10-Q

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 June 30, 2014

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) 275-3911

(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 August 1, 2014 was 76,245,442 shares.

FORM 10-Q

SALON MEDIA GROUP, INC.

INDEX

PART I	FINANCIAL INFORMATION	Page  Number
ITEM 1:	Condensed Consolidated Financial Statements
	CondensedConsolidated Balance Sheets as of June 30, 2014 (unaudited) and March31, 2014	3
	Condensed Consolidated Statements of Operations for the three months ended ended June 30, 2014 and 2013 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2014 and 2013 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
ITEM 3:	Quantitative and Qualitative Disclosures About Market Risk	19
ITEM 4:	Controls and Procedures	19
PART II	OTHER INFORMATION
ITEM 1:	Legal Proceedings	20
ITEM 1A:	Risk Factors	20
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
ITEM 3.	Defaults upon Senior Securities	26
ITEM 4.	Mine Safety and Disclosures	27
ITEM 5.	Other Information	27
ITEM 6:	Exhibits	27
	Signatures	28

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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)

	June 30,			March 31,
	2014			2014 (1)
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	139		$	119
Accounts receivable, net of allowance of $60		1,264			1,475
Prepaid expenses and other current assets		183			289
Total current assets		1,586			1,883
Property and equipment, net		47			54
Other assets, principally deposits		301			96
Total assets	$	1,934		$	2,033
Liabilities and Stockholders' Deficit
Current liabilities:
Short-term borrowings	$	1,000		$	1,000
Related party advances		3,651			2,791
Accounts payable and accrued liabilities		1,079			1,210
Deferred revenues		12			-
Total current liabilities		5,742			5,001
Deferred rent		2			2
Total liabilities		5,744			5,003
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 as of June 30, 2014 and March 31, 2014 (liquidation value of $2,443 as of June 30, 2014 and $2,426 as of March 31, 2014)		-			-
Common stock, $0.001 par value, 150,000,000 shares authorized, 76,245,442 shares issued and outstanding as of June 30, 2014 and March 31, 2014		76			76
Additional paid-in capital		115,651			115,605
Accumulated deficit		(119,537	)		(118,651	)
Total stockholders' deficit		(3,810	)		(2,970	)
Total liabilities and stockholders' deficit	$	1,934		$	2,033

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

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

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SALON MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended
	June 30,
	2014			2013
Net revenues	$	1,243		$	1,197
Operating expenses:
Production and content		938			810
Sales and marketing		406			415
Information technology support		398			380
General and administrative		377			271
Total operating expenses		2,119			1,876
Loss from operations		(876	)		(679	)
Interest expense		(10	)		(9	)
Net loss	$	(886	)	$	(688	)
Basic and diluted net loss per share	$	(0.01	)	$	(0.01	)
Weighted-average shares of Common Stock used in computing basic and diluted net loss per share		76,245			66,943

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

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SALON MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three Months Ended
	June 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(886	)	$	(688	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense and change in allowance for doubtful accounts		-			9
Depreciation		8			10
Stock-based compensation		46			8
Changes in assets and liabilities:
Accounts receivable		211			(346	)
Prepaid expenses and other assets		(99	)		130
Accounts payable, accrued liabilities and deferred rent		(131	)		(36	)
Deferred revenues		12			(8	)
Net cash used in operating activities		(839	)		(921	)
Cash flows from investing activities:
Purchase of property and equipment		(1	)		(5	)
Net cash used in investing activities		(1	)		(5	)
Cash flows from financing activities:
Proceeds from related party advances		860			851
Net cash provided by financing activities		860			851
Net increase (decrease) in cash and cash equivalents		20			(75	)
Cash and cash equivalents at beginning of period		119			96
Cash and cash equivalents at end of period	$	139		$	21
Supplemental schedule of non-cash financing activity:
Conversion of preferred stock, unsecured advances and payables into common shares	$	-		$	9,129

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

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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, 2014, which are included in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014 filed with the Securities and Exchange Commission on June 27, 2014. 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 three month period ended June 30, 2014 are not necessarily indicative of the expected results for any other interim period or for the fiscal year ending March 31, 2015.

These condensed consolidated financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred losses and negative cash flows from operations since inception and had an accumulated deficit as of June 30, 2014 of $119,537. In addition, we expect to incur a net loss from operations for the fiscal year ending March 31, 2015. Burr Pilger Mayer, Inc., Salon’s independent registered public accounting firm for the years ended March 31, 2014, 2013, and 2012, included a “going-concern” audit opinion on the consolidated financial statements for those years.  The audit opinions report substantial doubt about our ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability.  As a result of the “going-concern” opinions, our stock price and investment prospects have been and will continue to be adversely affected, thus limiting financing choices and raising concerns about the realization of value on assets and operations.

Our operating forecast for the remainder of the fiscal year ending March 31, 2015 anticipates continued but reduced operating losses. We estimate we will require approximately $600 - $1,100 in additional funding to meet our operating needs for the balance of our 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, we have relied on funding from related parties. Through August 14, 2014, our Chairman has provided an aggregate of $3,901 in cash advances since March 1, 2013. We remain dependent upon our two largest stockholders for continued financial support while we seek external financing from potential investors in the form of additional indebtedness or through the sale of equity securities in a private placement. We are working with our advisors in our efforts to obtain such funding, and explore strategic alternatives. However, we do not currently have an agreement in place to provide any financing, and there is no certainty that we 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.

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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.  We perform ongoing credit evaluations of our customers, but do not require collateral.  We provide an allowance for credit losses that we periodically adjust to reflect our management’s expectation of future losses.

One customer accounted for approximately 15% of net revenues for the three months ended June 30, 2014 and one customer accounted for approximately 10% of net revenues for the three months ended June 30, 2013.One customer accounted for approximately 11% of total accounts receivable as of June 30, 2014 and no customers accounted for more than 10% of total accounts receivable as of June 30, 2013.

Stock-Based Compensation

We account for stock-based compensation using the fair value method of accounting. The estimated fair value of the stock options granted is amortized on a straight-line basis over the vesting period of the stock.

Stock options totaling 29,850 were granted during the quarter ended June 30, 2014. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Three months ended June 30,
	2014			2013
Risk-free interest rates		1.25	%		-
Expected term (in years)		4			-
Expected volatility		425	%		-
Dividend yield		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. We have not paid dividends in the past.

As of June 30, 2014, the aggregate stock compensation remaining to be amortized to expense was $232. Salon expects this stock compensation balance to be amortized as follows: $119 during the remainder of fiscal 2015; $89 during fiscal 2016; $20 during fiscal 2017 and $4 during fiscal 2018. The expected amortization reflects outstanding stock option awards as of June 30, 2014 expected to vest.

There were no stock options granted during the quarter ended June 30, 2013.

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.

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SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

2.         Borrowing Agreements

Short-term Borrowings

In May 2007, we finalized a borrowing agreement with Deutsche Bank Securities, Inc. that allows us to borrow up to $1,000 at a rate of prime less 0.25%. Our obligations under this agreement are guaranteed in their entirety by our Chairman. The line of credit has been fully drawn as of June 30, 2014. Deutsche Bank Securities may demand repayment of amounts borrowed at any time. Additionally, our Chairman may also choose to terminate his guarantee, which would trigger a demand for repayment. As of June 30, 2014, accrued interest on short-term borrowings totaled approximately $265.

As of June 30, 2014 and 2013, the weighted-average interest rate on the Company’s short-term borrowings was 3.6% and 3.7%, respectively.

Related Party Advances

During the three months ended June 30, 2014 and 2013, we received unsecured, interest-free cash advances totaling $860 and $851, respectively, to fund operations from our 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.

3. Stock Option Plans

We have two equity incentive plans, the Salon Media Group, Inc. 2004 Stock Plan and the Salon Media Group, Inc. 2014 Stock Incentive Plan, as described in Note 7, “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, 2014.

The following table summarizes activity under the Salon Media Group, Inc. 2004 Stock Plan for the three months ended June 30, 2014:

				Weighted-
	Outstanding			Average		Aggregate
	Stock			Exercise		Intrinsic
	Options			Price		Value
Balance as of March 31, 2014		6,008,000		$	0.13
Options granted under all plans		30,000		$	0.25
Exercised		-			-
Expired and forfeited		(20,000	)	$	0.15
Outstanding as of June 30, 2014		6,018,000		$	0.13	$	331,000
Vested as of June 30, 2014		3,574,000		$	0.14	$	209,000
Vested and expected to vest		5,025,000		$	0.13	$	286,000

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SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

Options totaling 29,850 shares were awarded during the three months ended June 30, 2014. There were no options awarded during the three months ended June 30, 2013. The weighted-average fair value of options vested during each of the three month periods ended June 30, 2014 and 2013 was $0.09 per share and $0.05 per share, respectively. There were no option exercises during the three months ended June 30, 2014.

Our Board of Directors also approved a resolution on June 12, 2014 to amend the Salon Media Group, Inc. 2014 Stock Incentive Plan (the 2014 Plan) to comply with the California Code of Regulations and Internal Revenue Service regulations. As of June 30, 2014, no stock options have been awarded under the 2014 Plan.

We recognized stock-based compensation expense of $46 and $8 during the three months ended June 30, 2014 and 2013, respectively.

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
	June 30,
	2014			2013
Numerator:
Net loss attributable to common stockholders	$	(886	)	$	(688	)
Denominator:
Weighted average shares used in computing basic and diluted net loss per share attributable to common stockholders		76,245,000			66,943,000
Basic and diluted net loss per share attributable to common stockholders	$	(0.01	)	$	(0.01	)
Antidilutive securities including options, warrants and convertible notes and preferred stock not included in net loss per share calculation		7,115,000			4,607,000

9

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

5.         Commitments and Contingencies

On October 17, 2012, we signed a new office lease agreement to relocate our 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 April 16, 2014, we entered into an office lease for our new corporate offices at 132 West 31^st Street, New York, New York consisting of 6,523 square feet in rentable space. The lease commenced on July 1, 2014 and will expire on September 30, 2019. Upon execution of the lease, a deposit in the form of a letter of credit of $204 was required. The term of the lease is five years with an effective base monthly rent expense of approximately $26, and a base year of 2014 to be utilized in allocating future excess direct expenses.

The following summarizes our office lease commitments and short-term borrowings as of June 30, 2014:

	Payments Due By Period
	Total		1 Year or Less		1 - 3 Years		3 - 5 Years		More Than 5 Years
Operating leases	$	1,747	$	327	$	671	$	663	$	86
Short-term borrowing		1,000		1,000		-		-		-
Interest on short-term borrowing		265		265		-		-		-
Related party advances		3,651		3,651		-		-		-
Total	$	6,663	$	5,243	$	671	$	663	$	86

6.         Preferred Stock

The conversion rate and common equivalent shares of our Preferred Stock as of June 30, 2014 are as follows:

			Per share				Common
	Shares		Purchase		Conversion		Equivalent
Preferred Stock	Outstanding		Price		Rate		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.

10

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

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 June 30, 2014, no dividend has been declared to the holders of Preferred Stock.

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 June 30, 2014 were $1,720 excluding the effect of undeclared dividends, and $2,443 including the effect of undeclared dividends. We have never declared a dividend and do 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.        Subsequent Events

From July 1, 2014 through August 14, 2014, we received unsecured interest-free cash advances totaling $250 from our Chairman.

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SALON MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

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

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, 2014 (the “Fiscal 2014 Annual Report”) filed with the Securities and Exchange Commission.

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that involve risks and uncertainties, including but not limited to statements regarding our strategy, plans, objectives, expectations, intentions, financial performance, cash-flow breakeven timing, financing, economic conditions, Internet advertising market performance, subscription service plans, non-web opportunities and revenue sources.  In this report, the words “anticipates,” “believes,” “expects,” “estimates,” “intends,” “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 can give no assurance that such 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 below 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. We assume no obligation to update any forward-looking statements as circumstances change, except as required by law.

Overview

We are an online news pioneer offering a fresh and progressive voice in the continually growing Internet landscape. Our award-winning journalism combines original investigative stories and provocative personal essays along with quick-take commentary and staff-written articles about politics, technology, culture and entertainment. We are committed to interactivity, and our Website hosts a social network for bloggers called Open Salon, and supports an active commenting system that allows readers to respond to content. Our editorial product seeks to balance 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.

We focus on excellence in our core editorial product so we can attract a highly attractive and affluent audience. Our readership consists of a global community that is demanding and engaged. According to ComScore and Nielsen’s Online @Plan media profiling, our readers are on average 36 years old, highly affluent (with an average income of $96,000) and well educated (85% college educated). They are considered influencers in public policy, culture, art, technology and fashion. We believe our user profile makes our Website a valuable media property for advertisers and retailers that are allocating marketing resources to target consumers online.

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We have a history of significant losses and expect to incur a loss from operations, based on generally accepted accounting principles, for our fiscal year ending March 31, 2015 and potentially for future years. Burr Pilger Mayer, Inc., Salon’s independent registered public accounting firm for the years ended March 31, 2014, 2013, and 2012, included a “going-concern” audit opinion on the consolidated financial statements for those years. The audit opinions report substantial doubt about our ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability. As a result of the “going-concern” opinions, our stock price and investment prospects have been and will continue to be adversely affected, thus limiting financing choices and raising concerns about the realization of value on assets and operations.

In May 2012, we adopted a strategy that has led to the most significant period of user growth in our history. In June 2014, we reached our all-time high of 17.6 million unique users as measured by Google Analytics. Our strategy focuses on growing our user base, which in turn increases our attractiveness to advertisers, leading to growth in revenue. Our strategy is predicated on the following core principals: (1) create high quality content that meets our users’ interests; (2) make strategic hires to bring in new editorial talent and online news business expertise; and (3) innovate to bring great products to our users. We believe our focus on these core principals provides opportunity for future growth.

Highlights from Quarter ended June 30, 2014

● Net revenues were flat at $1.2 million in the quarter ended June 30, 2014 versus $1.2 million in the same period in the prior year. The flat revenue was a result of the competitive advertising landscape for Internet media companies that have not yet reached scale.  Our revenues were also impacted by short-falls form a large brand campaign that was cancelled across all media sites. As a result, we were able to deliver and bill only $280,000 of a total $430,000 multi-month campaign, with the bulk of that impact in the June and September quarters.

● Net loss was $0.9 million during the quarter ended June 2014, an increase from $0.7 million during the same period last year. The larger losses resulted from an increase in operating expense to $2.1 million, compared to $1.9 million in the same period last year, reflecting more investment into content, and a general increase in administrative expense.

● Unique visitors to the Salon.com Website during the June 2014 quarter increased 60% compared to the quarter ended June 30, 2013, and increased 20% compared to the quarter ended March 31, 2014, according to data compiled by Google Analytics. Unique visitors as measured by comScore Media Metrix increased 24% compared to the March 2014 quarter, and no comparable data was available for the June 2013 quarter as the comScore data is a new measurement that has been available only since July 2013. The difference between the two sources is that comScore uses a panel-centric method for counting unique visitors rather than the tagging technology used by Google.

● In June 2014, we experienced our highest ever number of readers, with 17.6 million unique visitors coming to our Website and 53.5 million page views during the month, according to Google Analytics.

● Two articles reached new Salon readership records, both attracting approximately 3 million pageviews according to Google Analytics.  One of these articles was Kim Brooks' much-buzzed-about life essay on being arrested for leaving her child in the car, which was featured on Good Morning America, CBS This Morning, Anderson Cooper and other TV outlets.  The other article was a heartbreaking piece by an Atlanta mom whose son was nearly killed in an unnecessary and possibly unlawful SWAT raid of the home where she was staying. Both articles were widely posted on social media sites like Facebook, Reddit and Twitter.

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● Our writer, Heather “Digby” Parton, won a Hillman Prize for Opinion and Analysis writing. We were also a 2014 honoree by the Webby Awards for best writing. Both are a high honor and goes right to the heart of what we do best:  fearless journalism, brilliant writing and essential analysis.

● A continued focus on our mobile platforms and social media reach led to gains in these areas. Our shift to mobile readers continues, growing to 56% of unique visitors in June 2014 compared to 35% in June 2013 according to Google Analytics. During the June 2014 quarter, overall traffic from the mobile platforms increased 122% compared to the quarter ended June 2013 and 21% compared to the quarter ended March 2014, mostly due to the top articles going viral on Facebook mobile and tablet platforms.

● Social media traffic grew 37% in the quarter ended June 2014 according to Google Analytics compared to the March 2014 quarter, and 121% compared to the June quarter in 2013. Facebook continues to be the largest social media referrer, with Facebook referrals increasing 42% in the June 2014 quarter versus the March 2014 quarter, and 231% compared to the June 2013 quarter. Twitter and Reddit also grew strongly in the June 2014 quarter, increasing 34% and 133% respectively compared to the quarter ended March 2014.

● We launched a new mobile-friendly in-stream ad unit that runs in the story well as well as between paragraphs to better integrate the video into the article. This ad treatment has been popular with our advertisers. We launched this unit with an AT&T campaign, and others such as National Geographic have since used it.

Sources of Revenue

Most of our net revenues are derived from advertising from the sale of promotional space on our Website. The sale of promotional space is generally less than ninety days in duration. Advertising units sold include “rich media”, a term commonly used to describe interactive multi-media and streaming advertisements, as well as traditional banner and pop-up advertisements.

We previously derived a portion of our net revenues from our Salon Premium subscription program. This source of revenue has declined since our 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 wind down of our subscription service will be completed in fiscal year 2015.

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

Expenses

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

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

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

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

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Interest expense includes accrued interest on our outstanding debt.

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

Critical Accounting Policies

The preparation of financial statements in conformity with Generally accepted accounting principles (GAAP) requires us to utilize accounting policies and make estimates and assumptions that affect our reported amounts. Our significant accounting policies are described in Note 2 to the consolidated financial statements in our Fiscal 2014 Annual Report. We believe accounting policies and estimates related to revenue recognition and stock-based compensation are the most critical to our financial statements. Future results may differ from current estimates if different assumptions are used or different conditions were to prevail.

Revenue Recognition

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

Advertising revenues, derived from the sale of promotional space on our Website, comprised 90% and 94% of our revenues, respectively, for the three months ended June 30, 2014 and 2013. The duration of the advertisements is generally short-term, usually less than ninety days. Revenues derived from such arrangements are recognized during the period the advertising space is provided. Our obligations typically include a guaranteed minimum number of impressions. To the extent minimum guaranteed amounts are not achieved, we defer recognition of the corresponding revenue until the remaining guaranteed amounts are provided, if mutually agreeable to an advertiser. If these “make good” impressions are not agreeable to an advertiser, no further revenue is recognized.

We previously offered a pay-for-online content service called Salon Premium, which provided unrestricted access to our Website with no advertisements, as well as other giveaways and benefits. As a result of the continued decline in subscribers, as of June 2012, new subscriptions and renewals were no longer accepted and the wind down of our subscription service will be completed in fiscal year 2015.

Accounting for Stock-Based Compensation

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

We recognized stock-based compensation expense of $46,000 and $8,000 during the three months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, we had an aggregate of $232,000 of stock compensation remaining to be amortized to expense over the remaining requisite service period of the underlying awards. We currently expect this stock compensation balance to be amortized as follows: $119,000 during the remainder of fiscal 2015; $89,000 during fiscal 2016; $20,000 during fiscal 2017 and $4,000 during fiscal 2018. The expected amortization reflects only outstanding stock option awards as of June 30, 2014 expected to vest. We expect to continue issuing stock-based awards to our employees in future periods.

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

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Results of Operations for the Three Months Ended June 30, 2014 Compared to the Three Months Ended June 30, 2013

Net revenue

Net revenue remained flat at $1.2 million for the three months ended June 30, 2014 from a year ago.

Advertising revenues remained flat at $1.1 million for the three months ended June 30, 2014 from a year ago. Direct ad sales captured approximately 45% and network ad sales captured approximately 55% of total advertising revenue for each of the three months ended June 30, 2014 and 2013.

The number of average monthly unique Website visitors for the three months ended June 30, 2014 increased approximately 45% to 14.9 million from 10.3 million for the same period last year. The increase is largely attributable to our efforts to expand and enrich our original editorial content. Our ability to increase the number of monthly unique Website visitors is a significant factor in our strategy to attract additional advertisers on our Website. Increasing the number of unique Website visitors is critical to our business, as they facilitate the generation of ad impressions sold to advertisers.

Salon Premium subscription revenues were immaterial for the three months ended June 30, 2014 as we no longer accepted new subscriptions and renewals as of June 2012, and the wind down of our subscription service will be completed in fiscal year 2015.

Revenues from all other sources grew from an immaterial amount for the three months ended June 30, 2013 to $0.1 million for the same period ended June 30, 2014. The increase was attributable to increases in referral fees revenue.

Expenses

Production and content

Production and content expenses increased 16% to approximately $0.9 million for the three months ended June 30, 2014 from approximately $0.8 million for the three months ended June 30, 2013. The $0.1 million increase primarily resulted from costs of freelance writer contributions and news wires.

Sales and marketing

Sales and marketing expenses remained flat at approximately $0.4 million for the three months ended June 30, 2014 from a year ago.

Technology

Technology expenses remained flat at approximately $0.4 million for the three months ended June 30, 2014 from a year ago.

General and administrative

General and administrative expenses increased 39% to approximately $0.4 million for the three months ended June 30, 2014 from approximately $0.3 million for the three months ended June 30, 2013. The $0.1 million increase primarily resulted from higher stock compensation costs and consultant fees, partially offset by savings from headquarter lease costs.

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Interest expense

Interest expense for the three months ended June 30, 2014 remained flat and immaterial at $0.01 million from a year ago.

Liquidity and capital resources

Net cash used in operations was approximately $0.8 million for the three months ended June 30, 2014. The principal uses of cash during the three months ended June 30, 2014 were to fund the $0.9 million net loss for the period, partially offset by $0.2 million decrease in net accounts receivable and various working capital and immaterial non-cash items. The accounts receivable, net as of June 30, 2014 of $1.3 million represent primarily advertising sales during the period, and are expected to be collected within the next four months. Net cash used in investing activities was immaterial during each of the three months ended June 30, 2014 and 2013.

Net cash provided by financing activities was $0.9 million for each of the three months ended June 30, 2014 and 2013, reflecting cash advances from related parties. 

Our operating forecast for the remainder of the fiscal year ending March 31, 2015 anticipates continued but reduced operating losses. We estimate we will require approximately $0.6 - $1.1 million in additional funding to meet our operating needs for the balance of our 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, we have relied on funding from related parties. In this fiscal year through August 14, 2014, our chairman has provided $1.1 million in cash advances. We remain dependent upon our two largest stockholders for continued financial support while we seek external financing from potential investors in the form of additional indebtedness or through the sale of equity securities in a private placement. We are working with our advisors in our efforts to obtain such funding, and explore strategic alternatives. However, we do not currently have an agreement in place to provide any financing, and there is no certainty that we 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

We have no off-balance-sheet arrangements.

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Contractual Obligations

The following summarizes our contractual obligations as of June 30, 2014:

	Payments Due By Period
	Total		1 Year or Less		1 - 3 Years		3 - 5 Years		More than 5 Years
Operating leases	$	1,747	$	327	$	671	$	663	$	86
Short-term borrowing		1,000		1,000		-		-		-
Interest on short-term borrowing		265		265		-		-		-
Related party advances		3,651		3,651		-		-		-
Total	$	6,663	$	5,243	$	671	$	663	$	86

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We maintain all of our cash in immediately available cash deposits at its bank. These funds are not subject to market risk and no interest is paid on such funds. In May 2007, we entered into a credit agreement with Deutsche Bank Securities, Inc. that allows us to borrow up to $1.0 million at a rate of prime less 0.25% which subjects us to interest rate risk. We feel that the risk of a rate change is not material as we contemplate having a maximum of only $1.0 million of variable rate debt outstanding during our fiscal year ending March 31, 2015. As of June 30, 2014, we had $1.0 million plus accrued interest outstanding under this agreement, payable on demand. As we conduct all of our business in the United States, we are not subject to foreign exchange risk.

Item 4. Controls and Procedures

Evaluation of Our Disclosure Controls and Internal Controls

Our management, with the participation of our Chief Executive Officer and 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 (June 30, 2014), 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 2014 Annual Report.

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

We have a history of significant losses and expect to incur a loss from operations, based on generally accepted accounting principles, for our fiscal year ending March 31, 2015 and potentially in future years. Even if we attain profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If revenues grow more slowly than we anticipate or operating expenses exceed expectations, financial results will most likely be severely harmed and our ability to continue operations will be seriously jeopardized.

Burr Pilger Mayer, Inc., Salon’s independent registered public accounting firm for the fiscal years ended March 31, 2011 through 2014 included a “going-concern” audit opinion on the consolidated financial statements for each of those years. The audit opinions report substantial doubt about our ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability. As a result of the “going-concern” opinions, our stock price and investment prospects have been and will continue to be adversely affected, thus limiting financing choices and raising concerns about the realization of value on assets and operations. 

Salon’s projected cash flows may not meet expectations

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

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

We have relied on related parties for significant investment capital

We have relied on cash infusions from related parties to fund operations for many years. The related parties are primarily John Warnock, Chairman of the Board of Salon, and William Hambrecht. William Hambrecht is a Director and the father of our former CEO and current Interim Chief Financial Officer, Elizabeth Hambrecht. During the fiscal quarter ended June 30, 2014, Mr. Warnock has made approximately $860,000 in cash advances to fund our operations. Subsequent to June 30, 2014, Mr. Warnock provided an additional $250,000 to meet our working capital requirements.

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

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

Approximately 58% of our voting securities are 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. We remain dependent upon Mr. Warnock and Mr. Hambrecht for continued financial support while we seek 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 in Note 4 to the consolidated financial statements included in the 2014 Annual Report), Mr. Warnock has continued to make unsecured, interest-free, cash advances to cover our operating expenses. These advances are payable on demand, and are exchangeable into securities on the same terms as those to be issued in our next financing from non-related parties.

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

Our directors and officers own approximately 65 million shares, or 85% in the aggregate, of our Common Stock. As our Common Stock is normally thinly traded, if our principal stockholders were to sell their shares of Common Stock, the per share price of our Common Stock could be adversely affected. 

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

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

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

Holders of our Series C Preferred Stock (“Preferred Stock”) have liquidation preferences over holders of Common Stock of the first approximately $2.4 million in potential sales proceeds as of June 30, 2014, which includes the effect of undeclared dividends, if granted, of about $0.7 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 $2.4 million of cash distributions. If a liquidation event were to occur in excess of $2.4 million and if Preferred Stock dividends were to be declared, the holders of Preferred Stock would be entitled to receive a relatively larger distribution than the holders of Common Stock would be entitled to receive.

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

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

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

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

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

● increase the dollar amount of our advertising orders;

● improve our Website’s technology for serving advertising;

● handle temporary high volume traffic spikes to our Website;

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

● attract and retain key sales personnel.

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

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

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

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

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

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

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

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

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

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

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

In April 1999, we acquired the Internet address www.salon.com. Because www.salon.com is the address of the main home page to our Website and incorporates Salon’s name, it is a vital part of our intellectual property assets. We do not have a registered trademark on the address, and therefore it may be difficult for us to prevent a third party from infringing on our intellectual property rights to the address. If we fail to adequately protect our rights to the Website address, or if a third party infringes our rights to the address, or otherwise dilutes the value of www.salon.com, our business could be harmed.

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

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

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

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

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

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

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

Our Website “salon.com”, and content management system run on cloud computing hosted by Amazon Web Services, which are in a facility in Herndon, Virginia. Any disruption of Amazon’s cloud computing platform could result in a service outage. Our OpenSalon 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, although we cannot assure that the retrofitting is 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 our services. Computer viruses, electronic break-ins or other similar disruptive problems could cause users to stop visiting our Website and could cause advertisers to terminate any agreements with us. In addition, we could lose advertising revenues during these interruptions and user satisfaction could be negatively impacted if the service is slow or unavailable. If any of these circumstances occurred, our business could be harmed. Our insurance policies may not adequately compensate us for losses that may occur due to any failures of or interruptions in our systems. We do not presently have a formal disaster recovery plan.

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

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Privacy concerns could impair our business

We have a policy against using personally identifiable information obtained from users of our Website and services without the user’s permission. In the past, the Federal Trade Commission has investigated companies that have used personally identifiable information without permission or in violation of a stated privacy policy. If we use personal information without permission or in violation of our policy, we may face potential liability for invasion of privacy for compiling and providing information to our corporate customers and electronic commerce merchants. In addition, legislative or regulatory requirements may heighten these concerns if businesses must notify Internet users that the data may be used by marketing entities to direct product promotion and advertising to the user. Other countries and political entities, such as the European Union, have adopted such legislation or regulatory requirements. The United States may adopt similar legislation or regulatory requirements in the future. If consumer privacy concerns are not adequately addressed, our business, financial condition and results of operations could be materially harmed.

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

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

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

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

● Our ability to attract and retain advertisers;

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

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

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

● Our ability to maximize our mobile presence;

● The timing and uncertainty of our advertising sales cycles;

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

● Economic and business cycles;

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

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

● The amount and timing of operating costs.

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Due to the factors noted above and the other risks discussed in this section and throughout this Annual Report, one should not rely on quarter-to-quarter comparisons of our 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 our Common Stock may decline. 

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

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

● the board of directors approved the transaction in which the stockholder acquired 15% or more of the corporation’s assets;

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

● on or after such date, the merger or sale is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder.

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

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

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

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

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

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Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits

(a) Exhibits.

10.1	Amended 2014 Stock Incentive Plan, Amended by the Board of Directors on June 12, 2014
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

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.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SALON MEDIA GROUP, INC.

Dated: August 14, 2014	/s/ Cynthia Jeffers
	Cynthia Jeffers
	Chief Executive Officer
Dated: August 14, 2014	/s/ Elizabeth Hambrecht
	Elizabeth Hambrecht
	Interim Chief Financial Officer

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EX-10

Exhibit 10.1

SALON MEDIA GROUP, INC.

AMENDED 2014 STOCK INCENTIVE PLAN

Amended by the Board of Directors on June 12, 2014

1.     Purposes of the Plan. The purposes of this Plan are to attract and retain the best available personnel, to provide additional incentives to Employees, Directors and Consultants and to promote the success of the Company’s business.

2.     Definitions. The following definitions shall apply as used herein and in the individual Award Agreements except as defined otherwise in an individual Award Agreement. In the event a term is separately defined in an individual Award Agreement, such definition shall supersede the definition contained in this Section 2.

(a)     “Administrator” means the Board or any of the Committees appointed to administer the Plan.

(b)     “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.

(c)     “Applicable Laws” means the legal requirements relating to the Plan and the Awards under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to Awards granted to residents therein.

(d)     “Assumed” means that pursuant to a Corporate Transaction either (i) the Award is expressly affirmed by the Company or (ii) the contractual obligations represented by the Award are expressly assumed (and not simply by operation of law) by the successor entity or its Parent in connection with the Corporate Transaction with appropriate adjustments to the number and type of securities of the successor entity or its Parent subject to the Award and the exercise or purchase price thereof which at least preserves the compensation element of the Award existing at the time of the Corporate Transaction as determined in accordance with the instruments evidencing the agreement to assume the Award.

(e)     “Award” means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock, Restricted Stock Unit or other right or benefit under the Plan.

(f)     “Award Agreement” means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto.

(g)     “Board” means the Board of Directors of the Company.

(h)     “Cause” means, with respect to the termination by the Company or a Related Entity of the Grantee’s Continuous Service, that such termination is for “Cause” as such term (or word of like import) is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee’s: (i) performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity; (ii) dishonesty, intentional misconduct or material breach of any agreement with the Company or a Related Entity; or (iii) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person; provided, however, that with regard to any agreement that defines “Cause” on the occurrence of or in connection with a Corporate Transaction or a Change in Control, such definition of “Cause” shall not apply until a Corporate Transaction or a Change in Control actually occurs.

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(i)    “Change in Control” means a change in ownership or control of the Company effected through either of the following transactions:

(i)     the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such stockholders accept, or

(ii)     a change in the composition of the Board over a period of 12 months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors.

(j)     “Code” means the Internal Revenue Code of 1986, as amended.

(k)     “Committee” means any committee composed of members of the Board appointed by the Board to administer the Plan.

(l)     “Common Stock” means the common stock of the Company.

(m)     “Company” means Salon Media Group, Inc., a Delaware corporation, or any successor entity that adopts the Plan in connection with a Corporate Transaction.

(n)     “Consultant” means any person (other than an Employee or a Director, solely with respect to rendering services in such person’s capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity.

(o)     “Continuing Directors” means members of the Board who either (i) have been Board members continuously for a period of at least 12 months or (ii) have been Board members for less than 12 months and were elected or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board.

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(p)     “Continuous Service” means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant is not interrupted or terminated. In jurisdictions requiring notice in advance of an effective termination as an Employee, Director or Consultant, Continuous Service shall be deemed terminated upon the actual cessation of providing services to the Company or a Related Entity notwithstanding any required notice period that must be fulfilled before a termination as an Employee, Director or Consultant can be effective under Applicable Laws. A Grantee’s Continuous Service shall be deemed to have terminated either upon an actual termination of Continuous Service or upon the entity for which the Grantee provides services ceasing to be a Related Entity. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). Notwithstanding the foregoing, except as otherwise determined by the Administrator, in the event of any spin-off of a Related Entity, service as an Employee, Director or Consultant for such Related Entity following such spin-off shall be deemed to be Continuous Service for purposes of the Plan and any Award under the Plan. An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. For purposes of each Incentive Stock Option granted under the Plan, if such leave exceeds three months, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then the Incentive Stock Option shall be treated as a Non-Qualified Stock Option on the day three months and one day following the expiration of such three-month period.

(q)   “Corporate Transaction” means any of the following transactions, provided, however, that the Administrator shall determine under parts (iv) and (v) whether multiple transactions are related, and its determination shall be final, binding and conclusive:

(i)     a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated;

(ii)     the sale, transfer or other disposition of all or substantially all of the assets of the Company;

(iii)     the complete liquidation or dissolution of the Company;

(iv)     any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger) in which the Company is the surviving entity but (A) the shares of Common Stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than 40% of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction culminating in such merger, but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction; or

(v)     acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction.

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(r)     “Covered Employee” means an Employee who is a “covered employee” under Section 162(m)(3) of the Code.

(s)     “Director” means a member of the Board or the board of directors of any Related Entity.

(t)     “Disability” means as defined under the long-term disability policy of the Company or the Related Entity to which the Grantee provides services regardless of whether the Grantee is covered by such policy. If the Company or the Related Entity to which the Grantee provides service does not have a long-term disability plan in place, “Disability” means that a Grantee is unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment for a period of not less than 90 consecutive days. A Grantee will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion.

(u)     “Dividend Equivalent Right” means a right entitling the Grantee to compensation measured by dividends paid with respect to Common Stock.

(v)     “Employee” means any person, including an Officer or Director, who is in the employ of the Company or any Related Entity, subject to the control and direction of the Company or any Related Entity as to both the work to be performed and the manner and method of performance. The payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company.

(w)     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(x)     “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(i)     If the Common Stock is listed on one or more established stock exchanges or national market systems, including without limitation The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market of The NASDAQ Stock Market LLC, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Common Stock is listed (as determined by the Administrator) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii)     If the Common Stock is regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such stock as quoted on such system or by such securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

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(iii)     In the absence of an established market for the Common Stock of the type described in (i) and (ii), above, the Fair Market Value thereof shall be determined by the Administrator in good faith.

(y)     “Grantee” means an Employee, Director or Consultant who receives an Award under the Plan.

(z)     “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(aa)     “Non-Qualified Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

(bb)     “Officer” means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(cc)     “Option” means an option to purchase Shares pursuant to an Award Agreement granted under the Plan.

(dd)     “Parent” means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of the Code.

(ee)     “Performance-Based Compensation” means compensation qualifying as “performance-based compensation” under Section 162(m) of the Code.

(ff)     “Plan” means this 2014 Stock Incentive Plan.

(gg)     “Related Entity” means any Parent or Subsidiary of the Company.

(hh)     “Replaced” means that pursuant to a Corporate Transaction the Award is replaced with a comparable stock award or a cash incentive program of the Company, the successor entity (if applicable) or Parent of either of them which preserves the compensation element of such Award existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same (or a more favorable) vesting schedule applicable to such Award. The determination of Award comparability shall be made by the Administrator and its determination shall be final, binding and conclusive.

(ii)     “Restricted Stock” means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator.

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(jj)     “Restricted Stock Units” means an Award which may be earned in whole or in part upon the passage of time or the attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator.

(kk)     “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor thereto.

(ll)     “SAR” means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock.

(mm)     “Share” means a share of the Common Stock.

(nn)     “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

3.     Stock Subject to the Plan.

(a)     Subject to the provisions of Section 10, below, the maximum aggregate number of Shares which may be issued pursuant to all Awards is 10,000,000 Shares, plus an annual increase to be added on the first business day of the Company’s fiscal year beginning in 2015 equal to: (i) as to Shares which may be issued pursuant to all Awards other than Incentive Stock Options, 1% of the number of Shares outstanding as of such date or a lesser number of Shares determined by the Administrator, and (ii) as to Shares which may be issued pursuant Incentive Stock Options, 1% of the number of Shares outstanding as of the date of adoption of the Plan by the Board or a lesser number of Shares determined by the Administrator. SARs payable in Shares shall reduce the maximum aggregate number of Shares which may be issued under the Plan only by the net number of actual Shares issued to the Grantee upon exercise of the SAR. The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock. Notwithstanding any other limitation in this Section 3(a), at no time shall the total number of Shares issuable upon exercise of all outstanding Awards (including any outstanding Option, SAR, Dividend Equivalent Right, Restricted Stock, Restricted Stock Unit or other right or benefit granted under any other stock incentive plan, stock option plan or similar plan of the Company) exceed 30% (or such higher percent limitation as may be approved by the stockholders of the Company pursuant to California Code of Regulations 260.140.45) of the then outstanding securities of the Company, based on the securities of the Company which are outstanding at the time the calculation is made.

(b)     Any Shares covered by an Award (or portion of an Award) which is forfeited, canceled or expires (whether voluntarily or involuntarily) shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan. Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at the lower of their original purchase price or their Fair Market Value at the time of repurchase, such Shares shall become available for future grant under the Plan. To the extent not prohibited by the listing requirements of the stock exchange or national market system on which the Common Stock may become traded or Applicable Law, any Shares covered by an Award which are surrendered (i) in payment of the Award exercise or purchase price (including pursuant to the “net exercise” of an option pursuant to Section 7(b)(v)) or (ii) in satisfaction of tax withholding obligations incident to the exercise of an Award shall be deemed not to have been issued for purposes of determining the maximum number of Shares which may be issued pursuant to all Awards under the Plan, unless otherwise determined by the Administrator.

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4.     Administration of the Plan.

(a)     Plan Administrator.

(i)     Administration with Respect to Directors and Officers. With respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board.

(ii)     Administration With Respect to Consultants and Other Employees. With respect to grants of Awards to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. The Board may authorize one or more Officers to grant such Awards and may limit such authority as the Board determines from time to time.

(iii)     Administration With Respect to Covered Employees. Notwithstanding the foregoing, grants of Awards to any Covered Employee intended to qualify as Performance-Based Compensation shall be made only by a Committee (or subcommittee of a Committee) which is comprised solely of two or more Directors eligible to serve on a committee making Awards qualifying as Performance-Based Compensation. In the case of such Awards granted to Covered Employees, references to the “Administrator” or to a “Committee” shall be deemed to be references to such Committee or subcommittee.

(iv)     Administration Errors. In the event an Award is granted in a manner inconsistent with the provisions of this subsection (a), such Award shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws.

(b)     Powers of the Administrator. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion:

(i)     to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder;

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(ii)     to determine whether and to what extent Awards are granted hereunder;

(iii)     to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;

(iv)     to approve forms of Award Agreements for use under the Plan;

(v)     to determine the terms and conditions of any Award granted hereunder;

(vi)     to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee’s rights under an outstanding Award shall not be made without the Grantee’s written consent, provided, however, that an amendment or modification that may cause an Incentive Stock Option to become a Non-Qualified Stock Option shall not be treated as adversely affecting the rights of the Grantee;

(vii)     to construe and interpret the terms of the Plan and Awards, including without limitation, any notice of award or Award Agreement, granted pursuant to the Plan;

(viii)     to grant Awards to Employees, Directors and Consultants employed outside the United States on such terms and conditions different from those specified in the Plan as may, in the judgment of the Administrator, be necessary or desirable to further the purpose of the Plan; and

(ix)     to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.

The express grant in the Plan of any specific power to the Administrator shall not be construed as limiting any power or authority of the Administrator; provided that the Administrator may not exercise any right or power reserved to the Board. Any decision made, or action taken, by the Administrator or in connection with the administration of this Plan shall be final, conclusive and binding on all persons having an interest in the Plan.

(c)     Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or as Officers or Employees of the Company or a Related Entity, members of the Board and any Officers or Employees of the Company or a Related Entity to whom authority to act for the Board, the Administrator or the Company is delegated shall be defended and indemnified by the Company to the extent permitted by law on an after-tax basis against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any claim, investigation, action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any Award granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by the Company) or paid by them in satisfaction of a judgment in any such claim, investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such claim, investigation, action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct; provided, however, that within thirty (30) days after the institution of such claim, investigation, action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at the Company’s expense to defend the same.

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5.     Eligibility. Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. Incentive Stock Options may be granted only to Employees of the Company or a Parent or a Subsidiary of the Company. An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards. Awards may be granted to such Employees, Directors or Consultants who are residing in non-U.S. jurisdictions as the Administrator may determine from time to time.

6.     Terms and Conditions of Awards.

(a)     Types of Awards. The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) cash or (iii) an Option, a SAR, or similar right with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions. Such awards include, without limitation, Options, SARs, sales or bonuses of Restricted Stock, Restricted Stock Units or Dividend Equivalent Rights, and an Award may consist of one such security or benefit, or two (2) or more of them in any combination or alternative.

(b)     Designation of Award. Each Award shall be designated in the Award Agreement. In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, an Option will qualify as an Incentive Stock Option under the Code only to the extent the $100,000 limitation of Section 422(d) of the Code is not exceeded. The $100,000 limitation of Section 422(d) of the Code is calculated based on the aggregate Fair Market Value of the Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary of the Company). For purposes of this calculation, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the grant date of the relevant Option. In the event that the Code or the regulations promulgated thereunder are amended after the date the Plan becomes effective to provide for a different limit on the Fair Market Value of Shares permitted to be subject to Incentive Stock Options, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.

(c)     Conditions of Award. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, the following: (i) increase in share price, (ii) earnings per share, (iii) total stockholder return, (iv) operating margin, (v) gross margin, (vi) return on equity, (vii) return on assets, (viii) return on investment, (ix) operating income, (x) net operating income, (xi) pre-tax profit, (xii) cash flow, (xiii) revenue, (xiv) expenses, (xv) earnings before interest, taxes and depreciation, (xvi) economic value added and (xvii) market share. The performance criteria may be applicable to the Company, Related Entities and/or any individual business units of the Company or any Related Entity. Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement. In addition, the performance criteria shall be calculated in accordance with generally accepted accounting principles, but excluding the effect (whether positive or negative) of any change in accounting standards and any extraordinary, unusual or nonrecurring item, as determined by the Administrator, occurring after the establishment of the performance criteria applicable to the Award intended to be performance-based compensation. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of performance criteria in order to prevent the dilution or enlargement of the Grantee’s rights with respect to an Award intended to be performance-based compensation.

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(d)     Acquisitions and Other Transactions. The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase or other form of transaction.

(e)     Deferral of Award Payment. The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award. The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program.

(f)     Separate Programs. The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time.

(g)     Individual Limitations on Awards.

(i)     Individual Limit for Options and SARs. The maximum number of Shares with respect to which Options and SARs may be granted to any Grantee in any calendar year shall be determined from time to time by the Board of Directors. The foregoing limitation] shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 10, below. To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitation with respect to a Grantee, if any Option or SAR is canceled, the canceled Option or SAR shall continue to count against the maximum number of Shares with respect to which Options and SARs may be granted to the Grantee. For this purpose, the repricing of an Option (or in the case of a SAR, the base amount on which the stock appreciation is calculated is reduced to reflect a reduction in the Fair Market Value of the Common Stock) shall be treated as the cancellation of the existing Option or SAR and the grant of a new Option or SAR.

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(ii)     Individual Limit for Restricted Stock and Restricted Stock Units. For awards of Restricted Stock and Restricted Stock Units that are intended to be Performance-Based Compensation, the maximum number of Shares with respect to which such Awards may be granted to any Grantee in any calendar year shall be as determined from time to time by the Board of Directors. The foregoing limitation shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 10, below.

(h)     Deferral. If the vesting or receipt of Shares under an Award is deferred to a later date, any amount (whether denominated in Shares or cash) paid in addition to the original number of Shares subject to such Award will not be treated as an increase in the number of Shares subject to the Award if the additional amount is based either on a reasonable rate of interest or on one or more predetermined actual investments such that the amount payable by the Company at the later date will be based on the actual rate of return of a specific investment (including any decrease as well as any increase in the value of an investment).

(i)     Early Exercise. The Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award. Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to be appropriate.

(j)     Term of Award. The term of each Award shall be the term stated in the Award Agreement; provided that the specified term of any Award shall not include any period for which the Grantee has elected to defer the receipt of the Shares or cash issuable pursuant to the Award. However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the term of the Incentive Stock Option shall be five years from the date of grant thereof or such shorter term as may be provided in the Award Agreement. Notwithstanding the foregoing, the term of any Award shall be no more than ten years from the date of grant thereof.

(k)     Transferability of Awards. Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee. Other Awards shall be transferable (i) by will and by the laws of descent and distribution and (ii) during the lifetime of the Grantee, to the extent and in the manner authorized by the Administrator but only to the extent such transfers are made to family members, to family trusts, to family controlled entities, and pursuant to domestic relations orders or agreements, in all cases without payment for such transfers to the Grantee. Notwithstanding the foregoing, the Grantee may designate one or more beneficiaries of the Grantee’s Award in the event of the Grantee’s death on a beneficiary designation form provided by the Administrator.

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(l)     Time of Granting Awards. The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such other later date as is determined by the Administrator.

(m)     Financial Statements. The Company will provide financial statements of the Company to Grantees at least annually.

7.     Award Exercise or Purchase Price, Consideration and Taxes.

(a)     Exercise or Purchase Price. The exercise or purchase price, if any, for an Award shall be as follows:

(i)     In the case of an Incentive Stock Option:

(A)     granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the per Share exercise price shall be not less than 110% of the Fair Market Value per Share on the date of grant; or

(B)     granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than 100% of the Fair Market Value per Share on the date of grant.

(ii)     In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than 100% of the Fair Market Value per Share on the date of grant.

(iii)     In the case of Awards intended to qualify as Performance-Based Compensation, the exercise or purchase price, if any, shall be not less than 100% of the Fair Market Value per Share on the date of grant.

(iv)     In the case of SARs, the base appreciation amount shall not be less than 100% of the Fair Market Value per Share on the date of grant.

(v)     In the case of other Awards, such price as is determined by the Administrator.

(vi)     Notwithstanding the foregoing provisions of this Section 7(a), in the case of an Award issued pursuant to Section 6(d), above, the exercise or purchase price for the Award shall be determined in accordance with the provisions of the relevant instrument evidencing the agreement to issue such Award.

(b)     Consideration. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award including the method of payment, shall be determined by the Administrator. In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following, provided that the portion of the consideration equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law:

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(i)     cash;

(ii)     check;

(iii)     surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised;

(iv)     with respect to Options, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction;

(v)     with respect to Options, payment through a “net exercise” such that, without the payment of any funds, the Grantee may exercise the Option and receive the net number of Shares equal to (i) the number of Shares as to which the Option is being exercised, multiplied by (ii) a fraction, the numerator of which is the Fair Market Value per Share (on such date as is determined by the Administrator) less the exercise price per Share, and the denominator of which is such Fair Market Value per Share (the number of net Shares to be received shall be rounded down to the nearest whole number of Shares); or

(vi)     any combination of the foregoing methods of payment.

The Administrator may at any time or from time to time, by adoption of or by amendment to the standard forms of Award Agreement described in Section 4(b)(iv), or by other means, grant Awards which do not permit all of the foregoing forms of consideration to be used in payment for the Shares or which otherwise restrict one or more forms of consideration.

(c)     Taxes. No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any non-U.S., federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares. Upon exercise or vesting of an Award the Company shall withhold or collect from the Grantee an amount sufficient to satisfy such tax obligations, including, but not limited to, by surrender of the whole number of Shares covered by the Award sufficient to satisfy the minimum applicable tax withholding obligations incident to the exercise or vesting of an Award (reduced to the lowest whole number of Shares if such number of Shares withheld would result in withholding a fractional Share with any remaining tax withholding settled in cash).

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8.     Exercise of Award.

(a)     Procedure for Exercise; Rights as a Stockholder.

(i)     Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement.

(ii)     An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised has been made, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the purchase price as provided in Section 7(b)(iv).

(b)     Exercise of Award Following Termination of Continuous Service.

(i)     An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee’s Continuous Service only to the extent provided in the Award Agreement and this Section 8(b). The Award shall terminate to the extent not exercised on the last day of the specified period in this Section 8(b) or, if such longer period of time is specified in the Award Agreement, the first to occur of the last day of the original term of the Award or the last day of the termination exercise period specified in the Award Agreement.

(ii)     Following the termination of a Grantee’s Continuous Service (other than termination for “Cause” as defined by applicable law, the terms of the Award Agreement or a contract of employment, or a termination as otherwise provided in this Section 8(b)), an Award may be exercised by Grantee within thirty (30) days of such termination, or such longer period of time as specified in the Award Agreement to the extent the Award is vested on the date of termination (but in no event later than the expiration of the term of such Award as set forth in the Award Agreement).

(iii)     Any Award designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee’s Continuous Service shall convert automatically to a Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Award Agreement.

(iv)     Following the termination of a Grantee’s Continuous Service as a result of the Grantee’s Disability, an Award may be exercised by Grantee within six (6) months of termination, or such longer period of time as specified in the Award Agreement, to the extent the Award is vested on the date of termination (but in no event later than the expiration of the term of such Award as set forth in the Award Agreement).

(v)     Following the termination of a Grantee’s Continuous Service as a result of the Grantee’s death, an Award may be exercised within six (6) months following the Grantee’s death, or such longer period of time as specified in the Award Agreement, to the extent the Award is vested on the date of death (but in no event later than the expiration of the term of such Award as set forth in the Award Agreement), by the Grantee’s designated beneficiary, personal representative, or by the person(s) to whom the Award is transferred pursuant to the Grantee’s will or in accordance with the laws of descent and distribution.

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9.     Conditions Upon Issuance of Shares.

(a)     If at any time the Administrator determines that the delivery of Shares pursuant to the exercise, vesting or any other provision of an Award is or may be unlawful under Applicable Laws, the vesting or right to exercise an Award or to otherwise receive Shares pursuant to the terms of an Award shall be suspended until the Administrator determines that such delivery is lawful and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Company shall have no obligation to effect any registration or qualification of the Shares under federal or state laws.

(b)     As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.

10.     Adjustments Upon Changes in Capitalization. Subject to any required action by the stockholders of the Company and Section 11 hereof, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, the maximum number of Shares with respect to which Awards may be granted to any Grantee in any calendar year, as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification of the Shares, or similar transaction affecting the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (iii)  any other transaction with respect to Common Stock including a corporate merger, consolidation, acquisition of property or stock, separation (including a spin-off or other distribution of stock or property), reorganization, liquidation (whether partial or complete) or any similar transaction; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” In the event of any distribution of cash or other assets to stockholders other than a normal cash dividend, the Administrator shall also make such adjustments as provided in this Section 10 or substitute, exchange or grant Awards to effect such adjustments (collectively “adjustments”). Any such adjustments to outstanding Awards will be effected in a manner that precludes the enlargement of rights and benefits under such Awards. In connection with the foregoing adjustments, the Administrator may, in its discretion, prohibit the exercise of Awards or other issuance of Shares, cash or other consideration pursuant to Awards during certain periods of time. Except as the Administrator determines, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.

15

11.     Corporate Transactions and Changes in Control.

(a)     Termination of Award to Extent Not Assumed in Corporate Transaction. Effective upon the consummation of a Corporate Transaction, all outstanding Awards under the Plan shall terminate. However, all such Awards shall not terminate to the extent they are Assumed in connection with the Corporate Transaction.

(b)     Acceleration of Award Upon Corporate Transaction or Change in Control. The Administrator shall have the authority, exercisable either in advance of any actual or anticipated Corporate Transaction or Change in Control or at the time of an actual Corporate Transaction or Change in Control and exercisable at the time of the grant of an Award under the Plan or any time while an Award remains outstanding, to provide for the full or partial automatic vesting and exercisability of one or more outstanding unvested Awards under the Plan and the release from restrictions on transfer and repurchase or forfeiture rights of such Awards in connection with a Corporate Transaction or Change in Control, on such terms and conditions as the Administrator may specify. The Administrator also shall have the authority to condition any such Award vesting and exercisability or release from such limitations upon the subsequent termination of the Continuous Service of the Grantee within a specified period following the effective date of the Corporate Transaction or Change in Control. The Administrator may provide that any Awards so vested or released from such limitations in connection with a Change in Control, shall remain fully exercisable until the expiration or sooner termination of the Award.

(c)     Effect of Acceleration on Incentive Stock Options. Any Incentive Stock Option accelerated under this Section 11 in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Stock Option under the Code only to the extent the $100,000 dollar limitation of Section 422(d) of the Code is not exceeded.

12.     Effective Date and Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company. It shall continue in effect for a term of ten years unless sooner terminated. Subject to Section 17, below, and Applicable Laws, Awards may be granted under the Plan no more than ten years after the Plan becoming effective.

13.     Amendment, Suspension or Termination of the Plan.

(a)     The Board may at any time amend, suspend or terminate the Plan; provided, however, that no such amendment shall be made without the approval of the Company’s stockholders to the extent such approval is required by Applicable Laws.

(b)     No Award may be granted during any suspension of the Plan or after termination of the Plan.

(c)     No suspension or termination of the Plan (including termination of the Plan under Section 11, above) shall adversely affect any rights under Awards already granted to a Grantee.

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14.     Reservation of Shares.

(a)     The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

(b)     The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

15.     No Effect on Terms of Employment/Consulting Relationship. The Plan shall not confer upon any Grantee any right with respect to the Grantee’s Continuous Service, nor shall it interfere in any way with his or her right or the right of the Company or any Related Entity to terminate the Grantee’s Continuous Service at any time, with or without cause and with or without notice. The ability of the Company or any Related Entity to terminate the employment of a Grantee who is employed at will is in no way affected by its determination that the Grantee’s Continuous Service has been terminated for Cause for the purposes of this Plan.

16.     No Effect on Retirement and Other Benefit Plans. Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation. The Plan is not a “Pension Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of 1974, as amended.

17.     Stockholder Approval. The grant of Incentive Stock Options under the Plan shall be subject to approval by the stockholders of the Company within 12 months before or after the date the Plan is adopted excluding Incentive Stock Options issued in substitution for outstanding Incentive Stock Options pursuant to Section 424(a) of the Code. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws. The Administrator may grant Incentive Stock Options under the Plan prior to approval by the stockholders, but until such approval is obtained, no such Incentive Stock Option shall be exercisable. In the event that stockholder approval is not obtained within the 12 month period provided above, all Incentive Stock Options previously granted under the Plan shall be exercisable as Non-Qualified Stock Options.

18.     Limitation on Grants and Awards in Certain Jurisdictions. Until such time as the Common Stock shall be listed on any stock exchange or national market system, including without limitation The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market of The NASDAQ Stock Market LLC or the NYSE MKT LLC, no Awards shall be made to any Employee, Director or Consultant in California or in any other state unless the “blue sky” legal requirements for grants under the laws of California or such other state have been satisfied, complied with or waived.

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19.     Unfunded Obligation. Grantees shall have the status of general unsecured creditors of the Company. Any amounts payable to Grantees pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974, as amended. Neither the Company nor any Related Entity shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Grantee account shall not create or constitute a trust or fiduciary relationship between the Administrator, the Company or any Related Entity and a Grantee, or otherwise create any vested or beneficial interest in any Grantee or the Grantee’s creditors in any assets of the Company or a Related Entity. The Grantees shall have no claim against the Company or any Related Entity for any changes in the value of any assets that may be invested or reinvested by the Company with respect to the Plan.

20.     Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

21.     Nonexclusivity of The Plan. Neither the adoption of the Plan by the Board, the submission of the Plan to the stockholders of the Company for approval, nor any provision of the Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of Awards otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

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EX-31

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Cynthia Jeffers, certify that:

1. I have reviewed this quarterly Form 10-Q of Salon Media Group, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual      report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	/s/ Cynthia Jeffers
August 14, 2014	Cynthia Jeffers
	Chief Executive Officer

EX-31

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Elizabeth Hambrecht, certify that:

1. I have reviewed this quarterly Form 10-Q of Salon Media Group, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual      report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	By:	/s/ Elizabeth Hambrecht
August 14, 2014		Elizabeth Hambrecht
		Interim Chief Financial Officer

EX-32

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Salon Media Group, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Cynthia Jeffers, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)     The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Cynthia Jeffers
August 14, 2014	Cynthia Jeffers
	Chief Executive Officer

EX-32

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Salon Media Group, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elizabeth Hambrecht, Interim Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)     The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:	/s/ Elizabeth Hambrecht
August 14, 2014		Elizabeth Hambrecht
		Interim Chief Financial Officer

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Note 5 - Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	1 Months Ended	0 Months Ended
	Oct. 17, 2012 San Francisco Headquarters [Member] sqft	Apr. 16, 2014 Corporate Office in New York [Member] sqft
Note 5 - Commitments and Contingencies (Details) [Line Items]
Lessee Leasing Arrangements, Operating Leases, Term of Contract	3 years	5 years
Area of Real Estate Property	2,405	6,523
Escrow Deposit		$ 204
Operating Leases, Rent Expense		$ 26

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Note 4 - Net Loss Per Share

3 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

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
	June 30,
	2014			2013
Numerator:
Net loss attributable to common stockholders	$	(886	)	$	(688	)
Denominator:
Weighted average shares used in computing basic and diluted net loss per share attributable to common stockholders		76,245,000			66,943,000
Basic and diluted net loss per share attributable to common stockholders	$	(0.01	)	$	(0.01	)
Antidilutive securities including options, warrants and convertible notes and preferred stock not included in net loss per share calculation		7,115,000			4,607,000

XML

Note 7 - Subsequent Events (Details) (Board of Directors Chairman [Member], USD $) In Thousands, unless otherwise specified	1 Months Ended	18 Months Ended	3 Months Ended
	Aug. 14, 2014 Subsequent Event [Member]	Aug. 14, 2014 Subsequent Event [Member]	Jun. 30, 2014	Jun. 30, 2013
Note 7 - Subsequent Events (Details) [Line Items]
Proceeds from Related Party Debt	$ 250	$ 3,901	$ 860	$ 851

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Note 6 - Preferred Stock (Details) - Preferred Stock (USD $)	Jun. 30, 2014	Mar. 31, 2014
Note 6 - Preferred Stock (Details) - Preferred Stock [Line Items]
Shares Outstanding	1,075	1,075	[1]
Common Equivalent Shares	1,096,676
Series C Preferred Stock [Member]
Note 6 - Preferred Stock (Details) - Preferred Stock [Line Items]
Shares Outstanding	1,075
Purchase Price Per share (in Dollars per share)	$ 800
Conversion Rate Per share (in Dollars per share)	$ 0.785
Common Equivalent Shares	1,096,676

[1] Derived from the Company's audited consolidated financial statements.

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Note 3 - Stock Option Plans

3 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

3. Stock Option Plans

We have two equity incentive plans, the Salon Media Group, Inc. 2004 Stock Plan and the Salon Media Group, Inc. 2014 Stock Incentive Plan, as described in Note 7, “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, 2014.

The following table summarizes activity under the Salon Media Group, Inc. 2004 Stock Plan for the three months ended June 30, 2014:

				Weighted-
	Outstanding			Average		Aggregate
	Stock			Exercise		Intrinsic
	Options			Price		Value
Balance as of March 31, 2014		6,008,000		$	0.13
Options granted under all plans		30,000		$	0.25
Exercised		-			-
Expired and forfeited		(20,000	)	$	0.15
Outstanding as of June 30, 2014		6,018,000		$	0.13	$	331,000
Vested as of June 30, 2014		3,574,000		$	0.14	$	209,000
Vested and expected to vest		5,025,000		$	0.13	$	286,000

Options totaling 29,850 shares were awarded during the three months ended June 30, 2014. There were no options awarded during the three months ended June 30, 2013. The weighted-average fair value of options vested during each of the three month periods ended June 30, 2014 and 2013 was $0.09 per share and $0.05 per share, respectively. There were no option exercises during the three months ended June 30, 2014.

Our Board of Directors also approved a resolution on June 12, 2014 to amend the Salon Media Group, Inc. 2014 Stock Incentive Plan (the 2014 Plan) to comply with the California Code of Regulations and Internal Revenue Service regulations. As of June 30, 2014, no stock options have been awarded under the 2014 Plan.

We recognized stock-based compensation expense of $46 and $8 during the three months ended June 30, 2014 and 2013, respectively.

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Condensed Consolidated Balance Sheets (Current Period Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Mar. 31, 2014
Current assets:
Cash and cash equivalents	$ 139	$ 119	[1]
Accounts receivable, net of allowance of $60	1,264	1,475	[1]
Prepaid expenses and other current assets	183	289	[1]
Total current assets	1,586	1,883	[1]
Property and equipment, net	47	54	[1]
Other assets, principally deposits	301	96	[1]
Total assets	1,934	2,033	[1]
Current liabilities:
Short-term borrowings	1,000	1,000	[1]
Related party advances	3,651	2,791	[1]
Accounts payable and accrued liabilities	1,079	1,210	[1]
Deferred revenues	12
Total current liabilities	5,742	5,001	[1]
Deferred rent	2	2	[1]
Total liabilities	5,744	5,003	[1]
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 as of June 30, 2014 and March 31, 2014 (liquidation value of $2,443 as of June 30, 2014 and $2,426 as of March 31, 2014)			[1]
Common stock, $0.001 par value, 150,000,000 shares authorized, 76,245,442 shares issued and outstanding as of June 30, 2014 and March 31, 2014	76	76	[1]
Additional paid-in capital	115,651	115,605	[1]
Accumulated deficit	(119,537)	(118,651)	[1]
Total stockholders' deficit	(3,810)	(2,970)	[1]
Total liabilities and stockholders' deficit	$ 1,934	$ 2,033	[1]

[1] Derived from the Company's audited consolidated financial statements.

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Note 1 - The Company and Significant Accounting Policies

3 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

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, 2014, which are included in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014 filed with the Securities and Exchange Commission on June 27, 2014. 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 three month period ended June 30, 2014 are not necessarily indicative of the expected results for any other interim period or for the fiscal year ending March 31, 2015.

These condensed consolidated financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred losses and negative cash flows from operations since inception and had an accumulated deficit as of June 30, 2014 of $119,537. In addition, we expect to incur a net loss from operations for the fiscal year ending March 31, 2015. Burr Pilger Mayer, Inc., Salon’s independent registered public accounting firm for the years ended March 31, 2014, 2013, and 2012, included a “going-concern” audit opinion on the consolidated financial statements for those years.  The audit opinions report substantial doubt about our ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability.  As a result of the “going-concern” opinions, our stock price and investment prospects have been and will continue to be adversely affected, thus limiting financing choices and raising concerns about the realization of value on assets and operations.

Our operating forecast for the remainder of the fiscal year ending March 31, 2015 anticipates continued but reduced operating losses. We estimate we will require approximately $600 - $1,100 in additional funding to meet our operating needs for the balance of our 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, we have relied on funding from related parties. Through August 14, 2014, our Chairman has provided an aggregate of $3,901 in cash advances since March 1, 2013. We remain dependent upon our two largest stockholders for continued financial support while we seek external financing from potential investors in the form of additional indebtedness or through the sale of equity securities in a private placement. We are working with our advisors in our efforts to obtain such funding, and explore strategic alternatives. However, we do not currently have an agreement in place to provide any financing, and there is no certainty that we 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.

Concentration of Credit Risk

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

One customer accounted for approximately 15% of net revenues for the three months ended June 30, 2014 and one customer accounted for approximately 10% of net revenues for the three months ended June 30, 2013. One customer accounted for approximately 11% of total accounts receivable as of June 30, 2014 and no customers accounted for more than 10% of total accounts receivable as of June 30, 2013.

Stock-Based Compensation

We account for stock-based compensation using the fair value method of accounting. The estimated fair value of the stock options granted is amortized on a straight-line basis over the vesting period of the stock.

Stock options totaling 29,850 were granted during the quarter ended June 30, 2014. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Three months ended June 30,
	2014			2013
Risk-free interest rates		1.25	%		-
Expected term (in years)		4			-
Expected volatility		425	%		-
Dividend yield		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. We have not paid dividends in the past.

As of June 30, 2014, the aggregate stock compensation remaining to be amortized to expense was $232. Salon expects this stock compensation balance to be amortized as follows: $119 during the remainder of fiscal 2015; $89 during fiscal 2016; $20 during fiscal 2017 and $4 during fiscal 2018. The expected amortization reflects outstanding stock option awards as of June 30, 2014 expected to vest.

There were no stock options granted during the quarter ended June 30, 2013.

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.

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Note 3 - Stock Option Plans (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	29,850	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Weighted Average Grant Date Fair Value (in Dollars per share)	$ 0.09	$ 0.05
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	0
Allocated Share-based Compensation Expense (in Dollars)	$ 46	$ 8

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Note 4 - Net Loss Per Share (Details) - Net Loss Per Share (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Numerator:
Net loss attributable to common stockholders (in Dollars)	$ (886)	$ (688)
Denominator:
Weighted average shares used in computing basic and diluted net loss per share attributable to common stockholders	76,245,000	66,943,000
Basic and diluted net loss per share attributable to common stockholders (in Dollars per share)	$ (0.01)	$ (0.01)
Antidilutive securities including options, warrants and convertible notes and preferred stock not included in net loss per share calculation	7,115,000	4,607,000

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Note 2 - Borrowing Agreements

3 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

2.         Borrowing Agreements

Short-term Borrowings

In May 2007, we finalized a borrowing agreement with Deutsche Bank Securities, Inc. that allows us to borrow up to $1,000 at a rate of prime less 0.25%. Our obligations under this agreement are guaranteed in their entirety by our Chairman. The line of credit has been fully drawn as of June 30, 2014. Deutsche Bank Securities may demand repayment of amounts borrowed at any time. Additionally, our Chairman may also choose to terminate his guarantee, which would trigger a demand for repayment. As of June 30, 2014, accrued interest on short-term borrowings totaled approximately $265.

As of June 30, 2014 and 2013, the weighted-average interest rate on the Company’s short-term borrowings was 3.6% and 3.7%, respectively.

Related Party Advances

During the three months ended June 30, 2014 and 2013, we received unsecured, interest-free cash advances totaling $860 and $851, respectively, to fund operations from our 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.

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Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2014	Mar. 31, 2014
Accounts receivable, allowance (in Dollars)	$ 60	$ 60	[1]
Preferred stock, par value (in Dollars per share)	$ 0.001	$ 0.001	[1]
Preferred stock, shares authorized	5,000,000	5,000,000	[1]
Preferred stock, shares issued	1,075	1,075	[1]
Preferred stock, shares outstanding	1,075	1,075	[1]
Preferred stock, liquidation value (in Dollars)	$ 2,443	$ 2,426	[1]
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001	[1]
Common stock, shares authorized	150,000,000	150,000,000	[1]
Common stock, shares issued	76,245,442	76,245,442	[1]
Common stock, shares outstanding	76,245,442	76,245,442	[1]

[1] Derived from the Company's audited consolidated financial statements.

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Note 5 - Commitments and Contingencies (Tables)

3 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Contractual Obligation, Fiscal Year Maturity Schedule [Table Text Block]

	Payments Due By Period
	Total		1 Year or Less		1 - 3 Years		3 - 5 Years		More Than 5 Years
Operating leases	$	1,747	$	327	$	671	$	663	$	86
Short-term borrowing		1,000		1,000		-		-		-
Interest on short-term borrowing		265		265		-		-		-
Related party advances		3,651		3,651		-		-		-
Total	$	6,663	$	5,243	$	671	$	663	$	86

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Document And Entity Information	3 Months Ended
	Jun. 30, 2014	Aug. 01, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	SALON MEDIA GROUP INC
Document Type	10-Q
Current Fiscal Year End Date	--03-31
Entity Common Stock, Shares Outstanding		76,245,442
Amendment Flag	false
Entity Central Index Key	0001084332
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1

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Note 6 - Preferred Stock (Tables)

3 Months Ended

Jun. 30, 2014

Disclosure Text Block Supplement [Abstract]

Schedule Of Preferred Stock [Table Text Block]

			Per share				Common
	Shares		Purchase		Conversion		Equivalent
Preferred Stock	Outstanding		Price		Rate		Shares
Series C		1,075	$	800		0.785		1,096,676
Total		1,075						1,096,676

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Net revenues	$ 1,243	$ 1,197
Operating expenses:
Production and content	938	810
Sales and marketing	406	415
Information technology support	398	380
General and administrative	377	271
Total operating expenses	2,119	1,876
Loss from operations	(876)	(679)
Interest expense	(10)	(9)
Net loss	$ (886)	$ (688)
Basic and diluted net loss per share (in Dollars per share)	$ (0.01)	$ (0.01)
Weighted-average shares of Common Stock used in computing basic and diluted net loss per share (in Shares)	76,245,000	66,943,000

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Note 7 - Subsequent Events

3 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

Subsequent Events [Text Block]

7.        Subsequent Events

From July 1, 2014 through August 14, 2014, we received unsecured interest-free cash advances totaling $250 from our Chairman.

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Note 6 - Preferred Stock

3 Months Ended

Jun. 30, 2014

Disclosure Text Block Supplement [Abstract]

Preferred Stock [Text Block]

6.         Preferred Stock

The conversion rate and common equivalent shares of our Preferred Stock as of June 30, 2014 are as follows:

			Per share				Common
	Shares		Purchase		Conversion		Equivalent
Preferred Stock	Outstanding		Price		Rate		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 June 30, 2014, no dividend has been declared to the holders of Preferred Stock.

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 June 30, 2014 were $1,720 excluding the effect of undeclared dividends, and $2,443 including the effect of undeclared dividends. We have never declared a dividend and do 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.

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Note 3 - Stock Option Plans (Details) - Stock Option Plan Activity (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Stock Option Plan Activity [Abstract]
Balance as of March 31, 2014	6,008,000
Balance as of March 31, 2014	$ 0.13
Options granted under all plans	29,850	0
Options granted under all plans	$ 0.25
Expired and forfeited	(20,000)
Expired and forfeited	$ 0.15
Outstanding as of June 30, 2014	6,018,000
Outstanding as of June 30, 2014	$ 0.13
Outstanding as of June 30, 2014	$ 331,000
Vested as of June 30, 2014	3,574,000
Vested as of June 30, 2014	$ 0.14
Vested as of June 30, 2014	209,000
Vested and expected to vest	5,025,000
Vested and expected to vest	$ 0.13
Vested and expected to vest	$ 286,000

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Note 1 - The Company and Significant Accounting Policies (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				1 Months Ended	18 Months Ended	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Mar. 31, 2014		Aug. 14, 2014 Board of Directors Chairman [Member] Subsequent Event [Member]	Aug. 14, 2014 Board of Directors Chairman [Member] Subsequent Event [Member]	Jun. 30, 2014 Board of Directors Chairman [Member]	Jun. 30, 2013 Board of Directors Chairman [Member]	Jun. 30, 2014 Sales Revenue, Net [Member] Customer Concentration Risk [Member]	Jun. 30, 2013 Sales Revenue, Net [Member] Customer Concentration Risk [Member]	Jun. 30, 2014 Accounts Receivable [Member] Customer Concentration Risk [Member]	Jun. 30, 2013 Accounts Receivable [Member] Customer Concentration Risk [Member]	Jun. 30, 2014 Minimum [Member]	Jun. 30, 2014 Maximum [Member]
Note 1 - The Company and Significant Accounting Policies (Details) [Line Items]
Number of Operating Segments	1
Retained Earnings (Accumulated Deficit)	$ (119,537)		$ (118,651)	[1]
Additional Funding Required For Operating Needs													600	1,100
Proceeds from Related Party Debt					250	3,901	860	851
Concentration Risk Number									1	1	1	0
Concentration Risk, Percentage									15.00%	10.00%	11.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares)	29,850	0
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	232
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, To Be Recognized This Fiscal Year	119
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, To Be Recognized In Year 2	89
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, To Be Recognized In Year 3	20
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, To Be Recognized In Year 4	$ 4

[1] Derived from the Company's audited consolidated financial statements.

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Note 3 - Stock Option Plans (Tables)

3 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

				Weighted-
	Outstanding			Average		Aggregate
	Stock			Exercise		Intrinsic
	Options			Price		Value
Balance as of March 31, 2014		6,008,000		$	0.13
Options granted under all plans		30,000		$	0.25
Exercised		-			-
Expired and forfeited		(20,000	)	$	0.15
Outstanding as of June 30, 2014		6,018,000		$	0.13	$	331,000
Vested as of June 30, 2014		3,574,000		$	0.14	$	209,000
Vested and expected to vest		5,025,000		$	0.13	$	286,000

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Accounting Policies, by Policy (Policies)

3 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Segment Reporting, Policy [Policy Text Block]

Salon operates in one business segment.

Basis of Accounting, Policy [Policy Text Block]

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, 2014, which are included in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014 filed with the Securities and Exchange Commission on June 27, 2014. 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 three month period ended June 30, 2014 are not necessarily indicative of the expected results for any other interim period or for the fiscal year ending March 31, 2015.

These condensed consolidated financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred losses and negative cash flows from operations since inception and had an accumulated deficit as of June 30, 2014 of $119,537. In addition, we expect to incur a net loss from operations for the fiscal year ending March 31, 2015. Burr Pilger Mayer, Inc., Salon’s independent registered public accounting firm for the years ended March 31, 2014, 2013, and 2012, included a “going-concern” audit opinion on the consolidated financial statements for those years.  The audit opinions report substantial doubt about our ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability.  As a result of the “going-concern” opinions, our stock price and investment prospects have been and will continue to be adversely affected, thus limiting financing choices and raising concerns about the realization of value on assets and operations.

Our operating forecast for the remainder of the fiscal year ending March 31, 2015 anticipates continued but reduced operating losses. We estimate we will require approximately $600 - $1,100 in additional funding to meet our operating needs for the balance of our 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, we have relied on funding from related parties. Through August 14, 2014, our Chairman has provided an aggregate of $3,901 in cash advances since March 1, 2013. We remain dependent upon our two largest stockholders for continued financial support while we seek external financing from potential investors in the form of additional indebtedness or through the sale of equity securities in a private placement. We are working with our advisors in our efforts to obtain such funding, and explore strategic alternatives. However, we do not currently have an agreement in place to provide any financing, and there is no certainty that we 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, Policy [Policy Text Block]

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.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of Credit Risk

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

One customer accounted for approximately 15% of net revenues for the three months ended June 30, 2014 and one customer accounted for approximately 10% of net revenues for the three months ended June 30, 2013. One customer accounted for approximately 11% of total accounts receivable as of June 30, 2014 and no customers accounted for more than 10% of total accounts receivable as of June 30, 2013.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

We account for stock-based compensation using the fair value method of accounting. The estimated fair value of the stock options granted is amortized on a straight-line basis over the vesting period of the stock.

Stock options totaling 29,850 were granted during the quarter ended June 30, 2014. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Three months ended June 30,
	2014			2013
Risk-free interest rates		1.25	%		-
Expected term (in years)		4			-
Expected volatility		425	%		-
Dividend yield		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. We have not paid dividends in the past.

As of June 30, 2014, the aggregate stock compensation remaining to be amortized to expense was $232. Salon expects this stock compensation balance to be amortized as follows: $119 during the remainder of fiscal 2015; $89 during fiscal 2016; $20 during fiscal 2017 and $4 during fiscal 2018. The expected amortization reflects outstanding stock option awards as of June 30, 2014 expected to vest.

There were no stock options granted during the quarter ended June 30, 2013.

Reclassification, Policy [Policy Text Block]

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.

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Note 1 - The Company and Significant Accounting Policies (Tables)

3 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Three months ended June 30,
	2014			2013
Risk-free interest rates		1.25	%		-
Expected term (in years)		4			-
Expected volatility		425	%		-
Dividend yield		0	%		-

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Note 4 - Net Loss Per Share (Tables)

3 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended
	June 30,
	2014			2013
Numerator:
Net loss attributable to common stockholders	$	(886	)	$	(688	)
Denominator:
Weighted average shares used in computing basic and diluted net loss per share attributable to common stockholders		76,245,000			66,943,000
Basic and diluted net loss per share attributable to common stockholders	$	(0.01	)	$	(0.01	)
Antidilutive securities including options, warrants and convertible notes and preferred stock not included in net loss per share calculation		7,115,000			4,607,000

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Note 2 - Borrowing Agreements (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Note 2 - Borrowing Agreements (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	$ 1,000
Line of Credit Facility, Interest Rate Description	prime less 0.25%
Line of Credit Facility, Margin	0.25%
Interest Payable	265
Debt, Weighted Average Interest Rate	3.60%	3.70%
Board of Directors Chairman [Member]
Note 2 - Borrowing Agreements (Details) [Line Items]
Proceeds from Related Party Debt	860	851
Short-Term Borrowings [Member]
Note 2 - Borrowing Agreements (Details) [Line Items]
Interest Payable	$ 265

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Note 5 - Commitments and Contingencies (Details) - Office Lease Commitments and Short-term Borrowings (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Mar. 31, 2014
Office Lease Commitments and Short-term Borrowings [Abstract]
Operating leases	$ 1,747
Operating leases	327
Operating leases	671
Operating leases	663
Operating leases	86
Short-term borrowing	1,000	1,000	[1]
Interest on short-term borrowing	265
Interest on short-term borrowing	265
Related party advances	3,651
Related party advances	3,651	2,791	[1]
Total	6,663
Total	5,243
Total	671
Total	663
Total	$ 86

[1] Derived from the Company's audited consolidated financial statements.

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2014		Jun. 30, 2013
Cash flows from operating activities:
Net loss	$ (886)		$ (688)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense and change in allowance for doubtful accounts			9
Depreciation	8		10
Stock-based compensation	46		8
Changes in assets and liabilities:
Accounts receivable	211		(346)
Prepaid expenses and other assets	(99)		130
Accounts payable, accrued liabilities and deferred rent	(131)		(36)
Deferred revenues	12		(8)
Net cash used in operating activities	(839)		(921)
Cash flows from investing activities:
Purchase of property and equipment	(1)		(5)
Net cash used in investing activities	(1)		(5)
Cash flows from financing activities:
Proceeds from related party advances	860		851
Net cash provided by financing activities	860		851
Net increase (decrease) in cash and cash equivalents	20		(75)
Cash and cash equivalents at beginning of period	119	[1]	96
Cash and cash equivalents at end of period	139		21
Supplemental schedule of non-cash financing activity:
Conversion of preferred stock, unsecured advances and payables into common shares			$ 9,129

[1] Derived from the Company's audited consolidated financial statements.

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Note 5 - Commitments and Contingencies

3 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

5.         Commitments and Contingencies

On October 17, 2012, we signed a new office lease agreement to relocate our 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 April 16, 2014, we entered into an office lease for our new corporate offices at 132 West 31^st Street, New York, New York consisting of 6,523 square feet in rentable space. The lease commenced on July 1, 2014 and will expire on September 30, 2019. Upon execution of the lease, a deposit in the form of a letter of credit of $204 was required. The term of the lease is five years with an effective base monthly rent expense of approximately $26, and a base year of 2014 to be utilized in allocating future excess direct expenses.

The following summarizes our office lease commitments and short-term borrowings as of June 30, 2014:

	Payments Due By Period
	Total		1 Year or Less		1 - 3 Years		3 - 5 Years		More Than 5 Years
Operating leases	$	1,747	$	327	$	671	$	663	$	86
Short-term borrowing		1,000		1,000		-		-		-
Interest on short-term borrowing		265		265		-		-		-
Related party advances		3,651		3,651		-		-		-
Total	$	6,663	$	5,243	$	671	$	663	$	86

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Note 6 - Preferred Stock (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Mar. 31, 2014
Note 6 - Preferred Stock (Details) [Line Items]
Dividends, Preferred Stock	$ 0
Preferred Stock, Liquidation Preference, Value	2,443	2,426	[1]
Preferred Stock, Shares Outstanding (in Shares)	1,075	1,075	[1]
Percentage Of Common Stock Owned By Preferred Stock Holders	6.00%
Series C Preferred Stock [Member]
Note 6 - Preferred Stock (Details) [Line Items]
Preferred Stock, Liquidation Preference Per Share (in Dollars per share)	$ 1,600
Preferred Stock, Dividend Rate, Percentage	8.00%
Preferred Stock, Shares Outstanding (in Shares)	1,075
Percentage Of Preferred Stock Owners In Pool	6.00%
Series C Preferred Stock [Member] | Maximum [Member]
Note 6 - Preferred Stock (Details) [Line Items]
Preferred Stock, Liquidation Preference, Value	2,400
Excluding Undeclared Dividends [Member]
Note 6 - Preferred Stock (Details) [Line Items]
Preferred Stock, Liquidation Preference, Value	$ 1,720

[1] Derived from the Company's audited consolidated financial statements.

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Note 1 - The Company and Significant Accounting Policies (Details) - Assumptions Used in the Determination of Fair Value of Share-Based Payment Awards	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Assumptions Used in the Determination of Fair Value of Share-Based Payment Awards [Abstract]
Risk-free interest rates	1.25%
Expected term (in years)	4 years
Expected volatility	425.00%
Dividend yield	0.00%