10-Q 1 slnm20131231_10q.htm FORM 10-Q slnm20131231_10q.htm

 



 

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, 2013

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, Suite 528

San Francisco, CA 94102

(Address of principal executive offices)

 

(415) 645-9200

(Registrant's telephone number, including area code)

 

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

None

 

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

Common Stock, $0.001 Par Value

(Title of Class)

 

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

 

Indicate by check mark 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, 2014 was 76,245,442 shares.

 

 
 

 

 


FORM 10-Q

SALON MEDIA GROUP, INC.

INDEX


 

  

   

Page

PART I FINANCIAL INFORMATION

Number

     
     
ITEM 1:

Condensed Consolidated Financial Statements

 
     
 

CondensedConsolidated Balance Sheets as of December 31, 2013 (unaudited) and March31, 2013

3
     
 

Condensed Consolidated Statements of Operations for the three months and nine months ended December 31, 2013 and 2012 (unaudited)

4
     
 

Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2013 and 2012 (unaudited)

5
     
 

Notes to Condensed Consolidated 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

23
     
ITEM 1:

Legal Proceedings

 
     
ITEM 1A:

Risk Factors

23
     
ITEM 2:

Unregistered Sales of Equity Securities and Use of Proceeds

30
     
ITEM 3:

Defaults upon Senior Securities

30
     
ITEM 4:

Mine Safety and Disclosures

30
     
ITEM 5:

Other Information

30
     
ITEM 6:

Exhibits

30
     
     
 

Signatures

32

 

 
2

 

PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


 

SALON MEDIA GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value amounts)

 

   

December 31,

2013

   

March 31,

2013 (1)
 
   

(Unaudited)

         

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 280     $ 96  

Accounts receivable, net of allowance of $60 and $62

    1,810       720  

Prepaid expenses and other current assets

    172       318  

Total current assets

    2,262       1,134  

Property and equipment, net

    53       58  

Other assets, principally deposits

    97       107  

Total assets

  $ 2,412     $ 1,299  

Liabilities and Stockholders' Deficit

               

Current liabilities:

               

Short-term borrowings

  $ 1,000     $ 1,000  

Related party advances

    2,591       9,171  

Accounts payable and accrued liabilities

    1,114       1,128  

Deferred revenues

    -       15  

Total current liabilities

    4,705       11,314  
                 

Deferred rent

    3       12  

Total liabilities

    4,708       11,326  

Commitments and contingencies (See Note 5)

               
                 

Stockholders’ deficit:

               

Preferred Stock, $0.001 par value, 5,000,000 shares authorized, 1,075 shares issued and outstanding at December 31, 2013 and 8,141 shares issued and outstanding at March 31, 2013 (liquidation value of $9,717 at December 31, 2013 and $21,803 at March 31, 2013)

    -       -  

Common stock, $0.001 par value, 150,000,000 shares authorized, 76,245,442 shares issued and outstanding at December 31, 2013 and 30,000,000 shares authorized, 29,573,265 shares issued and outstanding at March 31, 2013

    76       30  

Additional paid-in capital

    115,561       106,408  

Accumulated deficit

    (117,933 )     (116,465 )

Total stockholders' deficit

    (2,296 )     (10,027 )

Total liabilities and stockholders' deficit

  $ 2,412     $ 1,299  

 

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

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

 

 
3

 

 

SALON MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

   

Three Months Ended

December 31,

   

Nine Months Ended

December 31,

 
   

2013

   

2012

   

2013

   

2012

 
                                 

Revenue, net

  $ 1,877     $ 1,032     $ 4,637     $ 2,721  
                                 

Operating expenses:

                               

Production and content

    887       833       2,553       2,514  

Sales and marketing

    473       349       1,377       1,151  

Technology

    377       340       1,135       967  

General and administrative

    430       244       1,012       902  

Separation expenses

    -       -       -       218  

Total operating expenses

    2,167       1,766       6,077       5,752  
                                 

Loss from operations

    (290 )     (734 )     (1,440 )     (3,031 )

Interest expense, net

    (9 )     (72 )     (28 )     (200 )

Loss from continuing operations

    (299 )     (806 )     (1,468 )     (3,231 )

Income from discontinued operations

    -       -       -       233  

Net loss

  $ (299 )   $ (806 )   $ (1,468 )   $ (2,998 )
                                 

Basic and diluted net loss per share

                               

Loss from continuing operations

  $ (0.00 )   $ (0.25 )   $ (0.02 )   $ (0.98 )

Income from discontinued operations

    -       -       -       0.07  

Net loss

  $ (0.00 )   $ (0.25 )   $ (0.02 )   $ (0.91 )
                                 

Weighted average shares used in computing basic and diluted net loss per share

    76,245       3,283       73,163       3,283  

 

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

 

 
4

 

 

SALON MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

   

Nine Months Ended

December 31,

 
   

2013

   

2012

 

Cash flows from operating activities:

               

Net loss

               

Loss from continuing operations

  $ (1,468 )   $ (2,998 )

Less income from discontinued operations

    -       233  

Total net loss

    (1,468 )     (3,231 )
                 

Adjustments to reconcile net loss to net cash used in operating activities:

               

Loss on disposal of property and equipment, net

    9       9  

Bad debt expense and change in allowance for doubtful accounts

    9       -  

Depreciation

    27       45  

Stock-based compensation

    90       146  

Accrued interest on convertible notes payable

    -       233  

Changes in assets and liabilities:

               

Accounts receivable

    (1,099 )     61  

Prepaid expenses and other assets

    156       (53 )

Accounts payable, accrued liabilities and deferred rent

    95       (551 )

Deferred revenues

    (15 )     (128 )

Net cash used in operating activities

    (2,196 )     (3,469 )
                 

Cash flows from investing activities:

               

Purchase of property and equipment

    (31 )     (23 )

Purchase of intangible assets

    -       (5 )

Proceeds from asset sales

    -       2  

Net cash used in investing activities

    (31 )     (26 )
                 

Cash flows from financing activities:

               

Proceeds from related party advances

    2,411       3,370  

Net cash provided by financing activities

    2,411       3,370  
                 

Net cash provided by operating activities from discontinued operations

    -       200  
                 

Net increase in cash and cash equivalents

    184       75  

Cash and cash equivalents at beginning of period

    96       130  

Cash and cash equivalents at end of period

  $ 280     $ 205  
                 

Supplemental schedule of non-cash financing activity:

               

Conversion of accrued interest into convertible notes payable

  $ -     $ 233  

Conversion of unsecured advances into common shares

  $ 8,991     $ -  

Conversion of accounts payable into common shares

  $ 118     $ -  

 

 

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

 

 
5

 

 

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED 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” or the “Company”) is an internet news and social networking company that produces Salon.com, a content Website, and related online communities. 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 condensed consolidated financial statements are unaudited and have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly Salon's condensed consolidated financial position, results of operations and cash flows for the periods presented. These condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements for the fiscal year ended March 31, 2013, which are included in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013 filed with the Securities and Exchange Commission on June 26, 2013. Pursuant to the rules of the Securities and Exchange Commission, these financial statements do not include all disclosures required by generally accepted accounting principles. The results for the nine month period ended December 31, 2013 are not necessarily indicative of the expected results for any other interim period or for the fiscal year ending March 31, 2014.

 

These condensed consolidated financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. Salon has incurred losses and negative cash flows from operations since inception and had an accumulated deficit as of December 31, 2013 of $117,933. In addition, Salon expects to incur a net loss from operations for its year ending March 31, 2014.

 

The Company’s operating forecast for the remainder of the fiscal year ending March 31, 2014 anticipates continued but reduced operating losses. Salon estimates it will require approximately $400 in additional funding to meet its operating needs in the quarter ending March 2014. 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, Salon has relied on funding from related parties. In this fiscal year through February 14, 2014, Salon’s chairman has provided $2,511 in cash advances. Salon remains dependent upon its two largest stockholders for continued financial support while it seeks external financing from potential investors in the form of additional indebtedness or through the sale of equity securities in a private placement. The Company is working with its advisors in its efforts to obtain such funding, and explore strategic alternatives. However, Salon does not currently have an agreement in place to provide any financing, and there is no certainty that Salon will be able to enter into definitive agreements for additional financings or other strategic alternatives on commercially reasonable terms, if at all.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash on deposit with banks and investments that are readily convertible into cash and have original maturities of three months or less.

 

 
6

 

 

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED 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.  Salon performs ongoing credit evaluations of its customers, but does not require collateral.  Salon provides an allowance for credit losses that it periodically adjusts to reflect management’s expectation of future losses.

 

One customer accounted for approximately 10% of total revenue for the three months ended December 31, 2013, and one customer accounted for approximately 12% of total revenue for the three months ended December 31, 2012. One customer accounted for approximately 11% of total revenue for the nine months ended December 31, 2013. No customer accounted for more than 10% of total revenue for the nine months ended December 31, 2012. No customer accounted for more than 10% of total accounts receivable as of December 31, 2013 and three customers accounted for approximately 38% of total accounts receivable as of December 31, 2012.

 

Stock-Based Compensation

 

The Company accounts 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.

 

No stock options were granted during the quarter ended December 31, 2013. The fair value of each option grant in previous quarters was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

 

   

Nine months ended December 31,

 
   

2013

   

2012

 

Risk-free interest rates

  1.00%     0.41%  

Expected term (in years)

  4     4  

Expected volatility

  461%     460%  

Dividend yield

  0%     0%  
                 

The expected term of the options of four years represents the estimated period of time until exercise and is based on historical experience of similar awards, including the contractual terms, vesting schedules and expectations of future employee behavior. 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, or four years. Salon has not paid dividends in the past.

 

As of December 31, 2013, the aggregate stock compensation remaining to be amortized to expense was $283. Salon expects this stock compensation balance to be amortized as follows: $38 during the remainder of fiscal 2014; $150 during fiscal 2015; $80 during fiscal 2016 and $15 during fiscal 2017. The expected amortization reflects outstanding stock option awards as of December 31, 2013 expected to vest.

 

 
7

 

 

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

 

No stock options were granted during the quarter ended December 31, 2013. The weighted average grant date fair value of the options granted under the Company’s stock plan as calculated using Black-Scholes option pricing model was $0.06 per share for the three months ended December 31, 2012. The weighted average grant date fair value of the options granted under the Company’s stock plan as calculated using the Black-Scholes option-pricing model was $0.13 and $0.01 per share for the nine months ended December 31, 2013 and 2012, respectively.

 

Recapitalization

 

Salon has made significant progress in simplifying its capital structure and increasing its liquidity in an effort to make the Company a more compelling investment to current and new investors. With this goal in mind, at a meeting of the Board of Directors (“Board”) on February 1, 2013, the Board approved a private offering of Common Stock to the holders of its related party advances, convertible notes, certain accrued consulting fees and Preferred Stock in exchange for such related party advances, convertible notes, accrued consulting fees and Preferred Stock, at an exchange price of $0.35 per share of Common Stock (the “Recapitalization”). The primary purpose of this voluntary Recapitalization was to simplify the Company’s capital structure through the exchange of indebtedness and Preferred Stock, thereby increasing the Company’s potential to enter into capital transactions with new investors.  In addition, the Board believed that the Recapitalization offered holders a potentially more liquid asset in the form of the Company’s Common Stock and could also result in increased overall liquidity in the market for the Company’s Common Stock.

 

All of the holders of related party advances, accrued consulting fees and convertible notes and the holders of all outstanding Preferred Stock, other than the holders of 1,075 shares of Series C Preferred Stock, agreed to participate in the Recapitalization which resulted in an aggregate 72.9 million shares of Common Stock being issued, as described below.

 

Outstanding convertible notes plus interest at February 28, 2013 were approximately $3,504, all of which was exchanged for an aggregate of 10,012,372 shares of Common Stock.  Outstanding related party advances at February 28, 2013, including accrued consulting fees of $158, were approximately $12,146, all of which was exchanged for an aggregate of 34,704,102 shares of Common Stock. All the outstanding 9,404 shares of Preferred Stock (other than 1,075 shares of Series C) at February 28, 2013 were exchanged for an aggregate of 28,158,852 shares of Common Stock. These shares were issued as described in the following two paragraphs.

 

On March 1, 2013, 25% of related party advances and accrued consulting fees of approximately $12,146 as of February 28, 2013 were exchanged for an aggregate of 8,676,034 shares of Common Stock and all convertible notes plus interest of $3,504 and Preferred Stock holdings of non-affiliates (other than 1,075 shares of Series C of Preferred Stock) were exchanged for an aggregate of 17,614,655 shares of Common Stock. This issuance of shares represented substantially all of the available authorized Common Stock.

 

Due to an insufficient number of Common Stock authorized as of February 28, 2013 to complete the issuances under the Recapitalization, a special meeting of the stockholders of the Company was held on April 18, 2013, at which Company stockholders voted to increase the authorized Common Stock of the Company from 30 million to 150 million shares. Following this vote and the filing of a Certificate of Amendment to the Company's Restated Certificate of Incorporation with the Delaware Secretary of State to effect the increase in the number of authorized shares of common stock from 30 million to 150 million shares, the remaining 75% of the balance of related party advances and accrued consulting fees as of February 28, 2013 was exchanged for an aggregate of 26,028,108 shares of Common Stock and all the 7,066 shares of Preferred Stock held by affiliates as of February 28, 2013 were exchanged for an aggregate of 20,556,569 shares of Common Stock.

 

 
8

 

 

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

 

 

Reclassifications

 

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

 

 

2.       Borrowing Agreements

 

Short-term Borrowings

 

In May 2007, Salon finalized a borrowing agreement with Deutsche Bank Securities, Inc. that allows Salon to borrow up to $1,000 at a rate of prime less 0.25%. Salon’s obligations under this agreement are guaranteed in their entirety by Salon’s Chairman. The line of credit has been fully drawn as of December 31, 2013. Deutsche Bank Securities may demand repayment of amounts borrowed at any time. Additionally, the Chairman may also choose to terminate his guarantee, which would trigger a demand for repayment. As of December 31, 2013, accrued interest on short-term borrowings totaled $247.

 

As of December 31, 2013 and 2012, the weighted-average interest rate on the Company’s short-term borrowings was 3.6% and 3.0%, respectively.

 

Related Party Advances

 

During the nine months ended December 31, 2013 and 2012, Salon has received unsecured, interest-free cash advances totaling $2,411 and $3,370, respectively, to fund operations from its Chairman. These advances are payable on demand, and are exchangeable into securities on the same terms as those to be issued in the next financing raised by the Company from non-related parties.

 

All such cash advances from the Chairman and other related party investors cumulative through February 28, 2013, totaling approximately $12,000, were converted on March 1, 2013 into shares of Common Stock in the Recapitalization.

 

Convertible Notes Payable

 

Outstanding convertible notes plus interest at February 28, 2013 was approximately $3,500, all of which was exchanged for an aggregate of approximately 10.0 million shares of Common Stock. Approximately 20% of the convertible notes were held by a non-affiliate of the Company.

 

As of December 31, 2013, Salon has no outstanding convertible notes and does not anticipate entering into similar debt instruments during its fiscal year ending March 31, 2014.

 

 
9

 

  

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

 

 

3.       Stock Option Plans

 

Salon has an equity incentive plan as described in Note 8, “Employee Stock Option Plan,” of the notes to consolidated financial statements in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

 

The following table summarizes activity under Salon’s plan for the nine months ended December 31, 2013:

 

 

   

Outstanding

Stock

Options

   

Weighted-

Average

Exercise

Price

   

Aggregate

Intrinsic

Value

 

Balance as of March 31, 2013

    4,201,000     $ 0.18          

Options granted under all plans

    3,018,000     $ 0.13          

Exercised

    (88,000 )   $ 0.01          

Expired and forfeited

    (478,000 )   $ 0.14          

Outstanding at December 31, 2013

    6,653,000     $ 0.16     $ 1,949,000  

Vested at December 31, 2013

    3,399,000     $ 0.21     $ 825,000  

Vested and expected to vest

    5,062,000     $ 0.16     $ 1,301,000  

 

 

A total of 3,018,000 option shares were awarded during the nine months ended December 31, 2013. A total of 1,542,000 option shares were awarded during the nine months ended December 31, 2012. The weighted-average fair value of options vested during each of the nine month periods ended December 31, 2013 and 2012 was $0.07 per share and $0.30 per share, respectively. Approximately 88,000 options were exercised during the nine months ended December 31, 2013.

 

Salon recognized stock-based compensation expense of $90 and $146 during the nine months ended December 31, 2013 and 2012, respectively.

 

 
10

 

 

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

 

 

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

December 31,

   

Nine Months Ended

December 31,

 
   

2013

   

2012

   

2013

   

2012

 

Numerator:

                               

Loss from continuing operations attributable to common stockholders

  $ (299 )   $ (806 )   $ (1,468 )   $ (3,231 )

Income from discontinued operations

    -       -       -       233  

Net loss attributable to common stockholders

  $ (299 )   $ (806 )   $ (1,468 )   $ (2,998 )
                                 

Denominator:

                               

Weighted average shares used in computing basic and diluted net loss per share attributable to common stockholders

    76,245,000       3,283,000       73,163,000       3,283,000  
                                 

Basic and diluted net loss per share

                               

Loss from continuing operations

  $ -     $ (0.25 )   $ (0.02 )   $ (0.98 )

Profit from discontinued operations

    -       -       -       0.07  

Net loss

  $ -     $ (0.25 )   $ (0.02 )   $ (0.91 )
                                 

Antidilutive securities including options, warrants and convertible notes and preferred stock not included in net loss per share calculation

    7,750,000       16,839,000       7,750,000       16,839,000  

 

 

5.     Commitments and Contingencies

 

On October 17, 2012, Salon signed a new office lease agreement to relocate its San Francisco headquarters to 870 Market Street, Suite 528, San Francisco, California. The three-year lease for approximately 2,405 square feet in space, commenced on December 1, 2012 and will terminate on November 30, 2015.

 

On October 3, 2012, the Company signed a sublease agreement with a third party to occupy its existing office space located at 101 Spear Street, Suite 203, San Francisco, California, covering approximately 8,623 square feet. The sublease commenced on December 1, 2012 and will terminate on February 28, 2014. The sublease is co-terminus with existing obligations.

 

 
11

 

 

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

 

The following summarizes Salon’s office lease commitments and short-term borrowings as of December 31, 2013:

 

   

Payments Due By Period

 
   

Total

   

1 Year or Less

   

1 - 3 Years

   

3 - 5 Years

 
                                 

Corporate office

  $ 168     $ 86     $ 82     $ -  

San Francisco, net of sublease

    16       16       -       -  

New York

    67       67       -       -  

Los Angeles

    7       7       -       -  

Total operating leases

    258       176       82       -  

Short-term borrowing

    1,000       1,000       -       -  

Interest on short-term borrowing

    247       247       -       -  

Related party advances

    2,591       2,591       -       -  

Total

  $ 4,096     $ 4,014     $ 82     $ -  

 

 

6.     Preferred Stock

 

The conversion rate and common equivalent shares of Salon’s Preferred Stock as of December 31, 2013 are as follows:

 

           

Per share

   

Common

 

Preferred Stock

 

Shares

Outstanding

   

Purchase

Price

   

Conversion

Rate

   

Equivalent

Shares

 

Series C

    1,075     $ 800       0.785       1,096,676  

Total

    1,075                       1,096,676  

 

 

The Series C Preferred Stock conversion rate is subject to a downward adjustment anti-dilution provision under certain circumstances related to subsequent Salon securities issuances. The Company determined that the accounting for such conversion features does not require bifurcation under “Accounting for Derivative Instruments and Hedging Activities” (Accounting Standards Codification (ASC) 815) and, accordingly, the requirements of ASC 815 are not applicable.

 

In event of a liquidation, the holders of the Series C 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, $1,600 per share, plus an amount equal to all declared but unpaid dividends, based on an annual rate of 8%. If the assets and funds available for distribution are insufficient to permit the payment to the holders of Series C Preferred Stock of their full preferential amounts, then the entire assets and funds of Salon legally available for distribution to stockholders will be distributed among the holders of Series C Preferred Stock ratably in proportion to the full preferential amounts which they are entitled to receive. As of December 31, 2013, no dividend has been declared to the holders of Preferred Stock.

 

 
12

 

 

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

 

If, after initial preferential liquidation payments to the holders of Series C Preferred Stock, any assets remain available for distribution, such assets are to be distributed ratably among the holders of Common Stock and Preferred Stock, based on the shares of Common Stock then held by them and issuable upon conversion of the shares of Preferred Stock then held by them, until aggregate distributions per share reach $2,400 for the holders of Series C Preferred Stock. Salon has currently outstanding 1,075 shares of Series C Preferred Stock.

 

If, after payment has been made to the holders of Common Stock and holders of Preferred Stock mentioned above, any assets remain available for distribution, such assets are to be distributed ratably among the holders of Common Stock and the holders of Series C Preferred Stock, based on the number of shares of Common Stock then held by them and issuable upon conversion of the Series C Preferred Stock then held by them. Based on available information, Salon estimates that the holders of Series C Preferred Stock account for approximately 6% of stockholders on an as converted basis.

 

The holders of Preferred Stock are entitled to vote together with the holders of Salon’s Common Stock as though part of that class, and are entitled to vote on all matters and to that number of votes equal to the largest number of whole shares of Common Stock into which the shares of Preferred Stock could be converted. Preferred Stockholders as a group own approximately 6% of the outstanding shares of Common Stock and Common Stock issuable upon conversion of the shares of Preferred Stock, all with voting rights.

 

The aggregate liquidation preferences of all Preferred Stockholders as of December 31, 2013 were $1,720 excluding the effect of undeclared dividends, and $9,717 including the effect of undeclared dividends. Salon has never declared a dividend and does not expect to declare a dividend in the future.

 

Neither the Series C 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.

 

7.     Discontinued Operations

 

The Well's declining subscriber base and aging technology led to a decision to restructure the service.  As a result, in May 2012, The Well’s staff was laid off and current subscriptions were honored and renewed through September 20, 2012, the date of the sale of the Well. All future cash inflows were thus eliminated. During the nine months ended December 31, 2012, The Well ceased to be part of the Company’s continuing operations and its financial results were reported under discontinued operations.

 

 

   

Three Months Ended

December 31

   

Nine Months Ended

December 31

 
   

2013

   

2012

   

2013

   

2012

 

Net revenues

  $ -     $ -     $ -     $ 120  

Operating expenses

    -       -       -       87  

Gain on Sale

    -       -       -       200  

Income (loss) from discontinued operations, net of tax

  $ -     $ -     $ -     $ 233  

 

 
13

 

  

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

 

 

On September 20, 2012, Salon completed an Asset Sale Agreement by and between the Company and The Well Group, Inc., a California corporation, as reported on the Company’s Form 8-K filed on September 25, 2012. Pursuant to this Asset Sale Agreement, the Company sold to The Well Group, Inc., for a purchase price of $400, those assets of the Company related to “The Well,” an online discussion forum, including, without limitation (i) the domain name “well.com” and all associated URLs, (ii) certain contracts and agreements with certain third parties, including member agreements and (iii) other property and materials as are required to operate the business as a going concern.

 

8.     Subsequent Events

 

From January 1, 2014 through February 14, 2014, the Company received unsecured interest-free cash advances totaling $100 from its Chairman.

 

 
14

 

 

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

 

 

This section and other parts of this Form 10-Q contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) including, but not limited to, statements regarding our strategy, plans, objectives, expectations, forecasts, intentions, financial performance, cash-flow breakeven timing, financing, economic conditions, on-line advertising, market performance, subscription service plans, and revenue sources. In this report, the words “anticipates,” “believes,” “expects,” “estimates,” “forecast,” “projection,” “future,” and similar expressions identify forward-looking statements. Although we believe our plans, intentions and expectations reflected in such forward-looking statements are reasonable, we give no assurance those plans, intentions or expectations will be achieved. Our actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of the factors set forth in this “Management's Discussion and Analysis of Financial Conditions and Results of Operations” and in “Risk Factors”. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by law, Salon assumes no obligation to update any forward-looking statements as circumstances change.

 

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 consolidated financial statements, which are included in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013 (the “Fiscal 2013 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 and social networking company and an Internet publishing pioneer. Salon’s award-winning journalism combines original investigative stories and provocative personal essays along with quick-take commentary and staff-written Weblogs about politics, technology, culture and entertainment. Committed to interactivity, the Website also hosts a social network for bloggers called Open Salon, and supports an active commenting system that allows readers to respond to content. In editorial product Salon balances two crucial missions: (1) providing original and provocative content on topics that the mainstream media overlook, and (2) filtering through the media chatter and clutter to help readers find the stories that matter.

 

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

 

Salon has a history of significant losses and expects to incur a loss from operations, based on generally accepted accounting principles, for its fiscal year ending March 31, 2014 and potentially for future years. Burr Pilger Mayer, Inc., Salon’s independent registered public accounting firm for the years ended March 31, 2013, 2012, and 2011, included a “going-concern” audit opinion on the consolidated financial statements for those years. The audit opinions report substantial doubt about Salon’s ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability. As a result of the “going-concern” opinions, Salon’s stock price and investment prospects have been and will continue to be adversely affected, thus limiting financing choices and raising concerns about the realization of value on assets and operations.

 

We continue to focus our efforts on growing revenue by expanding our product and reach. Our expansion is underpinned by a focus on editorial excellence, investigative reporting, and breaking news; innovative, custom-built advertising solutions that align with what Salon users are looking for; and site enhancements to improve the user experience across desktop, tablet and mobile.

 

 

 
15

 

 

Since January 2013, Salon has launched new editorial content verticals in Business, Technology and Sustainability, and a new content vertical focused on the theme of Innovation will launch in February 2014. Since launch, readership in Business, Technology and Sustainability content verticals has grown strongly and these sections have been instrumental in attracting an increase in advertisers on our Website.

 

Highlights from Quarter ended December 31, 2013

 

 

Net revenues rose 82% to $1.9 million in the quarter ended December 31, 2013 versus $1.0 million in the same period in the prior year, and grew 20% compared to $1.6 million in the quarter ended September 30, 2013. The increase in revenue was a result of growth in advertising revenues, driven mostly by a continued improvement in advertising sold by Salon’s internal advertising sales team.

 

 

Salon’s total advertising revenue in the quarter ended December 31, 2013 was $1.8 million, an increase of 80% compared to $1.0 million in the same period in the prior year, and a 29% increase over $1.4 million in the quarter ended September 30, 2013. Direct ad sales in the quarter ended December 31, 2013 improved substantially over the same quarter in the prior year, increasing by 175% to $1.1 million. The growth in direct advertising sales was a result of an increase in the average size of advertising campaigns run on our site, as well as the addition of several new advertising clients who had not advertised on Salon in the past. We believe the launch of new advertising units and custom-built ad integrations, such as a sponsored video display unit, slideshows, social media feeds, and sponsored content for our advertisers, has been integral to our ability to increase the size of advertising contracts and to attract new advertisers. Also, the launch of a new content vertical focused on sustainability and environmental issues has increased advertiser-friendly content on the Website.

 

 

Unique visitors to the Salon.com Website during the December 2013 quarter decreased 3% compared to the same period the prior year due to termination of a content partnership in April 2013, but increased 12% compared with the quarter ended September 30, 2013, according to data compiled by Google Analytics. Excluding the traffic from the affiliated website, unique visitors to the Salon.com website in the quarter ended December 2013 increase 43% compared to the December 2012 quarter, pointing to consistent growth in readership at the core brand. Unique visitors as measured by Comscore increased 13% compared to the quarter ended September 30, 2013, and no comparable data was available for the December quarter 2012 as the Comscore data is a new measurement that includes mobile traffic and is available only since July 2013. The difference between the two sources is that Comscore uses a panel method for counting unique visitors rather than the tagging technology used by Google.

 

 

Our traffic has continued to experience a significant shift to mobile readers, which in December 2013 accounted for 48% of our unique visitors. During the quarter ended December 2013, we had over 24 million visits on mobile devices, including tablets, which was an increase of 32% over the September 2013 quarter, and a 60% increase over the same period the prior year. During the quarter ended December 2013, a shift continued toward reading the site on mobile phones, which accounted for 74% while tablets were 26% of total mobile traffic, which compared to the December 2012 quarter when mobile phones were 68% and tablets 32% of total mobile traffic. As mobile browsers are now half of Salon’s traffic, all advertising products, including the launch of high impact mobile-optimized ad units in the December 2013 quarter, site features and backend systems are developed for mobile. Likewise, in order to support our mobile customers, we have implemented major user experience upgrades for both Android and iOS users.

 

 

Traffic growth was also fueled by social media referral traffic, which grew 18% in the December 2013 quarter versus the September 2013 quarter, and 64% compared to the December 2012 quarter. Facebook continues to be the largest social media referral, with Facebook referrals increasing 123% in the December 2013 quarter versus the December 2012 quarter, and 44% compared to the September 2013 quarter. We saw a doubling of Facebook referrals from September to December 2013, partly as a result of the increase in our mobile traffic.

 

 
16

 

 

 

We have focused on improving the quality of our comments and commenting platform and to make Salon a platform for discussion and debate. A new comments system was launched in June 2013, and a community manager and moderation team were added to drive better informed discussions within the community. In the December quarter we established a 24/7/365 moderation team, and achieved a 50% increase in comment volume, according to our comment platform provider Livefyre.

 

 

We have also continued to put significant efforts into our site development through our technology team. In the December 2013 quarter, we (i) moved to a new Content Delivery Network, improving our reliability, page response times, site responsiveness, and speed to publish; (ii) upgraded our security mechanisms; (iii) completed our move to diversified server hosting across data centers on multiple continents, greatly improving site security, stability, performance, speed and uptime; (iv) continued to improve the mobile experience, for both the mobile browser, and the native applications, by introducing higher-impact ad sizes, and features intended to boost engagement; and (v) undertook several projects as part of advertising campaigns, including the creation of custom content modules, landing pages, and high-impact site takeovers.

 

 

Sources of Revenue

 

The most significant portion of Salon’s revenues is derived from the sale of promotional space on its Website. The sale of promotional space is generally less than ninety days in duration. Advertising units sold include “rich media” streaming advertisements, “sponsored content” where an advertiser underwrites certain editorial offerings, as well as traditional banner and pop-up advertisements.

 

Salon previously derived a portion of its net revenues from its Salon Premium subscription program. This source of revenue has declined since Salon’s quarter ended December 31, 2004, when paid subscriptions peaked at approximately 89,100. As of June 2012, the costs associated with maintaining the subscription program were higher than the revenues generated, so new subscriptions and renewals were no longer accepted, and the Company’s subscription service will terminate in July 2014.

 

In June 2012, Salon refocused its strategy on its core Salon.com Website, and made the decision to restructure and eliminate certain non-core initiatives.  As a result, Salon laid-off The Well staff associated with its online discussion forum. On September 20, 2012, Salon sold The Well assets (see note 8 to the unaudited financial statements).

 

Salon also generates revenue from the licensing of content that previously appeared in Salon’s Website, from traffic referrals for third party Websites, and for hosting links to third party’s personals/dating Websites.

 

Expenses

 

Production and content expenses consist primarily of salaries and related expenses for Salon’s editorial, artistic, and production staff, online communities’ staff, payments to freelance writers and artists, bandwidth costs associated with serving pages and hosting our online communities on our Website, and ad serving costs.

 

Sales and marketing expenses consist primarily of salaries, commissions and related personnel costs, travel, and other costs associated with Salon’s sales force, and business development efforts. It also includes advertising, promotions and other marketing expenses.

 

Technology expenses consist primarily of salaries, related personnel costs and outside consultants associated with the development, testing and enhancement of the Salon.com Website and content management system, as well as supporting marketing and sales efforts.

 

 
17

 

 

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

 

Interest expense includes accrued interest on Salon’s outstanding debt.

 

In accordance with Accounting Standards Codification (ASC) 718, “Stock Compensation” (ASC 718), Salon’s 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 generally accepted accounting principles requires Salon to utilize accounting policies and make estimates and assumptions that affect our reported amounts. Salon’s significant accounting policies are described in Note 2 to the consolidated financial statements in its Fiscal 2013 Annual Report. Salon believes accounting policies and estimates related to revenue recognition and stock-based compensation are the most critical to Salon’s financial statements. Future results may differ from current estimates if different assumptions are used or different conditions were to prevail.

 

Revenue Recognition

 

Salon recognizes 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 in the period over which Salon’s obligations are fulfilled. Payments received before Salon’s obligations are fulfilled are classified as “Deferred revenues” in Salon’s consolidated balance sheet.

 

Advertising revenues, derived from the sale of promotional space on its Website, comprised 93% and 90% of Salon’s revenues, respectively, for the nine months ended December 31, 2013 and 2012. 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. Salon’s obligations typically include a guaranteed minimum number of impressions. To the extent minimum guaranteed amounts are not achieved, Salon defers recognition of the corresponding revenue until the remaining guaranteed amounts are provided, if mutually agreeable to an advertiser. If these “make good” impressions are not agreeable to an advertiser, no further revenue is recognized.

 

Salon previously offered Salon Premium, a pay-for-online content service, which provided unrestricted access to Salon’s content without banners, pop-ups or site pass advertisements, and often included free magazine subscriptions and other giveaways, as well as the ability to easily download content in text or PDF format, a convenience that enabled readers to view Salon’s content when not connected to the Internet. Premium offerings were broadened in October 2011, in an attempt to increase subscribers. The subscription duration for Salon Premium was generally one year. As a result of the continued decline in subscribers, as of June 2012, new subscriptions and renewals were no longer accepted and the Company’s subscription service will terminate in July 2014.

 

Salon previously offered The Well as a monthly subscription service for access to online discussion forums until September 2012. Revenue was recognized ratably over the subscription period. The Well's declining subscriber base and aging technology led to a decision in June 2012 to restructure the service. As a result, The Well staff were laid off and current subscriptions were honored but not renewed upon expiration. On September 20, 2012, Salon sold The Well assets.

 

 
18

 

 

Accounting for Stock-Based Compensation

 

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

 

Salon recognized stock-based compensation expense of $90,000 and $146,000 during the nine months ended December 31, 2013 and 2012, respectively. As of December 31, 2013, Salon had an aggregate of $283,000 of stock compensation remaining to be amortized to expense over the remaining requisite service period of the underlying awards. Salon currently expects this stock compensation balance to be amortized as follows: $38,000 during the remainder of fiscal 2014; $150,000 during fiscal 2015; $80,000 during fiscal 2016 and $15,000 during fiscal 2017. The expected amortization reflects only outstanding stock option awards as of December 31, 2013 expected to vest. Salon expects to continue issuing stock-based awards to its employees in future periods.

 

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

 

Results of Operations for the Three and Nine Months Ended December 31, 2013 Compared to the Three and Nine Months Ended December 31, 2012

 

Net revenue

 

Net revenue increased 82% to $1.9 million for the three months ended December 31, 2013 from $1.0 million for the three months ended December 31, 2012. Net revenue increased 70% to $4.6 million for the nine months ended December 31, 2013 from $2.7 million for the nine months ended December 31, 2012.

 

Advertising revenues increased 80% to $1.8 million for the three months ended December 31, 2013 from $1.0 million for the three months ended December 31, 2012. The increase in the current period stemmed primarily from a substantial increase in ads sold by Salon internal advertising team, which increased 175% to $1.1 million for the three months ended December 31, 2013 from$0.4 million for the three months ended December 31, 2012 Direct ad sales captured approximately 61% and 40% of total advertising revenue for the three months ended December 31, 2013 and 2012, respectively.

  

Advertising revenues increased 72% to $4.3 million for the nine months ended December 31, 2013 from $2.5 million for the nine months ended December 31, 2012. The increase in the current period stemmed primarily from a substantial increase in ads sold by Salon internal advertising sales team, which increased 86% to $2.6 million for the nine months ended December 31, 2013 from $1.4 million for the nine months ended December 31, 2012. Direct ad sales captured approximately 60% of total advertising revenue, compared to 56% during the same nine month period a year ago.

 

The number of average monthly unique Website visitors for the three months ended December 31, 2013 decreased approximately 3% to 11.5 million from 11.8 million for the same period last year, as the result of a termination of a content partnership in April 2013. The number of average monthly unique Website visitors for the nine months ended December 31, 2013 increased approximately 13% to 10.7 million from 9.5 million for the same period last year. Excluding the traffic from the affiliated website, unique visitors to the Salon.com website in the quarter ended December 2013 increase 43% compared to the December 2012 quarter, pointing to consistent growth in readership at the core brand. These increases are largely attributable to the Company’s efforts to expand and enrich its original editorial content. Salon’s ability to increase the number of monthly unique Website visitors is a significant factor in Salon’s strategy to attract additional advertisers on the Website. Increasing the number of unique Website visitors is critical to Salon, as they facilitate the generation of ad impressions sold to advertisers.

 

 
19

 

 

Salon Premium subscription revenues were immaterial for the three months ended December 31, 2013 and decreased approximately 90% to $0.02 million for the nine months ended December 31, 2013 from $0.2 million for the same period last year. The decreases were directly attributable to a continued decline in subscribers as the Company no longer accepted new subscriptions and renewals as of June 2012, and the Company’s subscription service will terminate in July 2014.

 

Revenues from all other sources grew from an immaterial amount for each of the three and nine month periods ended December 31, 2012 to $0.1 million and $0.3 million, respectively, for the same periods ended December 31, 2013. The increases were attributable to increases in referral fees revenue.

 

 

Expenses

 

Production and content

 

Production and content expenses increased 6% to $0.9 million for the three months ended December 31, 2013 from $0.8 million for the three months ended December 31, 2012. The $0.1 million increase primarily resulted from costs of new ad serving services and site enhancements partially offset by savings associated with the discontinuation of Salon Studio video production in May 2012. Production and content expenses remained essentially flat at $2.6 million for the nine months ended December 31, 2013 from a year ago.

 

Sales and marketing

 

Sales and marketing expenses increased 36% to $0.5 million for the three months ended December 31, 2013 from $0.3 million for the three months ended December 31, 2012. The $0.1 million increase was mainly attributable to earned commissions from increased sales. Sales and marketing expenses were $1.4 million for the nine months ended December 31, 2013, compared to $1.2 million for the nine months ended December 31, 2012.  The $0.2 million or 20% increase was primarily attributable to earned commissions from increased sales.

 

Technology

 

Technology expenses remained relatively flat at $0.4 million for the three months ended December 31, 2013 from the prior year period. Technology expenses increased 17% from the prior year period to $1.1 million for the nine months ended December 31, 2013, compared to $1.0 million for the nine months ended December 31, 2012.  The $0.2 million increase was attributable to increased headcount from the prior year period.

 

General and administrative

 

General and administrative expenses increased 76% to $0.4 million for the three months ended December 31, 2013 from $0.2 million in the prior year period. The $0.2 million increase primarily resulted from higher stock compensation costs and consultant fees, partially offset by savings from headquarter lease costs. General and administrative expenses for the nine months ended December 31, 2013 increased 12% to $1.0 million from $0.9 million a year ago.

 

Separation expenses

 

Salon did not incur any separation expenses for the three and nine months ended December 31, 2013 and for the three months ended December 31, 2012. Separation expenses were $0.2 million for the nine months ended December 31, 2012, which consisted of one-time charges of approximately $0.2 million related primarily to the resignations of Salon’s former Chief Executive Officer and former Chief Financial Officer, including $0.07 million in non-cash stock-based compensation from the accelerated vesting of options.

 

 
20

 

 

Interest expense

 

Interest expense for the three months ended December 31, 2013 was immaterial, compared to $0.07 million for the three months ended December 31, 2012. Interest expense for the nine months ended December 31, 2013 decreased 86% to $0.03 million, compared to $0.2 million for the nine months ended December 31, 2012. These decreases were primarily attributable to less interest on convertible notes, which were converted into shares of Common Stock in the Company’s Recapitalization.

 

Liquidity and capital resources

 

Net cash used in operations was approximately $2.2 million for the nine months ended December 31, 2013. The principal uses of cash during the nine months ended December 31, 2013 were to fund the $1.5 million net loss for the period and $1.1 million increase in accounts receivable, partially offset by various working capital and immaterial non-cash items. The accounts receivable, net as of December 31, 2013 of $1.8 million, representing primarily advertising sales during the period, are expected to be collected within the next four months. Net cash used in investing activities was immaterial during each of the nine month periods ended December 31, 2013 and 2012.

 

Net cash provided by financing activities was $2.4 million for the nine months ended December 30, 2013 and $3.4 million for the nine months ended December 31, 2012. Net cash for both periods primarily reflects cash advances from related parties.

 

The Company’s operating forecast for the remainder of the fiscal year ending March 31, 2014 anticipates continued but reduced operating losses. Salon estimates it will require approximately $0.4 million in additional funding to meet its operating needs for the balance of its fiscal year. 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, Salon has relied on funding from related parties. In this fiscal year through February 14, 2014, Salon’s chairman has provided $2,511 in cash advances and at February 14, 2014, total advances made by related party was $2,691. Salon remains dependent upon its two largest stockholders for continued financial support while it seeks external financing from potential investors in the form of additional indebtedness or through the sale of equity securities in a private placement. The Company is working with its advisors in its efforts to obtain such funding, and explore strategic alternatives. However, Salon does not currently have an agreement in place to provide any financing, and there is no certainty that Salon will be able to enter into definitive agreements for additional financings or other strategic alternatives on commercially reasonable terms, if at all.

 

Off-Balance-Sheet Arrangements

 

Salon has no off-balance-sheet arrangements.

 

Contractual Obligations

 

The following summarizes Salon’s contractual obligations as of December 31, 2013:

 

   

Payments Due By Period

 
   

Total

   

1 Year or

Less

   

1 - 3 Years

   

3 - 5 Years

   

More than 5

Years

 

Operating leases

  $ 258     $ 176     $ 82     $ -     $ -  

Short-term borrowing

    1,000       1,000       -       -       -  

Interest on short-term borrowing

    247       247       -       -       -  

Related party advances

    2,591       2,591       -       -       -  

Total

  $ 4,096     $ 4,104     $ 82     $ -     $ -  

 

 
21

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Salon maintains all of its cash in immediately available cash deposits at its bank. These funds are not subject to market risk and no interest is paid on such funds. In May 2007, Salon entered into a credit agreement with Deutsche Bank Securities, Inc. that allows Salon to borrow up to $1.0 million at a rate of prime less 0.25% which subjects Salon to interest rate risk. Salon feels that the risk of a rate change is not material as Salon contemplates having a maximum of only $1.0 million of variable rate debt outstanding during its fiscal year ending March 31, 2014. As of December 31, 2013, Salon had $1.0 million plus accrued interest outstanding under this agreement, payable on demand. As Salon conducts all of its business in the United States, Salon is 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 Interim 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 quarterly Form 10-Q report (December 31, 2013), 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 Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Interim 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 Interim Chief Financial Officer concluded that, as of the end of the period covered by this quarterly Form 10-Q report, 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 Quarterly Report on 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.

 

Not applicable.

 

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 2013 Annual Report.

 

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

 

Salon has a history of significant losses and expects to incur a loss from operations, based on generally accepted accounting principles, for its fiscal year ending March 31, 2014 and potentially in future years. Even if Salon attains profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis. If revenues grow more slowly than Salon anticipates or operating expenses exceed expectations, financial results will most likely be severely harmed and the ability of Salon to continue its operations will be seriously jeopardized.

 

Burr Pilger Mayer, Inc., Salon’s independent registered public accounting firm for the years ended March 31, 2013, 2012, 2011 and 2010, included a “going-concern” audit opinion on the consolidated financial statements for those years. The audit opinions report substantial doubt about Salon’s ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability. As a result of the “going-concern” opinions, Salon’s stock price and investment prospects have been and will continue to be adversely affected, thus limiting financing choices and raising concerns about the realization of value on assets and operations.

 

Salon’s projected cash flows may not meet expectations

 

Salon relies on cash projections to run its business and changes such projections as new information is made available or events occur. The most significant component of Salon’s cash projections is cash to be generated from advertising sales. 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, Salon’s ability to continue as a going concern may be adversely affected.

 

If Salon forecasts or experiences periods of limited, or diminishing cash resources, Salon may need to sell additional securities or borrow additional funds. There is no guarantee that Salon will be able to issue additional securities in future periods or borrow additional funds on commercially reasonable terms to meet its cash needs. Salon’s ability to continue as a going concern will be adversely affected if it is unable to raise additional cash from sources it has relied upon in the past or new sources.

 

Salon has relied on related parties for significant investment capital

 

Salon has relied on cash infusions from related parties to fund operations for many years. The related parties are primarily John Warnock, Chairman of the Board of Salon, and William Hambrecht. William Hambrecht is a Director and the father of Salon’s former CEO and current Interim Chief Financial Officer, Elizabeth Hambrecht. During the current fiscal year, through February 14, 2014, the Company’s Chairman has made approximately $2.5 million in cash advances to fund Salon’s operations.

 

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

 

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

 

Approximately 58% of Salon’s voting securities is controlled, directly or indirectly by our Chairman, John Warnock, and approximately 22% is controlled directly or indirectly by William Hambrecht, a Director and the father of our Interim Chief Financial Officer. The Company remains dependent upon Mr. Warnock and Mr. Hambrecht for continued financial support while it seeks external financing from potential investors in the form of additional indebtedness or through the sale of equity securities in a private placement. While all outstanding unsecured interest-free cash advances from Mr. Warnock and Mr. Hambrecht at February 28, 2013 were exchanged for Common Stock in the Company’s Recapitalization (described elsewhere in this Form 10-Q), Mr. Warnock has continued to make unsecured interest-free cash advances to the Company for operating expenses, which advances are payable on demand, and are exchangeable into securities on the same terms as those to be issued in the next financing raised by the Company from non-related parties.

 

Salon depends on advertising sales for almost all of its revenues, and its inability to maintain or increase advertising revenues could harm its business

 

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

 

 

attract additional Website visitors and increase brand awareness;

 

 

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

 

 

sell and market its 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 the advertising orders it receives;

 

 

improve the technology for serving advertising on its Website;

 

 

handle temporary high volume traffic spikes to its Website;

 

 

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

 

 

attract and retain key sales personnel.

 

The Salon.com Website has significant competition for advertising, which may adversely affect our advertising revenues.

 

The Salon.com Website faces substantial competition for advertising revenues from numerous other Websites, most of which are larger and more well known, including major portals such as Yahoo and AOL, major search engines such as Google and Bing, major social networks such as Facebook, Twitter and LinkedIn, and major online media publications such as CNN.com, MSNBC, The Huffington Post, The New York Times, and The Washington Post. Salon also competes with many smaller news and politics–oriented Websites for staff, audience and ad sales. Competition from these Websites affects our ability to attract and retain advertisers and visitors and could adversely affect our advertising revenues.

 

 
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The controversial content of Salon’s Website may limit its revenues

 

Salon’s Website contains, and will continue to contain, content that is politically and culturally controversial. As a result of this content, current and potential advertisers, or third parties who contemplate aggregating content, may refuse to do business with Salon. Salon’s outspoken stance on political issues has and may continue to result in negative reactions from some users, commentators and other media outlets. From time to time, certain advocacy groups have successfully targeted Salon’s advertisers in an attempt to persuade such advertisers to cease doing business with Salon. These efforts may be a material impediment to Salon’s ability to grow and maintain advertising revenue.

 

Salon must promote the Salon brand to attract and retain users as well as advertisers and strategic partners

 

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

 

Salon relies on significant referral traffic from social media Websites such as Google and Facebook, and if that traffic drops our business could be harmed, causing its revenue to decline

 

The growth in traffic from social media Websites such as Facebook and Google has increased Salon’s dependence on these traffic sources. Salon currently deploys its own technology to optimize Search Engine traffic, and promote links from social media sites such as Facebook. Salon will need to continue to invest and innovate to improve its users’ experience to attract, retain and expand its user base. If Salon is unable to continue to attract traffic from these social media Websites, its business could be harmed, causing revenue to decline.

 

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

 

Consumer and supplier confidence in Salon’s Website depends on maintaining relevant security features. Security breaches also could damage its reputation and expose it to a risk of loss or litigation. Experienced programmers or “hackers” have penetrated sectors of our systems and Salon expects that these attempts will continue to occur from time to time. To our knowledge, there has been no outward harm to Salon as a result of hacking attempts. Because a hacker who is able to penetrate network security could misappropriate proprietary information or cause interruptions in our products and services, Salon may have to expend significant capital and resources to protect against or to alleviate problems caused by hackers. Additionally, Salon may not have a timely remedy against a hacker who is able to penetrate its network security. In addition, the transmission of computer viruses resulting from hackers or otherwise could expose it to significant liability. Salon’s insurance policies may not be adequate to reimburse us for losses caused by security breaches. Salon also faces risks associated with security breaches affecting third parties with whom it has relationships.

 

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

 

Salon is constantly upgrading its technology to manage its Website and during the last year redesigned its Website homepage and vertical sections. In addition, it is creating iteratively built technology for new products that Salon launches on an on-going basis. If these systems do not work as intended, or if Salon is unable to continue to develop these systems to keep up with the rapid evolution of technology for content delivery, its Website may not operate properly, which could harm Salon’s business. Additionally, software product design, development and enhancement involve creativity, expense and the use of new development tools and learning processes. Delays in software development processes are common, as are project failures, and either factor could harm Salon’s business. Moreover, complex software products such as its online publishing frequently contain undetected errors or shortcomings, and may fail to perform or scale as expected. Although Salon has tested and will continue to test its systems, errors or deficiencies may be found in these systems that may adversely impact its business.

 

Salon may be required to expend significant resources to protect its intellectual property rights or to defend claims of infringement by third parties, and if Salon is not successful it may lose rights to use significant material or be required to pay significant fees

 

Salon’s success and ability to compete are significantly dependent on its proprietary content. Salon relies exclusively on copyright law to protect its content. While Salon actively takes steps to protect its proprietary rights, these steps may not be adequate to prevent the infringement or misappropriation of its content, which could severely harm its business. Salon also licenses content from various freelance providers and other third-party content providers. While Salon attempts to ensure that such content may be freely licensed to it, other parties may assert claims of infringement against it relating to such content.

 

Salon may need to obtain licenses from others to refine, develop, market and deliver new services. Salon may not be able to obtain any such licenses on commercially reasonable terms or at all or rights granted pursuant to any licenses may not be valid and enforceable.

 

In April 1995, Salon acquired the Internet address www.salon.com. Because www.salon.com is the address of the main home page to its Website and incorporates Salon’s name, it is a vital part of its intellectual property assets. Salon does not have a registered trademark on the address, and therefore it may be difficult for it to prevent a third party from infringing on its intellectual property rights to the address. If Salon fails to adequately protect its rights to the Website address, or if a third party infringes its rights to the address, or otherwise dilutes the value of www.salon.com, its business could be harmed.

 

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

 

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

 

 
26

 

 

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. Furthermore, Salon’s Website “salon.com” and content management system run on cloud computing hosted by Amazon Web Services. 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 model 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.

 

Salon’s systems may fail due to natural disasters, telecommunications failures and other events over which Salon has no control, any of which would limit user traffic and adversely affect Salon’s revenues and business

 

Salon’s Website “salon.com” and content management system run on cloud computing hosted by Amazon Web Services. While Salon has sought to diversify essential infrastructure in physically widely distributed data centers on multiple continents, any disruption of Amazon’s cloud computing platform could result in a service outage. While Salon’s Open Salon Website “open.salon.com” and content management system is located in a facility in Sacramento, California that has been extensively retrofitted to withstand a major earthquake, there is no assurance that such retrofitting will be sufficient. Fire, floods, earthquakes, power loss, telecommunications failures, break-ins, supplier failure to meet commitments, and similar events could damage these systems and cause interruptions in its services. Computer viruses, electronic break-ins or other similar disruptive problems could cause users to stop visiting Salon’s Website and could cause advertisers to terminate any agreements with Salon. In addition, Salon could lose advertising revenues during these interruptions and user satisfaction could be negatively impacted if the service is slow or unavailable. If any of these circumstances occurred, Salon’s business could be harmed. Salon’s insurance policies may not adequately compensate it for losses that may occur due to any failures of or interruptions in its systems. Salon does not presently have a formal disaster recovery plan.

 

Salon’s Website must accommodate a high volume of traffic and deliver frequently updated information. In addition, its users depend on Internet service providers, online service providers and other Website operators for access to its Website. Many of these providers and operators have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to its systems. Any of these system failures if large enough could also indirectly harm Salon’s business.

 

Privacy concerns could impair Salon’s business

 

Salon has a policy against using personally identifiable information obtained from users of its Website and services without the user’s permission. In the past, the Federal Trade Commission (“FTC”) has investigated companies that have used personally identifiable information in violation of a stated privacy policy claiming that such use is a deceptive trade practice in violation of Section 5 of the Federal Trade Commission Act (the "FTC Act"). If Salon uses personal information in violation of its policy, Salon may face potential liability for violating Section 5 of the FTC Act. In addition, other legislative or regulatory requirements may heighten these privacy-related concerns. Other jurisdictions, such as the European Union, have adopted legislation or regulatory requirements mandating that businesses notify Internet users where data are collected via cookies and the purpose of such collection, including where data may be used to direct product advertising to the user. In the United States, the FTC has proposed a privacy framework that includes the concepts of giving consumers notice and meaningful choice for online behavioral advertising. While the framework is non-binding, the FTC has enforced its principles using its Section 5 authority. If consumer privacy concerns are not adequately addressed, Salon's business, financial condition and results of operations could be materially harmed.

 

 
27

 

 

Our success depends on hiring and retaining qualified editorial and senior management personnel, and the loss of key personnel, including our Chief Executive Officer, could disrupt our business

 

Our success greatly depends on the continuing contributions of our senior management and other key sales, marketing and operations personnel. In addition, because Salon’s users must perceive the content of Salon’s Website as having been created by credible and notable sources, Salon’s success also depends on the name recognition and reputation of its editorial staff. Due to Salon’s history of losses, Salon may experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Furthermore, 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 retain existing personnel or identify, hire and integrate new personnel. We do not have key person insurance policies in place for these employees.

 

Salon’s Preferred Stockholders are entitled to potentially significant liquidation preferences of Salon’s assets over Common Stockholders in the event of a liquidation event

 

Salon’s Series C Preferred Stockholders have liquidation preferences over Common Stockholders of the first approximately $10 million in potential sales proceeds as of December 31, 2013, which includes the effect of undeclared dividends, if granted, of about $8 million. If a liquidation event were to occur, and Preferred Stock dividends were declared, the holders of Preferred Stock would be entitled to the first $10 million of cash distributions. If a liquidation event were to occur in excess of $10 million and if Preferred Stock dividends were to be declared, the holders of Preferred Stock would be entitled to receive a relatively larger distribution than the holders of Common Stock would be entitled to receive.

 

Salon’s quarterly operating results are volatile and may adversely affect its Common Stock price

 

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

 

 

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

 

 

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

 

 

Salon’s ability to increase referrals from our social media presence;

 

 

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

 

 

the timing and uncertainty of Salon’s advertising sales cycles;

 

 

the mix of advertisements sold by Salon or its competitors;

 

 

general economic and business cycles;

 

 

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

 

 

technical difficulties or system downtime affecting the Internet generally or the operation of Salon’s Website; and

 

 

the amount and timing of operating costs.

 

 
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Due to the factors noted above and the other risks discussed in this section and throughout this Form 10-Q, one should not rely on quarter-to-quarter comparisons of Salon’s results of operations as an indication of future performance. It is possible that some future periods’ results of operations may be below the expectations of public market analysts and investors. If this occurs, the price of its Common Stock may decline.

 

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

 

Salon is subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent Delaware corporations from engaging in a merger or sale of more than 10% of its assets with any stockholder, including all affiliates and associates of the stockholder, who owns 15% or more of the corporation’s outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation’s assets unless:

 

 

the Board of Directors approved the transaction in which the stockholder acquired 15% or more of the corporation’s assets;

 

 

after the transaction in which the stockholder acquired 15% or more of the corporation’s assets, the stockholder owned at least 85% of the corporation’s outstanding voting stock, excluding shares owned by directors, officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

 

 

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

 

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

 

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

 

 

Salon’s Board is classified into three classes of directors as nearly equal in size as possible with staggered three year-terms, although Salon is proposing to declassify its Board at its annual meeting to be held on March 13, 2014; and

 

 

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

 

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

 

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

 

In addition, employment agreements with certain executive officers provide for the payment of severance and acceleration of the vesting of options and restricted stock in the event of termination of the executive officer following a change of control of Salon. These provisions could have the effect of discouraging potential takeover attempts.

 

 
29

 

 

Salon’s stock has been and will likely continue to be subjected to substantial price and volume fluctuations due to a number of factors, many of which will be beyond its control and may prevent its stockholders from reselling Common Stock at a profit

 

Salon’s stock is thinly traded and operating results could be below the expectations of public market analysts and investors, and in response, the market price of its Common Stock could decrease significantly. In addition, the securities markets have experienced significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, have and may continue to reduce the market price of its Common Stock, regardless of its operating performance.

 

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

 

As Salon’s Common Stock is normally thinly traded, if Salon’s principal stockholders were to sell their shares of Common Stock, the per share price of Salon’s Common Stock could be adversely affected. Our directors and officers own approximately 66 million shares of Salon Common Stock.

 

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

 

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

 

 

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

 

Not applicable.

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Not applicable.

 

Item 6. Exhibits

 

(a)     Exhibits.

 

31.1

Certification of Cynthia Jeffers, 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, Interim Chief Financial Officer of the Registrant pursuant to Section 302, as adopted pursuant to the Sarbanes-Oxley Act of 2002

 

 
30

 

 

32.1

Certification of Cynthia Jeffers, 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, Interim 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 

 

 
31

 

 

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, 2014  

/s/ Cynthia Jeffers

 

 

 

Cynthia Jeffers

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

  

 

Dated: February 14, 2014

/s/ Elizabeth Hambrecht

 

 

 

Elizabeth Hambrecht

 

 

 

Interim Chief Financial Officer

 

   

 

 

 

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