and our ability to continue operations will be seriously jeopardized.

BPM LLP, Salon’s independent registered public accounting firm for the fiscal years ended March 31, 2012 through 2016 included a “going-concern” audit opinion on the financial statements for each of those years. The audit opinions report substantial doubt about our ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability. As a result of the “going-concern” opinions, our stock price and investment prospects have been and will continue to be adversely affected, thus limiting financing choices and raising concerns about the realization of value on assets and operations.

The Company has operated principally with the assistance of interest free advances from related parties. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Salon’s projected cash flows may not meet expectations

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

If we forecast or experience periods of limited, or diminishing cash resources, we may need to sell additional securities or borrow additional funds. There is no guarantee that we will be able to issue additional securities in future periods or borrow additional funds on commercially reasonable terms to meet our cash needs. Our ability to continue as a going concern will be adversely affected if we are unable to raise additional cash from sources we have relied upon in the past or new sources.

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We have relied on related parties for significant investment capital

We have relied on cash infusions from related parties to fund operations for many years. The related parties are primarily John Warnock, former Chairman of the Board who resigned subsequent to December 31, 2016, and, to a lesser extent in recent years, William Hambrecht. William Hambrecht is a Director and the father of our former CEO and current Chief Financial Officer, Elizabeth Hambrecht. During the current fiscal year, through February 14, 2017, Mr. Warnock and Mr, Hambrecht have contributed $0.35 million and $0.10 million, respectively, in cash advances to fund our operations. In addition, William Hambrecht, Elizabeth Hambrecht, Jordan Hoffner and Larry Hoffner, the father of CEO Jordan Hoffner, were purchasers in the Private Placement that closed an initial $1 million on January 26, 2017.

Curtailment of cash investments and borrowing guarantees by related parties would detrimentally impact our cash availability and our ability to fund our operations.

 We started collective bargaining with our non-supervisory editorial employees, and the results of this process are uncertain

On August 3, 2015, WGAE became the collective bargaining representative of Salon’s non-supervisory editorial employees. We commenced collective bargaining with WGAE in November 2015. Should this collective bargaining process result in an agreement that would not permit us to obtain additional funding, there can be no assurance that we will be able to continue our current business.

Our principal stockholders exercise a controlling influence over our business affairs and may make business decisions with which non-principal stockholders disagree, which may affect the value of non-principal stockholders’ investments

As of January 26, 2017, upon the initial closing of the Private Placement of an aggregate principal amount of $1 million of our Series A Preferred Stock, approximately 72% of our voting securities are controlled, directly or indirectly by John Warnock, William Hambrecht and Spear Point Capital Fund, LP. These three investors, if aligned, could combine to make business decisions with which non-principal stockholders disagree, and which may affect the value of the non-principal stockholders’ investments.

Future sales of significant number of shares of our Common Stock by principal stockholders could cause our stock price to decline

As of December 31, 2016, our directors and officers owned approximately 148 million shares of Common Stock, on an as converted basis, and assuming an increase in authorized share capital that will allow the shares of Series A Preferred Stock to convert into shares of Common Stock. The 148 million shares as converted represent approximately 46% of post-offering fully diluted ownership, following the initial close of the Private Placement completed on January 26, 2017. As our shares of Common Stock are normally thinly traded, if our principal stockholders were to sell their shares of Common Stock, the per share price of our shares of Common Stock could be adversely affected. 

Our 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 are beyond our control and which may prevent our stockholders from reselling Common Stock at a profit

The securities markets can experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could affect the market price of our shares of Common Stock, regardless of our operating performance. In addition, our stock is thinly traded. Even a few transactions, whether in response to disappointment in our expected operating results or for any other reason, could cause the market price of our shares of Common Stock to decrease significantly.

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Holders of our shares of Series A Preferred Stock are entitled to potentially significant liquidation preferences of Salon’s assets over holders of our shares of Common Stock in the event of a liquidation event

Holders of shares of Series A Preferred Stock have liquidation preferences over holders of shares of Common Stock of the first approximately $0.7 million in potential sales proceeds as of December 31, 2016. If a liquidation event were to occur, the holders of shares of Series A Preferred Stock would be entitled to receive the first $0.7 million of cash distributions. Holders of shares of Series A Preferred Stock are not entitled to receive dividends per the Certificate Designation of Preferences, Rights and Limitations of the Series A Preferred Stock. Upon the filing of the amendment to the Restated Certificate of Incorporation and resulting increase in our authorized share capital, all shares of Series A Preferred Stock will automatically convert into shares of Common Stock. The filing of the amendment to the Restated Certificate of Incorporation and the automatic conversion are expected to be completed during the quarter ending March 31, 2017.

We depend on advertising sales for substantially all of our revenues, and our inability to maintain or increase advertising revenues would harm our business

Our ability to maintain or increase our advertising revenues depends upon many factors, including whether we will be able to:

● attract and maintain additional visitors to our Website and increase brand awareness;

● sell and market our Website or other rich media advertisements;

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

● increase the dollar amount of our advertising orders;

● improve our Website’s technology for serving advertising;

● handle temporary high volume traffic spikes to our Website;

● measure accurately the number and demographic characteristics of our users; and

● attract and retain key sales personnel.

As more of our users access our Website using mobile devices rather than PCs, if we do not continue to grow our mobile users and revenue, our business will be adversely impacted.

Internet users increasingly use mobile devices rather than PCs to access the Internet.  Over 50% of our monthly users are now visiting our Website on mobile devices.  As mobile platforms encompass a larger share of our readers, our ability to grow advertising revenue is increasingly dependent on our ability to generate revenue from ads displayed on mobile devices.  While we plan to continue to devote technology resources to support our mobile browser product, apps and advertising products, if our mobile browser product, apps, and advertising products for mobile devices do not attract and retain users and advertisers to generate mobile revenue, our operating and financial results will be adversely impacted. We are dependent upon our products operating on mobile operating systems we do not control. The mobile phone manufacturer and its operating systems might block access to our Website or make it hard for users to find our Website through their devices, or block certain ads or charge us for delivery of ads, all of which would harm our operations and suppress revenue potential.

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Technologies and software applications could block our advertisements, which could harm our operating results.

Technologies and software applications have been developed for PC and mobile devices that can block or allow users to opt out of display advertising, delete or block cookies used to deliver advertising, or move advertising to less optimal placements to suppress view-ability. Most of our advertising revenue is derived from display or video advertisements on our Website. As a result, ad-blocking technologies or software could reduce the number of display or video advertisements which could result in decreased revenue.

If we cannot increase referrals from social media platforms, our ability to attract new unique visitors and maintain the engagement of existing unique visitors could be adversely affected.

As the behavior of internet consumers continues to change, distribution of our content, products and services via traditional methods may become less effective, and new distribution strategies may need to be developed. Consumers are increasingly using social networking sites such as Facebook and Twitter, to communicate and to acquire and disseminate information. As consumers migrate towards social networks, we continue to build social elements into our content, products and services in order to make them available on social networks and to attract and engage consumers on our Website and mobile platforms. There is no guarantee that we will be able to successfully integrate our content with such social networking or other new consumer trends. Even if we are able to distribute our content, products and services effectively through social networking or other new or developing distribution channels, this does not assure that we will be able to attract new unique visitors.

Hackers may attempt to penetrate our security system and online security breaches could harm our business

Consumer and supplier confidence in our Website depends on maintaining strong security features. Experienced programmers or “hackers” have penetrated sectors of our systems, and we expect that these attempts will continue to occur from time to time. To our knowledge, there has been no outward harm to us or our readers as a result of hacking attempts. Furthermore, Salon has engaged the services of a third-party web application security-testing company, which conducts regular comprehensive searches for any vulnerabilities that may exist, allowing us to address and fix any issues before they can be exploited. This minimizes the risk of damage; however, because a hacker who is able to penetrate network security could misappropriate proprietary information or cause interruptions in our products and services, we may have to expend significant capital and resources to protect against or to alleviate problems caused by hackers. Additionally, we may not have a timely remedy against a hacker who is able to penetrate our network security. Such security breaches could materially affect our operations, damage our reputation and expose us to risk of loss or litigation. In addition, the transmission of computer viruses resulting from hackers or otherwise could expose us to significant liability. Our insurance policies may not be adequate to reimburse us for losses caused by security breaches. We also face risks associated with security breaches affecting third parties with whom we have relationships.

We must promote the Salon brand to attract and retain users, advertisers and strategic partners

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

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We must hire, integrate and/or retain qualified personnel to support our business plans

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

Our success depends on our key personnel, including our executive officers, and the loss of key personnel, including our Chief Executive Officer, could disrupt our business

Our success greatly depends on the continued contributions of our senior management and other key sales, marketing and operations personnel. While we have employment agreements with some key management, these employees may voluntarily terminate their employment at any time. We may not be able to successfully retain existing personnel or identify, hire and integrate new personnel. We do not have key person insurance policies in place for these employees. 

We may expend significant resources to protect our intellectual property rights or to defend claims of infringement by third parties, and if we are not successful we may lose rights to use significant material or be required to pay significant fees

Our success and ability to compete are dependent on our proprietary content. We rely exclusively on copyright law to protect our content. While we actively take steps to protect our proprietary rights, these steps may not be adequate to prevent the infringement or misappropriation of our content, which could severely harm our business. We also license content from various freelance providers and other third-party content providers. While we attempt to ensure that such content may be freely licensed to us, other parties may assert claims of infringement against us relating to such content.

We may need to obtain licenses from others to refine, develop, market and deliver new services. We 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, we acquired the Internet address www.salon.com. Because www.salon.com is the address of the main home page to our Website and incorporates Salon’s name, it is a vital part of our intellectual property assets. We do not have a registered trademark on the address, and therefore it may be difficult for us to prevent a third party from infringing on our intellectual property rights to the address. If we fail to adequately protect our rights to the Website address, or if a third party infringes our rights to the address, or otherwise dilutes the value of www.salon.com, our business could be harmed.

Our technology development efforts may not be successful in improving the functionality of our network, which could result in reduced traffic on our Website or reduced advertising revenues

We are constantly upgrading our technology to manage our Website. During the last year we redesigned our Website homepage and vertical sections. In addition, we are creating new technology for new products that we expect to launch on an ongoing basis. If these systems do not work as intended, or if we are unable to continue to develop these systems to keep up with the rapid evolution of technology for content delivery, our Website may not operate properly, which could harm our 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 our business. Moreover, complex software products such as our online publishing frequently contain undetected errors or shortcomings, and may fail to perform or scale as expected. Although we have tested and will continue to test our systems, errors or deficiencies may be found in these systems that could adversely impact our business.

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We rely on third parties to provide the technologies necessary to deliver content, advertising and services to our users, and any change in the licensing terms, costs, availability, or acceptance of these formats and technologies could adversely affect our business

We rely on third parties to provide the technologies that we use to deliver content, advertising, and services to our users. There can be no assurance that these providers will continue to license their technologies or intellectual property to us on reasonable terms, or at all. Providers may change the fees they charge users or otherwise change their business models in a manner that slows the widespread acceptance of their technologies. In order for our services to be successful, there must be a large base of users of the technologies to deliver our content, advertising, and services. We have limited or no control over the availability or acceptance of those technologies, and any change in licensing terms, costs, availability, or user acceptance of these technologies could adversely affect our business.

We may be held liable for content or third party links on our Website or content distributed to third parties

As a publisher and distributor of content over the Internet, including links to third-party websites that may be accessible through our Website, or content that includes links or references to a third-party’s website, we face 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 our 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 we carry general liability and media insurance, our insurance may not be adequate to indemnify us for all liabilities imposed. Any liability that is not covered by our insurance or is in excess of our insurance coverage could severely harm our financial condition and business. Implementing measures to reduce our exposure to these forms of liability may require us to spend substantial resources and limit the attractiveness of our service to users.

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

Our Website “Salon.com”, and content management system run on cloud computing hosted by Amazon Web Services, which are in a facility in Herndon, Virginia. Any disruption of Amazon’s cloud computing platform could result in a service outage. 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 our services. Computer viruses, electronic break-ins or other similar disruptive problems could cause users to stop visiting our Website and could cause advertisers to terminate any agreements with us. In addition, we 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, our business could be harmed. Our insurance policies may not adequately compensate us for losses that may occur due to any failures of or interruptions in our systems. We do not presently have a formal disaster recovery plan.

Our Website must accommodate a high volume of traffic and deliver frequently updated information. It is possible that we will experience systems failures in the future and that such failures could harm our business. In addition, our users depend on Internet service providers, online service providers and other website operators for access to our 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 our systems. Any of these system failures could harm our business.

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Privacy concerns could impair our business

We have a policy against using personally identifiable information obtained from users of our 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 we use personal information without permission or in violation of our policy, we may face potential liability for invasion of privacy for compiling and providing information to our 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 in the future. If consumer privacy concerns are not adequately addressed, our business, financial condition and results of operations could be materially harmed.

Due to the volatility of the price of our Common Stock, we may be the target of securities litigation, which is costly and time-consuming to defend

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

Our quarterly operating results are volatile and may adversely affect the price of our Common Stock

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

● Our ability to attract and retain advertisers;

● Our ability to attract and retain a large number of users;

● Our ability to increase referrals from our social media presence;

● The introduction of new websites, services or products by us or by our competitors;

● Our ability to maximize our mobile presence;

● The timing and uncertainty of our advertising sales cycles;

● The mix of advertisements sold by us or our competitors;

● Economic and business cycles;

● Our ability to attract, integrate and retain qualified personnel;

● Technical difficulties or system downtime affecting the Internet generally or the operation of our Website; and

● The amount and timing of operating costs.

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Due to the factors noted above and the other risks discussed in this section and in our Annual Report, one should not rely on quarter-to-quarter comparisons of our results of operations as an indication of future performance. If future periods’ results of operations are below the expectations of public market analysts and investors, the price of our Common Stock could decline. 

Provisions in Delaware law and our charter, stock option agreements and offer letters to executive officers may prevent or delay a change of control

We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent a Delaware corporation 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 such date, the merger or sale is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder.

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

Our certificate of incorporation and bylaws include a provision relating to special meetings of our shareholders that may deter or impede hostile takeovers or changes of control or management. Special meetings of stockholders may be called only by the Board pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption) or by the holders of not less than 10% of all of the shares entitled to cast votes at the meeting. This provision may have the effect of delaying or preventing a change of control.

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.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits

(a) Exhibits.

31.1 Certification of Jordan Hoffner, Chief Executive Officer of the Registrant pursuant to Section 302, as adopted pursuant to the Sarbanes-Oxley Act of 2002

31.2 Certification of Elizabeth Hambrecht, Chief Financial Officer of the Registrant pursuant to Section 302, as adopted pursuant to the Sarbanes-Oxley Act of 2002

32.1 Certification of Jordan Hoffner, Chief Executive Officer of the Registrant pursuant to Section 906, as adopted pursuant to the Sarbanes-Oxley Act of 2002

32.2 Certification of Elizabeth Hambrecht, Chief Financial Officer of the Registrant pursuant to Section 906, as adopted pursuant to the Sarbanes-Oxley Act of 2002

101.INS** XBRL Instance

101.SCH** XBRL Taxonomy Extension Schema

101.CAL** XBRL Taxonomy Extension Calculation

101.DEF** XBRL Taxonomy Extension Definition

101.LAB** XBRL Taxonomy Extension Labels

101.PRE** XBRL Taxonomy Extension Presentation

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections

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Signatures

Pursuant to the requirements of the Securities 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.

Dated: February 14, 2017	/s/ Jordan Hoffner
	Jordan Hoffner
	Chief Executive Officer

Dated: February 14, 2017	/s/ Elizabeth Hambrecht
	Elizabeth Hambrecht
	Chief Financial Officer

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