slnm20190331b

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

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

For the fiscal year ended March 31, 2019

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

For the transition period from to

Commission file number 0-26395

SALON MEDIA GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware	94-3228750
(State of Incorporation)	(IRS Employer Identification No.)

870 Market Street

San Francisco, CA 94102

(Address of principal executive offices)

(415) 870-7566

(Registrant's telephone number, including area code)

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

None

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

Common Stock, $0.001 Par Value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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

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

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

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

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

Emerging Growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Exchange Act Rule 12b-2).Yes [ ] No [X]

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2,954,000 based on the closing sale price of the registrant’s Common Stock on June 1, 2017. Shares of Common Stock held by each then current executive officer and director and by each person who is known by the registrant to own 5% or more of the outstanding Common Stock have been excluded from this computation in that such persons may be deemed to have been affiliates of Salon Media Group, Inc. This determination of affiliate status is not a conclusive determination for other purposes.

The number of outstanding shares of the Registrant's Common Stock, par value $0.001 per share, on July 1, 2019 was 315,939,477 shares.

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, social media and other non-web opportunities and revenue sources. Although Salon Media Group, Inc. (“Salon”, the “Company”, “Our” or “We”) believes its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. Salon’s actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of the factors set forth above and in Salon’s public filings. Salon assumes no obligation to update any forward-looking statements except as required by law.

Salon’s actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of the factors set forth in “Risk Factors.” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are elsewhere in this Annual Report. In this Annual Report, the words “anticipates”, “believes”, “expects”, “estimates”, “intends”, “future,” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

Salon is a technology-based advertising media business that wholly owns and operates an online news website, salon.com (“Salon.com”). Our award-winning journalism is committed to fearless journalism and combines original investigative stories and provocative personal essays along with quick-take commentary, articles, podcasts, and original video about politics, culture, entertainment, sustainability, innovation, technology and business.

Salon was originally incorporated in July 1995 in the State of California and reincorporated in Delaware in June 1999. In 1999, we had our initial public offering. In 2001, we adopted the name Salon Media Group, Inc. In March 2019, we entered into an asset purchase agreement to sell substantially all of our assets. Our common stock is quoted on the OTC Markets and our stock symbol is SLNM.

Material Agreements Entered into during Fiscal 2019 and First Quarter of Fiscal 2020

On March 6, 2019, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Salon.com, LLC (“Buyer”) under which we agreed to sell substantially all of our assets (the "Asset Sale"), including all pertinent intellectual property rights comprising the Company’s business of owning, operating and publishing the website known as Salon.com, (the “Business”), but excluding our cash, cash equivalents and marketable securities and certain contracts and right related to those contracts and tax refunds and insurance policies and rights related to excluded assets, to the Buyer for an aggregate Purchase Price of $5 million payable plus the amount of the Earn-Out Payment (as described below) and the assumption of certain assumed liabilities, all pursuant to the terms of the Asset Purchase Agreement. The purchase price is payable in cash as follows: (i) $550,000 in payable in cash at closing; (ii) $100,000 shall be deposited with the Escrow Agent, which amount shall be released to us in accordance with the terms of the Asset Purchase Agreement; (iii) $500,000 of which was previously paid to the Company as a deposit concurrent with execution of the term sheet for the Asset Purchase Agreement (the "Deposit") and (iv) $3,850,000 via issuance of a 10% secured promissory note, which note shall be paid in 2 equal installments on the 12 month and 24 month anniversary of the closing date. This note shall be secured by all of the assets being sold to Buyer under the Asset Purchase Agreement.

On April 15, 2019, we entered into a First Amendment to Asset Purchase Agreement ("First Amendment") with Buyer. The primary purpose of the First Amendment was to amend the payment terms under the Technology Agreement and the Advertising Agreement as set forth below:

(a) for the month of March 2019: (i) ad fees under the Advertising Agreement shall be payable at 6.5%, and (ii) tech management fees payable pursuant to the Technology Agreement shall be $5,000 plus costs per the Technology Agreement;

(b) for the month of April 2019: (i) ad fees under the Advertising Agreement shall be payable at 6.5%, and (ii) tech management fees payable pursuant to the Technology Agreement shall be $10,000 plus costs per the Technology Agreement; and

(c) for the month of May 2019 and for each month thereafter: (i) ad fees under the Advertising Agreement shall be payable at 6.5%, (ii) tech management fees payable pursuant to the Technology Agreement shall be $10,000 plus costs per the Technology Agreement and (iii) an amount equal to 10% APR applied to the Deposit.

We also amended Section 10.9 of the Asset Purchase Agreement to include the term sheet related to the acquisition for the documents related to the entire agreement of the parties.

On June 30, 2019, we entered into a Second Amendment to Asset Purchase Agreement with Buyer under which the parties revised the Asset Purchase Agreement to provide that amounts delivered into escrow upon execution would not be used to compensate any Buyer Indemnified Parties for any losses under the Asset Purchase Agreement.

On July 1, 2019, we entered into a Settlement Agreement and Release with each of Jordan Hoffner, our former CEO and Elizabeth Hambrecht, our former CFO. Under the terms of each agreement, we agreed to pay Mr. Hoffner and Ms. Hambrecht, as applicable, the total sum of Thirty Thousand dollars ($30,000.00) (the “Settlement Payment”) on the earlier of (i) 2 business days after the Closing of that certain Asset Purchase Agreement and (ii) December 31, 2019 (the “Payment Date”). Each of Mr. Hoffner and Ms. Hambrecht Claimant acknowledges that, upon receipt of the Settlement Payment, they will have been paid all wages, severance, all unreimbursed business expenses, and all accrued but unused vacation pay due and owing to them further waived any additional claims for unpaid salary or wage amounts, unreimbursed business expenses, and accrued but unused vacation pay. Each of Mr. Hoffner and Ms. Hambrecht executed a general release of all claims under their respective agreements.

From June 2018 through August 2018, we received $114,500 in advances from related parties. These advances accrued interest at a rate of 10% per annum and payable on the one-year anniversary of such advances. On December 7, 2018, these advances and all accrued interest were exchanged for secured notes in the amount of approximately $118,899. These notes bear a 10% interest rate and are payable on June 30, 2019. In addition, on December 7, 2018, we issued warrants to the secured note holders to purchase 11,312,600 shares of our common stock at an exercise price of $0.01 per share. The warrants expire five years from the issuance date and can be exercised with cash or cancellation of the secured notes referenced above.

On October 25, 2018 we entered into a Technology Support Agreement (the "Technology Agreement") with PubLife LLC under which PubLife agreed to provide certain technology support to us, including all web development activities for a six month term in consideration of $1,000 per month. The payment terms under this agreement were amended under the terms of the Asset Purchase Agreement (as set forth below).

On October 25, 2018, we entered into a General Advertising Services Agreement (the "Advertising Agreement") with Proper Media LLC ("Agent") under which we retained Agent to provide advertisement sales and trafficking services for our websites, including salon.com and related sites. The term of this agreement is for one -year, which term shall be extended for successive one-year periods under terminated by either party within 30 days’ notice prior to the end of any term. We agreed to pay agent its revenue share of all revenue invoiced by Agent in connection with Agent's performance of the services under this agreement. In addition, if we refer a 3rd party publishing partner and Agent executes an advertising services agreement with such 3rd party, Agent agrees to pay us 25% of the monthly revenue earned by Agent due to such 3rd party agreement for the first six-months of any such agreement. The payment terms under this agreement were amended under the terms of the Asset Purchase Agreement (as set forth below).

In October 2018, we entered into an agreement with the WGAE for a three-year period. As a result of the ongoing negotiations and accompanying legal fees as well as the higher cost structure per the negotiated agreement, the effect was detrimental to the company’s financial standing as we had to endure layoffs of management in order to accommodate the editorial staff. In addition, the agreement with the union had a seemingly negative impact on our ability to obtain additional financing.

During the fiscal year ended March 31, 2019 (“fiscal year 2019”), we continued to execute our business strategy to refine and broaden our editorial products in order both to attract an engaged audience and premium advertising, which would increase revenues. However, now that the landscape for publishers has permanently changed, we faced increased competition from both new and larger websites for online advertising campaigns during the year, and in the quarter ended March 31, 2018, significant changes to the algorithms used by Google and Facebook led to sharp decreases in traffic. Despite changes to our advertising footprint to capture the greater programmatic opportunity for our display and video advertising inventory, and resulting higher CPMs from our programmatic advertising compared to the fiscal year ended March 31, 2018 (“fiscal year 2018”), the reduced traffic led to a smaller ad footprint and suppressed our revenues. In addition, in March 2019, we entered into an agreement to sell substantially all of our assets. Upon consummation of this transaction, if consummated, we will cease to be an operating company. The highlights of our fiscal year 2019 relating to current operations are listed below:

Our strategy has focused on improving monetization of our user base by innovating our ad technology in order to better match our highly educated and affluent users with advertisers. In the past few years, we have successfully attracted a sizeable user base, which in fiscal year 2019 averaged 6.2 million users per month who consumed an average of 15.2 million page views per month. Our number of page views translates to our number of viewer impressions that can be sold to our advertisers and offers opportunities to develop business relationships with companies that want access to our attractive user base. We currently sell our impressions to advertisers programmatically based on Run of Site private marketplaces, or at times, based on editorial content that falls in a particular category such as “Movies” or “Innovation.” The CPM is driven by market demand for each category of content we offer and the demographics of our audience. During the 2019 fiscal year we have continued to shift our focus to growing higher value traffic that maximizes our ability to monetize our page views with higher CPM video and display advertising. As a result, we have continued to adjust our editorial mix and products in order to publish more content to attract a wider universe of advertising clients and products. Going forward, the CPM that we can charge our advertisers will increasingly be based on our ability to deliver highly targeted and defined users to our advertiser. In addition, in March 2019, we signed the Asset Purchase Agreement to consummate the Asset Sale. If we consummate the Asset Sale, we will cease to be an operating company. The strategies discussed in this section only apply prior to consummation of the Asset Sale (and upon any failure to close the Asset Sale).

Our strategy is predicated on the following core principles: (1) create high quality diversified content that meets our users’ and advertisers’ interests; (2) hire the best possible talent to create centers of excellence and (3) innovate to bring great products to our users and advertisers. Our focus on these core principles underpins our goal to continue to grow our user base, and to develop new strategies around Website monetization that will provide opportunity for future growth.

In fiscal year 2020, our goal is to continue our mission of creating fearless journalism and making the conversation smarter, while anticipating continued shifts in the online advertising market to better monetize our Website until consummation of the Asset Sale discussed above. Following the Asset Sale, we intend to cease to do business and intend to not engage in any business activities except for dealing with post-closing matters (in the event the Asset Sale is consummated) and for the purpose of liquidating our remaining assets, paying any debts and obligations, distributing the remaining assets to stockholders, and doing other acts required to liquidate and wind up our business and affairs. We will pay or make provision for payment of our known or reasonably ascertainable liabilities that have been incurred or are expected to be incurred prior to liquidation. After that, we will distribute the remaining assets to our stockholders in proportion to their respective stockholder interest in the Company. To reach our goals, and to achieve profitability in advance of the Asset Sale, we will push ahead in the following areas:

We target an educated, culturally engaged audience interested in original thinking and smart commentary. We pursue that audience by featuring a diverse array of voices and perspectives, and by covering a wide range of topics including News & Politics, Life Stories, the Economy & Innovation, Culture, Health & Science, and Food. Twenty-four hours a day, 365 days per year, Salon invites users to immerse themselves in thought-provoking content that impassions and empowers them to be the intellectual and cultural leaders of our time.

While we continue to focus on breaking news coverage with a focus on politics, culture and world events, our new categories have been building up to a critical mass of content over the past year. These new categories include Food, Health & Science, and Economy & Innovation, and aim to give our users a wider variety of topics to choose from. The focus on these categories gave our advertisers more category-focused inventory, which has shown a year over year increase in our revenue per thousand pageviews (“RPM”) of 36.6% in March 2019 from March 2018.

As we continue to focus our editorial to our users’ needs, our primary goal is to grow visitors to our Website since the resulting page views serve as a platform for advertising impressions, a key driver of our revenue generation. Using data analytics in real-time, we can assess where our users’ interests are shifting, and respond by determining content, site layout and structure to best suit their needs in the moment. In fiscal year 2020, we intend to respond to users’ interests by expanding our news coverage in Washington DC for the upcoming Presidential election and key Senate races. We will expand into Washington by reallocating internal resources, making some key hires as well as continuing to have content partnerships to diversify our content offerings across various verticals. We are continually evaluating the needs of our users and trying to adjust and create new solutions to meet their needs.

We continually need fresh content and new ideas to attract readers to our Website. We plan to continue to focus on developing our audience through a combination of editorial enhancements, increased dynamic content and new user-focused functionalities and products.

One area of growth will be to attract more female users. As of March 2019, women accounted for 37.2% of our readership, down from 37.9% in March of 2018. We believe that our overall tone of the site, our community and social audience has begun to change to embrace more female readers and that will be a continued area of focus in the next year.

The importance in Website traffic from social media and third party distribution platforms was underpinned by the significant number of Facebook “likes” at more than 995,000, and Twitter followers at 1,005,000 as of March 2018. However, social media traffic can be variable due to changes in each platform’s approach to news content, a high number of fake accounts on these platforms, and the large number of “likes” and “followers” lost some of its prior ability to drive traffic to our website. Therefore, we have focused on building audience segments on other distribution platforms in order to diversify away from Facebook. In fiscal year 2020, we plan to continue our efforts to build our audience on social media, and place more emphasis on other emerging platforms such as Quora, Flipboard and Reddit, through a continuation of the strategies we have employed in the past two years.

In March 2018, we launched a subscription product that allows users to pay for ad-free content. We offer a monthly or yearly subscription plan in exchange for an ad-free experience using a Salon app for the phone. In October 2018, we added onto our subscription product a browser-based offering for those users who did not want to download an app and can see the full Salon offering off of their web browsers. In March 2019, we added on premium content in the Love and Sex category that is only offered through the paid service.

Also, as a result of solid conversion ratios in e-commerce, we have also made our Salon e-commerce partnership more prominent on our Website by placing it on our top navigation bar in order to drive additional revenues. We have expanded our product categories to CBD products and productivity software and plan to add more product categories that are in line with some of our editorial strategies such as food and health.

In addition to these existing initiatives, we are exploring possible business opportunities in other areas such as podcasting, book publishing and a possible Salon TV show.

A Deeper Focus on New Advertising Products that Match our User with Appropriate Advertisers

In order to expand our base of advertisers and increase our advertising revenues, we plan to integrate into our advertising approach a deeper focus on new advertising products that match our high-quality user with appropriate advertisers using data and innovative ad products. This includes entering possible partnerships with advertising technology companies that can offer highly tailored products that leverage new advertising technology and add software and data capabilities to understand our users better. This will allow us to match our readers’ interests with advertisers more closely.

Our operating losses in fiscal year 2019 decreased compared to fiscal year 2018, a result of our continued attempts to make adjustments to our revenue model in order to increase advertising revenues, and keep costs low in order to get closer to profitability. Due to an industry shift in advertising dollars toward programmatic and video advertising, and a decline in traffic during the year, our direct advertising increased 76% and programmatic advertising decreased 43% leading to total decrease in advertising revenues of 30% in fiscal year 2019 as compared to fiscal year 2018. At the same time, our production costs decreased 24% from a year ago, which resulted in smaller losses.

Entering fiscal year 2020, we plan to build on the progress we made in increasing CPMs and advertising rates at programmatic marketplaces, and take advantage of marketing opportunities and an active news cycle to increase our page views and video views. Furthermore, in October 2018, we took steps to reduce further our expense base and shift resources to create content that will generate higher CPM advertising. Given these changes, we anticipate that fiscal year 2020 will better align production costs with our revenue potential in an effort to reach profitability.

We target an educated, culturally engaged audience interested in original thinking and reporting on the day’s big stories. We pursue that audience by featuring a diverse array of voices and perspectives, and covering a wide range of topics including politics, race, religion, culture, entertainment, sustainability, innovation, technology and business. In addition, in March 2019, we executed the Asset Purchase Agreement relating to the Asset Sale. If the Asset Sale is consummated, we will cease to be an operating company.

Most of Salon’s revenues are derived from advertising from the sale of promotional space on its Website. Internet advertising revenues accounted for 79% of revenues in fiscal year 2019. Revenue from referring users to third party websites primarily accounted for the remaining 15% of revenues in fiscal year 2019.

Internet advertising is affected by broad economic conditions, like other forms of advertising, but overall it has continued its upward trend even through economic turbulence. According to the 2018 IAB Internet Advertising Revenue Report conducted by PwC Advisory Services LLC, the compound annual growth rate (“CAGR”) over the past ten years for Internet advertising in the United States was 16.8%, which over the past few years has been largely driven by the growth of mobile. The rapid growth of the mobile advertising platform has resulted in a CAGR of 53.8% over the past five years. Internet advertising revenue in the United States totaled $107.5 billion in 2018, a 21.8% increase from $88.3 billion in 2017. In 2018, the sources for advertising revenues were search (45%), banner (including banners, sponsorships, and rich media) (31%), video (15%) and other (9%).

The bulk of online advertising remains concentrated in a relatively small number of dominant Internet companies, with the top ten companies accounting for 75% of online advertising in the December 2018 quarter, and another 7% captured by the next tier of companies ranked 11^th through 25^th. Therefore, we believe our market opportunity falls roughly at 18% of the online advertising market, or $19.3 billion.

The primary factors in our ability to increase our advertising revenues in future periods are growth in our audience and the addition of higher CPM ad products, such as pre-roll video. Attracting more unique visitors to our Website is important because these users generate additional page views, and each page view becomes a potential platform for advertisements. Advertising comprises banners, video, rich media and other interactive ads across our desktop, tablet, mobile browser and apps platforms. Advertisers pay for advertising based on a CPM, and different platforms attract different CPMs. CPMs for mobile have been less than for desktop. Videos and sponsored content on mobile devices continue to grow in popularity and can demand a higher CPM. We believe that continuing to add videos and sponsored content to our mobile platform and improving and optimizing the platform’s design will help increase revenues from our mobile platform.

Overall, monthly unique visitors to our Website have grown from 6.3 million in March 31, 2011 to a peak of 19.6 million in June 30, 2015, and has reverted to 6.6 million in March 31, 2019. Our full year average monthly unique visitors were 6.4 million, 10.6 million, 11.2 million, 16.9 million, 16.6 million, 12.7 million, 10.6 million and 6.2 million in fiscal years 2012, 2013, 2014, 2015, 2016, 2017, 2018 and 2019, respectively. These fluctuations reflect changes in content areas on our Website over this period, and adjustments to search engine optimization and social media algorithms.

As a news and lifestyle Website that competes against much larger websites, we have sought to distinguish ourselves in the marketplace by offering customized, innovative and integrated advertising products that appeal to users and seamlessly and organically incorporate our advertising clients and their objectives into our Website. We work with our programmatic advertising partners to launch advertisements that match our high-quality audience, and innovate with new products as they become available. In addition, we also offer sponsorships of content that come through direct sales.

Our sales and marketing operation are located in New York, with one advertising sales and operations employee who actively solicits orders as of March 31, 2019.

We recognize that users come to the site for online news, reporting, opinion and an engaging, active community of writers, users and commenters. Users engage with the site through desktop computers, mobile phones and social networking platforms and other referral partners. To meet users’ rapidly evolving online media needs, we are continually innovating and developing our Website, mobile Website and social media presence – by adding new features, design updates and technologies that improve the user experience, speed and search engine optimization. We have developed an internal culture of innovation where the Edit, Technology and Sales teams collaborate on product development.

Our Website is hosted on cloud-based virtual servers running open-source Linux operating systems and various open-source web and network software packages. Our top technical priority is the fast and reliable delivery of pages to our users. Our systems are designed to handle traffic growth and network failures by balancing the requests among several pools of servers across the globe that automatically scale to match traffic demands. We rely on multiple tiers of redundancy/failover and third-party Content Delivery Network to achieve our goal of 24 hours, seven-days-a-week Website uptime. Regular automated backups protect the integrity of our data. Our servers are continuously monitored by numerous third-party and open-source monitoring and alerting tools.

In fiscal year 2017, we launched a Website redesign that put in place a publishing infrastructure that better takes advantage of current technologies. The redesign allows a better user experience as a result of quicker load time, and improved re-circulation of Salon content on each page, and improved monetization due to improved viewability of ads on our website. As a part of this redesign, we continued building new products for video and mobile, expanded our social media integration, and improved security and scaling capabilities.

In fiscal year 2018, we completed our Website and advertising architecture redesign from the previous year aimed at improving the user experience. As part of this effort, we will continue to explore new products that meet the immediate needs of our mobile users, build out new advertising products for video and mobile and improve our security and scaling capabilities.

In fiscal year 2019, we completed our backend systems and content management system upgrade to allow for faster speeds that allow us to be more competitive for programmatic advertising fill rates and prices as latency time decreased by 75%.

The bulk of online advertising remains concentrated in a relatively small number of dominant Internet companies, with the top ten companies accounting for 75% of U.S. online advertising in 2018 and another 8% captured by the next tier of companies ranked 11^th through 25^th. Therefore, we believe our market opportunity falls roughly at 18% of the online advertising market, or $19.3 billion. We compete for advertising revenues with numerous websites, including major portals such as Yahoo/AOL, major search engines such as Google, major social networks such as Facebook and Twitter, and other online large media publications such as Buzzfeed, Huffington Post, New York Times, Washington Post, MSNBC and CNN.com. We also compete with many smaller news and politics-oriented websites, such as Slate, The Daily Beast, The Atlantic, Talking Points Memo, Politico and Axios for staff, audience and advertising sales.

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

As of March 31, 2019, Salon has 24 full-time employees and 1 part-time employee. We believe our relations with our employees are good. We commenced collective bargaining with our non-supervisory editorial employees in November 2015, and signed a three-year agreement with the Writers Guild of America East (WGAE) in October 2018. Our future success is highly dependent on our ability to attract, hire, retain and motivate talented personnel.

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 shares of common stock (the “Common Stock”) could decline. The Risk Factors set forth below have not materially changed from those included in our Fiscal 2018 Annual Report filed with the Securities and Exchange Commission on June 10, 2019.

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 accounting principles generally accepted in the United States of America, for our fiscal year ending March 31, 2019 and to be determined in future years. Even if we attain profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If revenues grow more slowly than we anticipate or operating expenses exceed expectations, financial results will most likely be severely harmed and our ability to continue operations will be seriously jeopardized.

M&K CPA’s, PLLC, Salon’s independent registered public accounting firm for the fiscal years ended March 31, 2017 through 2019 included a “going-concern” audit opinion on the financial statements for each of those years. The audit opinions report substantial doubt about our ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability. As a result of the going-concern opinions, our stock price and investment prospects have been and will continue to be adversely affected, thus limiting financing choices and raising concerns about the realization of value on assets and operations.

The Company has operated in the past principally with the assistance of interest-free advances from related parties, and more recently by financing rounds in fiscal year 2019. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

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.

On January 24, 2017, Salon entered into a Purchase Agreement (the “Purchase Agreement”) with purchasers identified therein (each, a “Purchaser” and together, the “Purchasers”) to issue and sell to the Purchasers in a private placement (the “Private Placement”) shares of Salon’s Series A Mandatorily Convertible Voting Preferred Stock (the “Series A Preferred Stock”). As reported in Salon’s Current Reports on Form 8-K, filed with the Securities and Exchange Commission (the “SEC”) on January 27, 2017, March 27, 2017 and July 26, 2017, the Initial Closing of $1 million, the Second Closing of $0.215 million and the Final Closing of $0.275 million were completed on January 26, 2017, March 23, 2017 and July 20, 2017, respectively.

William Hambrecht, Elizabeth Hambrecht, Jordan Hoffner and Larry Hoffner, the father of our former CEO Jordan Hoffner, were purchasers in the Initial Closing of the Private Placement. Jordan Hoffner, former CEO, Ryan Nathanson, former Chief Operating Officer, and Jordana Brondo, former Chief Revenue Officer, were also purchasers in the Second Closing of the Private Placement. William Hambrecht, Elizabeth Hambrecht and Jordan Hoffner were purchasers in the Final Closing of the Private Placement.

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

We completed a collective bargaining agreement with our non-supervisory editorial employees.

On August 3, 2015, the WGAE became the collective bargaining representative of Salon’s non-supervisory editorial employees. We commenced collective bargaining with the WGAE in November 2015. In October 2018, the Company entered into an agreement with the WGAE for a three-year period. As a result of the ongoing negotiations and accompanying legal fees as well as the higher cost structure per the negotiated agreement, the effect was detrimental to the company’s financial standing as we had to endure layoffs of management and operations staff in order to accommodate the editorial staff. In addition, the agreement with the union had a seemingly negative impact on our ability to obtain additional financing.

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

As of July 1, 2019, approximately 66% of our outstanding common stock are controlled, directly or indirectly by John Warnock, William Hambrecht, a director and Humilis Capital Fund, LP, an entity controlled by Trevor Colhoun, our acting Chief Financial Officer and director. These three investors, if aligned, could combine to make business decisions with which non-principal stockholders disagree, and which may affect the value of the non-principal stockholders’ investments.

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

As of July 1, 2019, our directors and officers beneficially owned approximately 200 million shares of Common Stock, including 24 million shares of Common Stock upon exercise of presently exercisable options,11 million shares of Common Stock upon exercise of presently exercisable warrants and 27 million shares of common stock upon conversion of convertible notes. The approximate 200 million shares of Common Stock represent beneficial ownership of approximately 52% of our Common Stock. As our shares of Common Stock are normally thinly traded, if our principal stockholders were to sell their shares of Common Stock, the price per share of our shares of Common Stock could be adversely affected.

There can be no guarantees that the Asset Sale will be completed and, if not completed, we may have to file for bankruptcy and liquidation.

The consummation of the Asset Sale is subject to the satisfaction or waiver of various conditions, including the approval of the Asset Sale by our stockholders. We cannot guarantee that the closing conditions set forth in the Asset Purchase Agreement will be satisfied. If we are unable to satisfy the closing conditions in Buyer’s favor or if other mutual closing conditions are not satisfied, Buyer will not be obligated to complete the Asset Sale. If the Asset Sale is not completed, our board of directors, in discharging its fiduciary obligations to our stockholders, will evaluate other strategic alternatives that may be available, which alternatives may not be as favorable to our stockholders as the Asset Sale and may include a bankruptcy and liquidation of the Company.

There can be no guarantee that Buyer will make its payments under the $3.8 million secured note delivered to us at closing, the failure of it do so which will reduce any amounts available for distribution to our stockholders.

A substantial portion of the consideration to be received in connection with Asset Sale is the issuance by the Buyer thereunder of $3.8 million in secured notes, which amounts are due to be paid in equal installments on the 12- and 24-month anniversary of closing. Failure of the Buyer to make either of these payments will substantially reduce the amounts payable to our stockholders. While these notes are secured by our assets being sold in the Asset Sale, there is no guarantee that Buyer will make such payments.

Even if the Asset Sale is consummated, we cannot assure you the amount of liquidating distributions, if any, that will be made to our stockholders or the exact timing of distributions.

Our liquidation, dissolution and winding up process will be subject to uncertainties. The amount and timing of any liquidating distribution to our stockholders will depend on the following factors, among others:

We may continue to incur expenses that will reduce any amounts available for distribution to our stockholders.

Claims, liabilities and expenses from operations, such as operating costs, salaries, directors’ and officers’ insurance, payroll and local taxes, legal, accounting and consulting fees and offices expenses will continue to be incurred by us pursuant to the terms of the asset purchase agreement and as we wind down. We cannot estimate what the aggregate of these expenses will be, but they will reduce the amount of funds available for distribution to our stockholders.

While the Asset Sale is pending, it creates uncertainty about our future, which could materially and adversely affect our business, financial condition and results of operations.

While the Asset Sale is pending, it creates uncertainty about our future. Therefore, our current or potential business partners may decide to delay, defer or cancel entering into new business arrangements with us pending consummation of the Asset Sale or termination of the Asset Purchase Agreement. In addition, while the Asset Sale is pending, we are subject to a number of risks, including:

The occurrence of any of these events individually or in combination could materially and adversely affect our business, financial condition and results of operations. We have also incurred substantial transaction costs in connection with the Asset Sale, and we will continue to do so until the consummation of the Asset Sale. Following the consummation of the Asset Sale, we will continue to incur substantial operating expenses to comply with our obligations to perform transition services pursuant to the terms of the asset purchase agreement.

The Asset Purchase Agreement limits our ability to pursue alternatives to the Asset Sale.

The Asset Purchase Agreement contains provisions that make it substantially more difficult for us to sell the Company’s assets to a party other than the Buyer. Specifically, we agreed not to solicit any acquisition proposals until the date of closing or the proper termination of the Asset Purchase Agreement except that, in response to a superior proposal or a highly material intervening event, our board may, among other actions, withdraw or materially modify its recommendation contained in this proxy statement to adopt the Asset Purchase Agreement or recommend the adoption of an alternative acquisition proposal, if our board concludes in good faith (after consultation with outside legal and financial advisors) that the failure to take such action would reasonably be expected to cause our board to breach its fiduciary duties under applicable law.

The failure to consummate the Asset Sale may materially and adversely affect our business, financial condition and results of operations.

The Buyer’s obligation to close the Asset Sale is subject to a number of conditions, including our stockholders’ approval of the Asset Sale Proposal. We cannot control some of these conditions and we cannot assure you that they will be satisfied or that the Buyer will waive any that are not satisfied. If the Asset Sale is not consummated, we may be subject to a number of risks, including the following:

The occurrence of any of these events individually or in combination will likely materially and adversely affect our business, financial condition and results of operations, cause the market value of our common stock to significantly decline or become worthless and force us to file for bankruptcy protection, liquidate and windup our operations.

The failure to consummate the Asset Sale by the prescribed deadline will likely result in the Asset Sale being abandoned.

Either the Buyer or the Company may terminate the Asset Purchase Agreement without penalty if (i) our stockholders do not approve the Asset Sale Proposal or (ü) if the Asset Sale is otherwise not completed by September 2, 2019 (unless such deadline is missed due to a breach by the party seeking termination of a representation, warranty, covenant or agreement in the Asset Purchase Agreement). In the event the Asset Purchase Agreement is terminated, the potential adverse effects from failing to consummate the Asset Sale discussed above would be implicated.

Our executive officers and directors may have interests in the Asset Sale other than, or in addition to, the interests of our stockholders generally.

Members of our board of directors and our executive officers may have interests in the Asset Sale that are different from, or are in addition to, the interests of our stockholders generally. Our board of directors was aware of these interests and considered them, among other matters, in approving the Asset Purchase Agreement.

We will no longer be an operating company following the closing of the Asset Sale.

If the stockholders approve the Asset Purchase Agreement and we complete the Asset Sale, we intend to cease to do business and intend to not engage in any business activities except for dealing with post-closing matters (in the event the Asset Sale is consummated) and for the purpose of liquidating our remaining assets, paying any debts and obligations, distributing the remaining assets to stockholders, and doing other acts required to liquidate and wind up our business and affairs. We will pay or make provision for payment of our known or reasonably ascertainable liabilities that have been incurred or are expected to be incurred prior to liquidation. After that, we will distribute the remaining assets to our stockholders in proportion to their respective stockholder interest in the Company. In considering how to vote on the Asset Sale Proposal, stockholders should not assume that they will receive any distributions from the Company.

The tax treatment of the Asset Sale or any liquidating distributions may vary from stockholder to stockholder, and the discussions in this proxy statement regarding such tax treatment are general in nature.

You should consult your own tax advisor instead of relying on the discussions of tax treatment in this proxy statement for tax advice.

We have not requested a ruling from the Internal Revenue Service (“IRS”) with respect to the anticipated tax consequences of the Asset Sale, and we will not seek an opinion of counsel with respect to the anticipated tax consequences of the Asset Sale or any liquidating distributions. If any of the anticipated tax consequences described in this proxy statement proves to be incorrect, the result could be increased taxation at the corporate and/or stockholder level, thus reducing the benefit to our stockholders and us from the liquidation and distributions. Tax considerations applicable to particular stockholders may vary with and be contingent upon the stockholder’s individual circumstances.

The recent resignation of Jordan Hoffner as our Chief Executive Officer may affect our ability to successfully close the Asset Sale.

Jordan Hoffner resigned as our Chief Executive Officer on May 3, 2019. This may affect our ability to successfully close the Asset Sale, the failure of which may materially and adversely affect our business, financial condition and results of operations.

We may be subject to securities litigation, which is expensive and could divert our attention.

We may be subject to securities class action litigation in connection with the Asset Sale. Securities litigation against us could result in substantial costs and divert our management’s attention from closing the Asset Sale, which could harm our business and increase our expenses, which could decrease the amount available for distribution to our stockholders.

Following consummation of the Asset Sale, we may no longer be required to file reports with the SEC.

We may file a notice terminating our reporting obligations under the Exchange Act following completion of the Asset Sale. Once effective, we may no longer be required to file any annual, quarterly or other current reports with the SEC. If we are no longer required to file reports with the SEC, stockholders will have very little public information available about us and our operations which will further affect the trading and liquidity of our Common Stock.

Existing stockholders may experience significant dilution from the issuance of our Common Stock pursuant to our recently issued convertible notes, Series A Preferred Stock, and warrants.

As of July 1, 2019, we have $845,000 in convertible notes issued as part of a bridge note financing. These notes will convert at a discount into shares of Common Stock upon a qualified financing by the Company of at least $1 million. The conversion price will equal to 70% of the price per share paid in the qualified financing if such financing occurs within four months from the date of the Securities Purchase Agreement, or 70% less 2% per each month after the fourth month anniversary; provided however that the Conversion Price will never be less than the greater of (A) sixty percent (60%) of the purchase price paid in the qualified financing and (B) the price per share paid by investors in the most recently consummated offering of the Company’s Common Stock, or $0.0124 per share, the conversion price in the Series A Mandatorily Convertible Preferred Private Placement, if the financing occurs more than four months after the date of the Securities Purchase Agreement. The issuance and sale of our Common Stock to these bridge note holders for any conversions may have a dilutive impact on our shareholders.

As of July 1, 2019, we have $118,899 in convertible notes from related parties. These notes bear a 10% interest rate and are payable on June 30, 2019. In addition, we issued warrants to the secured note holders to purchase 11,312,600 shares of our common stock at an exercise price of $0.01 per share. The warrants expire five years from the issuance date and can be exercised with cash or cancellation of the secured notes referenced above.

In addition, if we fail to close the Asset Purchase Agreement or breach the term sheet related to such Asset Purchase Agreement, the $500,000 advanced by PubLife, LLC will convert into a senior secured convertible promissory note, which note would bear interest and be due 90 days from issue and at the election of the PubLife, the outstanding principal amount and all accrued unpaid interest on the note would be convertible into fully paid and non-assessable shares of the our Common Stock at a price per share equal to $0.03.

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

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

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:

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

Internet users increasingly use mobile devices rather than PCs to access the Internet. Approximately 75% of our monthly users are now visiting our Website on mobile devices. As mobile platforms encompass a larger share of our readers, our ability to grow advertising revenue is increasingly dependent on our ability to generate revenue from advertisements displayed on mobile devices. While we plan to continue to devote technology resources to support our mobile browser product and advertising products, if our mobile browser product and advertising products for mobile devices do not attract and retain users and advertisers to generate mobile revenue, our operating and financial results will be adversely impacted. We are dependent upon our products operating on mobile operating systems we do not control. The mobile phone manufacturer and its operating systems might block access to our Website or make it hard for users to find our Website through their devices, or block certain advertisements or charge us for delivery of advertisements, all of which would harm our operations and suppress revenue potential.

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

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

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

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

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 users 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.

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

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

Our success depends on our key personnel, including our executive officers, and the loss of key personnel, including our CEO, 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 several years, 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 platform 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.

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

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

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

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

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

Our Website, Salon.com, and content management system run on cloud computing hosted by Amazon Web Services, which are in facilities located in Los Angeles and Virginia. Any disruption of Amazon’s cloud computing platform could result in a service outage. Fire, floods, earthquakes, power loss, telecommunications failures, break-ins, supplier failure to meet commitments, and similar events could damage these systems and cause interruptions in our services. Computer viruses, electronic break-ins or other similar disruptive problems could cause users to stop visiting our Website and could cause advertisers to terminate any agreements with us. In addition, we could lose advertising revenues during these interruptions and user satisfaction could be negatively impacted if the service is slow or unavailable. If any of these circumstances occurred, our business could be harmed. Our insurance policies may not adequately compensate us for losses that may occur due to any failures of or interruptions in our systems. We do not presently have a formal disaster recovery plan.

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

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.

We have secured debt outstanding. If we were unable to service our debt, our business would be adversely affected.

We currently have secured notes issued to certain of our directors in the amount of approximately $118,899 which is due on June 30, 2019. If we were unable obtain an extension or if we fail to pay our debt obligations in a timely fashion, we will be in default under these secured notes. If we default on these notes, such could exercise its rights and remedies under the secured notes, which could include seizing all of our assets. Any such action would have a material adverse effect on our business and prospects.

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:

Due to the factors noted above and the other risks discussed in this section and throughout this Annual Report on Form 10-K (the “Form 10-K”), 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.

Our internal controls over financial reporting were determined to be ineffective at March 31, 2019 and we identified material weaknesses in our internal controls over financial reporting as of March 31, 2019, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

Complying with Section 404 requires a rigorous compliance program as well as adequate time and resources. As a result of developing, improving and expanding our core information technology systems as well as implementing new systems to support our sales, engineering, supply chain and manufacturing activities, all of which require significant management time and support, we may not be able to complete our internal control evaluation, testing and any required remediation in a timely fashion. For the period ended March 31, 2019, we identified material weaknesses in our internal control over financial reporting. As such we were unable to assert that our internal controls are effective. This could result in the loss of investor confidence in the accuracy and completeness of our financial reports, which would have a material adverse effect on the price of our common stock.

We have not paid any cash dividends to date and do not expect to pay dividends for the foreseeable future. We intend to retain earnings, if any, as necessary to finance the operation and expansion of our business.

Our Common Stock is traded on the OTC Markets (QB Marketplace Tier) under the symbol “SLNM.” During the 30-days prior to filing of this Report, the average daily trading volume of our common stock was approximately 5,974 shares. There has been limited trading activity in our stock recently, and when it has traded, the price has fluctuated widely. We consider our Common Stock to be “thinly traded” and any last reported sale prices may not be a true market-based valuation of the Common Stock. A consistently active trading market for our stock may not develop at any time in the future. Stockholders may experience difficulty selling their shares if they choose to do so because of the illiquid market and limited public float for our stock.

Our Common Stock is considered to be a “penny stock” and, as such, the market for our common stock may be further limited by certain SEC rules applicable to penny stocks.

As long as the price of our Common Stock remains below $5.00 per share or we have net tangible assets of $2,000,000 or less, our shares of Common Stock are likely to be subject to certain “penny stock” rules promulgated by the SEC. Those rules impose certain sales practice requirements on brokers who sell penny stock to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000). For transactions covered by the penny stock rules, the broker must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to the sale. Furthermore, the penny stock rules generally require, among other things, that brokers engaged in secondary trading of penny stocks provide customers with written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and asked prices and disclosure of the compensation to the brokerage firm and disclosure of the sales person working for the brokerage firm. These rules and regulations make it more difficult for brokers to sell our shares of our Common Stock and limit the liquidity of our securities.

Transfers of our securities may be restricted by virtue of state securities “blue sky” laws which prohibit trading absent compliance with individual state laws. These restrictions may make it difficult or impossible to sell shares in those states.

Transfers of our Common Stock may be restricted under the securities or securities regulations laws promulgated by various states and foreign jurisdictions, commonly referred to as “blue sky” laws. Absent compliance with such individual state laws, our Common Stock may not be traded in such jurisdictions. Because the securities registered hereunder have not been registered for resale under the blue-sky laws of any state, the holders of such shares and persons who desire to purchase them should be aware that there may be significant state blue sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions may prohibit the secondary trading of our Common Stock. Investors should consider the secondary market for our securities to be a limited one.

We have the ability to issue additional shares of our Common Stock and shares of Preferred Stock without asking for stockholder approval, which could cause your investment to be diluted.

Our Certificate of Incorporation authorizes the Board to issue up to 900,000,000 shares of common stock and up to 5,000,000 shares of Preferred Stock. The power of the Board to issue shares of Common Stock, Preferred Stock or warrants or options to purchase shares of common stock or Preferred Stock is generally not subject to stockholder approval. Accordingly, any additional issuance of our Common Stock, or Preferred Stock that may be convertible into Common Stock, may have the effect of diluting your investment.

By issuing Preferred Stock, we may be able to delay, defer or prevent a change of control.

Our Certificate of Incorporation permits us to issue, without approval from our shareholders, a total of 5,000,000 shares of Preferred Stock. Our Board can determine the rights, preferences, privileges and restrictions granted to, or imposed upon, the shares of Preferred Stock and to fix the number of shares constituting any series and the designation of such series. It is possible that our Board, in determining the rights, preferences and privileges to be granted when the Preferred Stock is issued, may include provisions that have the effect of delaying, deferring or preventing a change in control, discouraging bids for our Common Stock at a premium over the market price, or that adversely affect the market price of and the voting and other rights of the holders of our Common Stock.

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:

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

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

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

On October 17, 2017, Salon signed a two-year office lease agreement for its San Francisco headquarters at 870 Market Street, San Francisco, California. The two-year lease, for approximately 1,072 square feet, commenced on December 1, 2017 and will terminate on November 30, 2019. On April 9, 2019 the Company terminated the lease effective June 30, 2019. The outstanding lease obligation is approximately $15 for the remaining three months of the lease.

In August 2016, we informed our landlord at our office space at 132 West 31^st Street, New York, New York, of our intention to move out of the premises, and we engaged a property agent to find a sub-tenant for the space. The lease for New York space commenced on July 1, 2014 and will expire on September 30, 2019. In January 2017, we were asked to vacate the office space at 132 West 31^st Street due to nonpayment of our monthly rent, and on January 30, 2017, we released the letter of credit of $204,000 to the landlord in payment of the past due rent. On August 3, 2017, we received a Complaint from the landlord. This civil summons and complaint in New York State Court seeks to recover all unpaid rents for the remainder of our five-year lease, equal to approximately $918,000 plus damages and attorney fees (and currently approximately $630,000 as of the date of this report). Counsel for Salon is currently evaluating potential defenses and counterclaims, based on the laws and facts.

The potential amount of this contingent liability is indeterminate, since it is unknown whether the Landlord will lease the premises to a new tenant, in which case the rents from the new tenant are an off-set to this liability. While counsel for Salon is evaluating potential defenses and counterclaims to the Complaint, we are unable to determine the foregoing liability, if any, with any degree of certainty, due to the uncertain nature of litigation matters. The parties are currently engaged in discovery proceedings and no trial date has been set. The landlord has moved for partial summary judgement as to liability, which motion has not yet been opposed, argued or decided by the Court.

On November 18, 2018, Jordana Brondo, a former employee of Salon Media Group, brought a formal claim against the Company for Judicial Arbitration and Mediation Services under JAMS in San Francisco, CA. Under her claim, Ms. Brondo alleges wrongful termination under the basis of gender discrimination pregnancy discrimination, wrongful termination in violation of public policy, and retaliation. Ms. Brondo seeks general damages, special damages, punitive damages, cost of fees and attorney fees in the amount of $1,600,000. The Company has denied the allegations and is actively defending the matter. In addition, the Company has insurance to cover any unexpected liability. The matter is currently pending.

Except as disclosed above, we are not currently subject to any material legal proceedings. However, we are subject to legal proceedings and claims from time to time in the ordinary course of business. Regardless of the outcome, litigation is time consuming and expensive to resolve, and it diverts management resources.

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

Information with respect to the quarterly high and low sales prices for Salon’s Common Stock, ticker symbol SLNM, for its fiscal years 2019 and 2018, based on sales transactions reported by the OTC Markets is provided below:

Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

There were 98 total stockholders of record of Salon Common Stock as of July 1, 2019. This number was derived from Salon’s stockholder records, and does not include beneficial owners of Salon’s voting Common Stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries. The closing price of Salon’s Common Stock on July 1, 2019 was $0.02 per share.

Salon has never declared or paid any cash dividends on its capital stock and does not expect to pay any cash dividends in the foreseeable future.

The following table provides information about Salon’s Common Stock that may be issued upon the exercise of options and rights under all of Salon’s existing equity compensation plans as of March 31, 2019, including the Salon Media Group, Inc. 2004 Stock Plan (the “2004 Stock Plan”), the Salon Media Group, Inc. 2014 Stock Incentive Plan (the “2014 Stock Incentive Plan”) and the Salon Media Group, Inc. Non Plan Stock Option agreement (“Non-Plan”). Non-Plans are equity compensation plans not approved by stockholders.

We have granted options pursuant to Non-Plans. On June 9, 2016, we granted to our former CEO an option to purchase 12,654,318 shares of Common Stock pursuant to the terms and conditions of the Salon Media Group, Inc. Non Plan Stock Option agreement, with vesting in equal monthly installments over a four-year period commencing with the grant date.

On September 6, 2017, we granted to our former CEO an option to purchase 31,260,505 shares of Common Stock pursuant to the terms and conditions of the Salon Media Group, Inc. Non Plan Stock Option agreement, with our standard vesting of 25% of the option shares one year from the date of grant and then ratably over the following 36 months (1/48 per month).

On September 6, 2017, we granted to each of the four members of our Board an option to collectively purchase 5,384,615 shares of Common Stock pursuant to the terms and conditions of the Salon Media Group, Inc. Non Plan Stock Option agreement, with vesting of 25% of the option shares one year from their service commencement and then ratably over the following 36 months (1/48 per month).

Effective June 28 2019, we issued 164,883.000 shares of our common stock upon mandatory conversion of 1,648,830 shares of our Series A Preferred Stock. The issuances were exempt pursuant to Sections 3(a)(9) and/or 4(a)(2) of the Securities Act of 1933, as amended. We did not receive any proceeds from the issuance of these shares.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange At and are not required to provide the information required under this item.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Salon is a technology-based advertising media business that wholly owns and operates an online news website, salon.com (“Salon.com”). Our award-winning website is committed to fearless journalism and combines original investigative stories and provocative personal essays along with quick-take commentary, articles, podcasts and original video about politics, culture, entertainment, sustainability, innovation, technology and business. In our editorial product we 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.

Looking forward, we are in the midst of satisfying the conditions to close on the Asset Purchase Agreement discussed under “Material Agreements entered into during Fiscal 2019 and First Quarter Fiscal 2020” below. We expect to complete such transaction in the last week of August 2019. Following the Asset Sale, if consummated, we intend to cease to do business and intend to not engage in any business activities except for dealing with post-closing matters (in the event the Asset Sale is consummated) and for the purpose of liquidating our remaining assets, paying any debts and obligations, distributing the remaining assets to stockholders, and doing other acts required to liquidate and wind up our business and affairs. We will pay or make provision for payment of our known or reasonably ascertainable liabilities that have been incurred or are expected to be incurred prior to liquidation. After that, we will distribute the remaining assets to our stockholders in proportion to their respective stockholder interest in the Company

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

In addition, Salon generates revenue from referring users to third-party websites. For fiscal year 2019, referral fees totaled $0.5 million, a 44% decrease from $0.9 million in fiscal year 2018. We also generated nominal revenue from the licensing of content that previously appeared in Salon.

Our total net revenue and the sources thereof for the years ended March 31, 2019 and 2018 were as follows (in thousands):

Material Agreements entered into during Fiscal 2019 and First Quarter Fiscal 2020

We also amended Section 10.9 of the Asset Purchase Agreement to include the term sheet related to the acquisition for the documents related to the entire agreement of the parties.

On June 30, 2019, we entered into a Second Amendment to Asset Purchase Agreement with Buyer under which the parties revised the Asset Purchase Agreement to provide that amounts delivered into escrow upon execution would not used to compensate any Buyer Indemnified Parties for any losses under the Asset Purchase Agreement.

On October 25, 2018 we entered into a Technology Support Agreement (the "Technology Agreement") with PubLife LLC under which PubLife agreed to provide certain technology support to us, including all web development activities for a six-month term in consideration of $1,000 per month. The payment terms under this agreement were amended under the terms of the Asset Purchase Agreement (as set forth below).

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

Interest expense includes accrued interest on our outstanding debt and non-cash charges from the beneficial conversion feature of convertible debt.

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

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires Salon to utilize accounting policies and make estimates and assumptions that affect our reported amounts. Salon’s significant accounting policies are described in Note 2 to the financial statements included elsewhere in this Form 10-K. We believe accounting policies and estimates related to revenue recognition and accounting for debt and equity are the most critical to our financial statements. Future results may differ from current estimates if different assumptions or conditions were to prevail.

We recognize advertising revenue from a diverse mix of advertising methods including display advertisements, where revenue is dependent upon the number of advertising impressions delivered; native advertisements, which are advertisements created to match the form and function of the platform on which they appear; or sponsored content.

We generate advertising revenue from advertisements displayed on our Website. Advertising revenue comprised 84% and 79% of our revenues for the fiscal years ended March 31, 2019 and 2018, respectively. Salon’s advertising revenue is principally dependent on the number of visits to our Website and the corresponding advertisement unit rates. Articles, videos and other forms of content generate advertising revenue from a diverse mix of advertising methods including display advertisements, where revenue is dependent upon the number of advertising impressions delivered; pre-roll video advertisements, where revenue is dependent on the number of video views; native advertisements, which are advertisements created to match the form and function of the platform on which they appear and sponsored content, in which advertisers pay for adjacency to specific content. In the past two years, industry trends have shifted toward increased use of agency and software-based approaches to buying online advertising. As a result, we have re-focused our advertising sales to rely on the rapidly growing programmatic advertising business in which we directly sell audience packages based on real-time advertising demand and engage third-party agencies to sell advertisement on our Website through programmatic advertising open marketplaces, and we place less emphasis on a traditional media sales efforts.

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

We recognized stock-based compensation expense of $1,526,000 and $1,262,000 during the years ended March 31, 2019 and 2018, respectively. As of March 31, 2019, we had an aggregate of $2,888,000 of stock-based compensation remaining to be amortized to expense over the remaining requisite service period of the underlying awards. We currently expect this stock-based compensation balance to be amortized as follows: $1,310,000 during fiscal year 2020; $1,133,000 during fiscal year 2021 and $445,000 during fiscal year 2022. The expected amortization reflects only outstanding stock option awards as of March 31, 2019. We expect to continue to issue stock-based awards to our employees in future periods.

Due to insufficient authorized shares of Common Stock as of November 14, 2016, the vested options as of November 14, 2016 with a fair value of $818,000, were reclassified from equity to liabilities and re-measured at fair value and presented under accrued liabilities. The balance of this option liability was $931,000 as of March 31, 2017, respectively. The Amendment with the Secretary of State of the State of Delaware was filed on August 1, 2017, after which the $1,010,000 option liability was reclassified back to equity during the quarter ended September 30, 2017 and upon the resulting increased authorized shares of our Common Stock.

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.

Salon has incurred significant net losses and negative cash flows from operations since its inception. As of March 31, 2019, Salon had an accumulated deficit of $140.8 million. These losses have been funded primarily through the issuance of Common Stock from Salon’s initial public offering in June 1999, issuances of Preferred Stock, bank debt, the issuance of convertible notes payable and other advances from related parties. Salon is in discussion with potential investors, including related parties, to obtain additional funding. There can be no assurance that the Company will be able to raise additional funds on commercially reasonable terms, if at all.

M&K CPA’s, PLLC, Salon’s independent registered public accounting firm for the years ended March 31, 2019, 2018 and 2017 has included a paragraph in their report indicating that substantial doubt exists as to Salon’s ability to continue as a going concern because of Salon’s recurring operating losses, negative cash flow and accumulated deficit.

Salon has not recorded a provision for federal or state income taxes since inception due to recurring operating losses. As of March 31, 2018, Salon had net operating loss carryforwards of $94.8 million for federal income tax purposes that begin to expire in fiscal 2020, and $27.8 million for state income tax purposes. Utilization of Salon’s net operating loss carryforwards may be subject to substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar California State provisions. Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization. However, with the sale of substantially all its assets during fiscal year 2020 Salon doe not believe its remaining net operating loss will be utilized in any event. These factors include Salon’s history of net losses since inception, expected losses in 2020 and the wind up of the Company’s business.

General and administrative expenses increased 13% to approximately $2.6 million during the fiscal year ended March 31, 2019, compared to $2.3 million in the fiscal year ended March 31, 2018. The increase was primarily attributed to non-cash stock-based compensation for new options granted during the year.

Interest expense (including non-cash interest expense) decreased 33% to approximately $0.2 million during the fiscal year ended March 31, 2019, compared to $0.4 million for the fiscal year ended March 31, 2018. The decrease was primarily attributed to the decrease of non-cash charges from the beneficial conversion feature of convertible promissory notes one year ago.

Salon’s revenue from operations decreased 33% to $3.0 million for the fiscal year ended March 31, 2019, from $4.5 million for the fiscal year ended March 31, 2018. The decrease is primarily due to a 30% decrease in overall advertising revenue and a 53% decrease in referral fees.

Advertising revenues overall decreased 28% to $2.6 million for the fiscal year ended March 31, 2019, from $3.6 million for the fiscal year ended March 31, 2018. The decrease is primarily the result of a 43% decrease in programmatic advertising revenue to $1.8 million for the fiscal year ended March 31, 2019 compared to $3.2 million one year ago.

Two primary factors in our ability to increase advertising revenues in future periods are growth in our audience, and an increase in targeted advertising products that attract a higher CPM. Attracting more unique visitors to our Website is important because these users generate additional page views, and each page view becomes a potential platform for serving advertisements. Offering a targeted advertising product allows us to charge more for ad placement on our website. Advertisers pay for advertising based on a CPM, and different platforms attract different CPMs.

Due to various factors mainly attributed to shifts in how news media is promoted in the social media landscape, the annual average number of monthly unique Website visitors during fiscal year ended March 31, 2019 decreased approximately 42% from one year ago to approximately 6 million. We reached an all-time high of approximately 17 million annual average number of monthly unique Website visitors during fiscal years ended March 31, 2015 and 2016. Aiding the growth in unique visitors to Salon’s Website during prior fiscal years is the migration of users to the Internet from print newspapers.

All other sources of revenue were approximately $0.5 million for the fiscal year ended March 31, 2019 and $0.9 million for the fiscal year ended March 31, 2018. This $0.4 million decrease was mainly attributed to a 53% decrease in referral fees revenue during the fiscal year ended March 31, 2019.

Production and content expenses decreased 35% to $2.4 million during the fiscal year ended March 31, 2019, compared to $3.7 million for the fiscal year ended March 31, 2018. The decrease was primarily attributed to personnel reductions and decreased costs associated with internet hosting and market research.

Sales and marketing expenses decreased 92% to $0.04 million during the fiscal year ended March 31, 2019, compared to $0.5 million for the fiscal year ended March 31, 2018. The decrease was primarily attributed to personnel reductions.

Information technology support expenses decreased 38% to approximately $0.5 million during the fiscal year ended March 31, 2019, compared to $0.8 million in the fiscal year ended March 31. 2018. The decrease was primarily attributed to personnel reductions.

Net cash used in operations was $0.5 million for the fiscal year ended March 31, 2019 and $1.0 million for the fiscal year ended March 31, 2018. The principal use of cash during each of the fiscal years ended March 31, 2019 and 2018 was to meet the Company’s operating deficits.

Net cash used in investing activities was immaterial for each of the fiscal years ended March 31, 2019 and 2018 and was used primarily to fund the re-design of our Website and, to a lesser extent, purchase of computing equipment.

Net cash provided from financing activities was $0.7 million and $1.0 million in proceeds primarily from convertible promissory notes, senior secured notes, issuance of preferred stock and short-term advances from related parties for each of the fiscal years ended March 31, 2019 and 2018, respectively.

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

The following table summarizes Salon’s contractual obligations as of March 31, 2019, and the effect these contractual obligations are expected to have on Salon’s liquidity and cash flows in future periods (in thousands):

Salon has a history of significant losses and expects to incur a net loss from operations for its fiscal year ending March 31, 2020. Because of past losses, an anticipated loss next year and a history of negative cash flows from operations, Salon’s independent registered public accounting firm for each of the years ended March 31, 2019 and 2018 2017 have included a paragraph in its reports indicating substantial doubt as to Salon’s ability to continue as a going concern. During the last two years, Salon has relied on cash from related party advances and rounds of financing to meet its cash requirements.

Based on current cash projections, which contemplate a smaller operating loss, Salon estimates that it will require approximately $1.5 to $2.0 million in additional funding to meet operating needs. Operating costs in fiscal year 2019 decreased 24% compared to fiscal year 2018, respectively. Subsequent to the end of fiscal year 2017, we took steps to reduce our operating expenses by reducing headcount and not rehiring positions in which we had attrition, and ending certain non-core contracts. However, if planned revenues are less than expected, then we will not meet our operating targets and the projected cash shortfall may be higher. Salon is in discussions with potential investors, including related parties, to obtain additional funding.

There can be no assurance that the Company will be able to raise additional funds on commercially reasonable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

In June 2018, the FASB issued Accounting Standard Update No. 2018-07, Compensation—Stock Compensation (“ASU 2018-07”), to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments for employees, with certain exceptions. Under the new guidance, the cost for nonemployee awards may be lower and less volatile than under current GAAP because the measurement generally will occur earlier and will be fixed at the grant date. This update is effective for the fiscal year ended March 31, 2020.

In July 2017, the Financial Accounting Standards Board (“FASB”) issued a two-part Accounting Standards Update (“ASU”) 2017-11, “Earnings Per Share (Topic 260).” Part I addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Part II does not require any transition guidance because those amendments do not have an accounting effect. ASU 2017-11 is effective for public entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

In June 2016, the FASB issued Accounting Standard Update No. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which requires companies to consider historical experiences, current market conditions and reasonable and supportable forecasts in the measurement of expected credit losses. This update is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, although early adoption is permitted. We are currently evaluating the impact it will have on our financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). The main objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

This ASU is effective for the Company on April 1, 2019. We expect to adopt the new standard on its effective date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We expect to adopt the new standard on April 1, 2019 and use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before April 1, 2019.

The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.

While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate operating leases and (2) providing significant new disclosures for our leasing activities. While we continue to assess our contracts, we do not expect a significant change in our leasing activities between now and adoption. The new standard also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components for all of our leases.

In May 2014, the Financial Accounting Standards Board (FASB) issued Topic 606, which supersedes the revenue recognition requirements in Topic 605. We adopted Topic 606 as of April 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of April 1, 2018. See “Revenue Recognition” in Note 3 of this Annual Report on Form 10-K for further details.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange At and are not required to provide the information required under this item.

We have audited the accompanying balance sheets of Salon Media Group, Inc. (“the Company”) as of March 31, 2019 and 2018, and the related statements of operations, stockholders’ deficit and cash flows, for each of the years ended March 31, 2019 and 2018, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2019 and 2018, and the results of its operations and its cash flows for the year March 31, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Note 2. Summary of Significant Accounting Policies

Basis of presentation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States.

Going Concern

These financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. Salon has incurred losses and negative cash flows from operations since inception and has an accumulated deficit as of March 31, 2019 of $140,753. In addition, Salon expects to incur a net loss from operations for its year ending March 31, 2020. During the last two years, Salon has relied on cash from related-party advances and rounds of financing to meet its cash requirements. Based on current cash projections, which contemplate a smaller operating loss, Salon estimates it will require between $1.5 and $2.0 million in additional funding to meet operating needs. Operating costs in fiscal year 2019 decreased 24% compared to fiscal year 2018, respectively. Subsequent to the end of fiscal year 2018, we took steps to reduce our operating expenses by reducing headcount and not rehiring positions in which we had attrition, and ending certain non-core contracts. However, if planned revenues are less than expected, then we will not meet our operating targets and our projected cash shortfall may be higher. Salon is in discussions with potential investors, including related parties, to obtain additional funding. In addition, in March 2019, the Company entered into an asset purchase agreement with Salon.com, LLC pursuant to which it agreed to sell substantially all of its assets for an aggregate purchase price of $5 million. Following consummation of this agreement, it is intended that the Company will cease to be an operating company. As the Company will cease to have any revenue generating activities at that time, it is unlikely that the Company will raise additional funds on commercially reasonable terms, if at all. Further, there is no guarantee that the proceeds from the asset sale will be sufficient to satisfy all of the Company’s creditors. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

We recognize revenue when we transfer control of promised goods or services to our customer in an amount that reflects the consideration we expect to be entitled to in exchange for those good or services.

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate the transaction price to each performance obligation based on the estimated standalone selling price of the promised good or service.

Segment and enterprise-wide reporting

Salon discloses segment enterprise-wide information in accordance with ASC 280, “Segment Reporting.” Based upon definitions contained within ASC 280, management has determined that Salon operates in one segment. In addition, substantially all revenues are in the United States, and all of the long-lived assets are located within the United States.

Cash and cash equivalents

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

Accounts receivable, net

Accounts receivable are stated net of doubtful accounts. Salon estimates the collections of the accounts receivable balance and maintains allowances for estimated losses. Salon analyzes accounts receivable, historical bad debts, receivable aging, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. The Company’s allowance for doubtful accounts at March 31, 2019 and 2018 was $15, respectively. We believe that our allowance for doubtful accounts is sufficient to cover uncollectible receivables as of March 31, 2019 and 2018.

Property and equipment, net

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

Software and website development costs

The Company accounts for website development costs in accordance with “ASC” 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day-to-day operation of the website are expensed as incurred. Information technology support expenses to develop new product offerings for internal use are capitalized as software and website development costs and are amortized over the expected useful life, beginning in the period the redesigned Website was launched.

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

Comprehensive loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from non-owner sources. There were no differences between the net loss for the years ended March 31, 2019 and 2018 and comprehensive loss for those periods.

Stock-based compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period. Salon uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards. Salon recognizes compensation cost related to options granted on a straight-line basis over the applicable vesting period.

Common Stock Purchase Warrants

The Company accounts for common stock purchase warrants in accordance with FASB ASC Topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 185”). As is consistent with its handling of stock compensation and embedded derivative instruments, the Company’s cost for stock warrants is estimated as the grant date based on each warrant’s fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model value method for valuing the impact of the expense associated with these warrants.

Net loss per share attributable to common shareholders

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 and common stock equivalents outstanding during the year, as follows:

	Years Ended March 31,
	2019			2018
Numerator:
Net loss from continuing operations	$	(2,834	)	$	(2,726	)
Net income (loss) from discontinued operations	$	167		$	(379	)

Denominator:
Weighted average shares used in computing basic and diluted net loss per share		151,056,000			150,619,000

Basic and diluted net loss per share from continuing operations	$	(0.02	)	$	(0.02	)

Basic and diluted net loss per share from discontinued operations	$	(0.00	)	$	(0.00	)

Antidilutive securities including options, convertible debts and preferred stock not included in net loss per share calculation		280,812,000			271,858,000

Financial instruments

The carrying amounts of Salon’s financial instruments, including cash, accounts receivable, and accounts payable and accrued liabilities, approximate fair value because of their short maturities.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.

In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs is expanded. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels and which is determined by the lowest level input that is significant to the fair value measurement in its entirety.

These levels are:

Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of March 31, 2018 and 2017 for each fair value hierarchy level:

March 31, 2019	Share Based Liability		Total
Level 1	$	-	$	-
Level 2	$	-	$	-
Level 3	$	-	$	-

March 31, 2018	Share Based Liability		Total
Level 1	$	-	$	-
Level 2	$	-	$	-
Level 3	$	-	$	-

In management’s opinion, the fair value of stock-based compensation is approximate to the trading price of the Company’s stock. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, exchange or credit risks arising from these financial instruments. As of March 31, 2019 and 2018, the balances reported for cash, accounts receivable, prepaid expenses, accounts payable, and accrued liabilities, approximate the fair value because of their short maturities.

Income taxes

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

Concentrations of credit risk

Financial instruments that potentially subject Salon to concentrations of credit risk consist primarily of trade accounts receivable. Salon performs ongoing credit evaluations of its customers, but does not require collateral. Salon provides an allowance for credit losses that it periodically adjusts to reflect management’s expectations of future losses. Two customers accounted for approximately 72%, and 14% of accounts receivable as of March 31, 2019. Three customers accounted for approximately 16%, 12% and 10% of accounts receivable as of March 31, 2018. Two customers accounted for approximately 19% and 13% of revenues for the fiscal year ended March 31, 2019. One customer accounted for approximately 41% of revenues for the fiscal year ended March 31, 2018.

Accounting Standards Not Yet Adopted

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

Accounting Standards Adopted

In May 2014, the Financial Accounting Standards Board (FASB) issued Topic 606, which supersedes the revenue recognition requirements in Topic 605. We adopted Topic 606 as of April 1, 2018 using the modified retrospective method applied to those contracts which were not completed as of April 1, 2018. The cumulative impact of adopting Topic 606 was immaterial and no adjustments to the opening balance of retained earnings were recorded. There was no impact to revenues for the year ended March 31, 2019 as a result of applying Topic 606.

Reclassifications

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

Note 3. Revenue

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

On April 1, 2018, we adopted Topic 606, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts that were not completed as of April 1, 2018. Results for reporting periods beginning after April 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

The cumulative impact of adopting Topic 606 was immaterial and no adjustments to the opening balance of retained earnings were recorded. There was no impact to revenue for the year ended March 31, 2019 as a result of applying Topic 606.

Disaggregation of Revenue

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those good or services.

The following table presents our revenues disaggregated by revenue source (in thousands):

	Year Ended March 31,
	2019					2018
	Amount		%			Amount		%
Advertising	$	2,524		84	%	$	3,595		79	%
Subscription Program		29	<1		%		4	<1		%
Referral and Other		447		15	%		938		20	%
Total	$	3,000		100	%	$	4,537		100	%

Advertising

Advertising revenue is generated from advertisements displayed on our website and mobile applications. Articles, videos and other forms of content generate advertising revenue from a diverse mix of advertising methods including display advertisements, where revenue is dependent upon the number of advertising impressions delivered; native advertisements, which are advertisements created to match the form and function of the platform on which they appear; or sponsored content. Revenue is recognized on a cost-per-impression basis, which means a customer pays us based on the number of times their ads are displayed on Salon Media Groups properties.

We enter into revenue-sharing arrangements with our partners, such as those relating to our advertiser network, we report revenue on a gross or net basis depending on whether we are considered the principal in the transaction. In addition, we consider which party controls the service, including which party is primarily responsible for fulfilling the promise to provide the service. We also consider which party has the latitude to establish the sales prices to advertisers. In certain cases, the Company is considered the agent, and the Company records revenue equal to the net amount retained when the fee is earned. In these cases, costs incurred with third-party suppliers are excluded from the Company’s revenue.

Subscription Program

Subscription revenue is generated by users who pay for ad-free content. We offer a monthly or yearly subscription plan in exchange for an ad-free experience. The subscription service is available for users who read Salon on a web browser, and for users using a Salon app for the phone.

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

Referral and Other Fees

Referral income is generated when a user clicks on an ad that sends a Salon user to a participating third-party website. We contract with third party content discovery companies who pay us a pre-determined CPM for traffic that clicks through into their network of websites.

Deferred Revenue

Deferred revenue consists of amounts received from or invoiced to customers in advance of our performance obligations being satisfied, including amounts which are refundable.

Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, we require payment before the products or services are delivered to the customer.

Practical Expedients and Exemptions

We generally expense sales commissions, when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing on our statements of operation. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Note 4. Discontinued Operations

On March 6, 2019, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Salon.com, LLC (“Buyer”) under which it agreed to sell substantially all of its assets (the "Asset Sale"), including all pertinent intellectual property rights comprising the Company’s business of owning, operating and publishing the website known as Salon.com, (the “Business”), but excluding its cash, cash equivalents and marketable securities and certain contracts and right related to those contracts and tax refunds and insurance policies and rights related to excluded assets, to the Buyer for an aggregate Purchase Price of $5 million payable plus the amount of the Earn-Out Payment (as described below) and the assumption of certain assumed liabilities, all pursuant to the terms of the Asset Purchase Agreement. The purchase price is payable in cash as follows: (i) $550 in payable in cash at closing; (ii) $100 shall be deposited with the Escrow Agent, which amount shall be released to us in accordance with the terms of the Asset Purchase Agreement; (iii) $500 of which was previously paid to the Company as a deposit concurrent with execution of the term sheet for the Asset Purchase Agreement (the "Deposit") and (iv) $3,850 via issuance of a 10% secured promissory note, which note shall be paid in 2 equal installments on the 12 month and 24 month anniversary of the closing date. This note shall be secured by all of the assets being sold to Buyer under the Asset Purchase Agreement. As a result of the Company entering into the Asset Purchase Agreement, the Company’s operations have been characterized as discontinued operations in its financial statements pursuant to Regulation

The following table summarizes the results of discontinued operations:

	Years Ended March 31,
	2019		2018
Revenues	$	3,000	$	4,537

Expenses:
Production and content		2,426		3,748
Sales and marketing		46		489
Technology		486		763
Total expenses		2,958		5,000

Income (Loss) from discontinued operations		42		(463	)
Gain on settlement of accounts payable		125		84
Net Income (Loss) from discontinued operations	$	167	$	(379	)

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

The following table summarizes the assets and liabilities of discontinued operations:

	March 31,
	2019		2018
ASSETS
Current Assets
Accounts receivable, net	$	439	$	433
Total current assets held for sale		439		433

Non-current Assets
Property, software development and equipment, net		210		359
Other assets, principally intangibles		-		38
Total non-current assets held for sale		210		397
Total Assets Held for Sale	$	649	$	830

LIABILITES
Current Liabilities
Accounts payable	$	1,344	$	1,198
Accrued liabilities		87		89
Total current liabilities held for sale		1,431		1,287

Non-current Liabilities
Other liabilities		-		-
Total non-current assets held for sale		-		-
Total Liabilities Held for Sale	$	1,431	$	1,287

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

Note 6. Borrowing Agreements

Short-term borrowings

In May 2007, Salon entered into a borrowing agreement with Deutsche Bank Securities, Inc. that allows Salon to borrow up to $1,000, plus accrued interest, at a rate of prime less 0.25%. In September 2016, this credit agreement was transferred to Raymond James and Associates, Inc. (“Raymond James”) after Deutsche Bank Securities Inc. sold its accounts. The agreement is guaranteed in its entirety by Salon’s former Chairman, John Warnock. The line of credit of $1,000 has been fully drawn as of March 31, 2019 and 2018. Salon and its former Chairman have agreed to lift previously agreed restrictions on the timing of borrowing to permit borrowing to continue under the agreement with the guarantee of the former Chairman. Raymond James may demand repayment of amounts borrowed at any time. Additionally, Mr. Warnock may also choose to terminate his guarantee, which would trigger a demand for repayment. As of March 31, 2019 and 2018, accrued interest on bank debt totaled $512 and $439, respectively. During the fiscal years ended March 31, 2019 and 2018, the weighted average interest rate on the Company’s short-term borrowings remained constant at approximately 3.6% and 3.5%, respectively.

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

Convertible promissory notes

Interest bearing convertible promissory notes

During the fiscal year ended March 31, 2019, the Company received $110 from related parties in the form of Bridge Notes as part of the Securities Purchase Agreement. The notes have a one-year maturity and bear a 10% interest rate. The notes will convert at a discount into shares of Common Stock upon a qualified financing by the Company of at least $1 million. In the event of no conversion, the notes are payable in cash or convert into a number of shares of Common Stock of the Company, rounded down to the nearest whole share based on the Company’s as diluted price per share on the maturity date. The conversion price will equal to 70% of the price per share paid in the qualified financing if such financing occurs within four months from the date of the Securities Purchase Agreement, or 70% less 2% per each month after the fourth month anniversary; provided however that the conversion price will never be less than the greater of (A) sixty percent (60%) of the purchase price paid in the qualified financing and (B) the price per share paid by investors in the most recently consummated offering of the Company’s Common Stock, or $0.0124 per share, the conversion price in the Series A Mandatorily Convertible Preferred Private Placement, if the financing occurs more than four months after the date of the Securities Purchase Agreement.

Interest bearing senior secured notes

During the fiscal year ended March 31, 2019 the Company received $114.5 in advances from related parties. These advances accrued interest at a rate of 10% per annum and payable within one year from the date of advance. On December 7, 2018, these advances and all accrued interest were exchanged for secured notes in the amount of approximately $118.9. These notes bear a 10% interest rate and are payable on June 30, 2019. In addition, on December 7, 2018, the Company issued warrants to the secured note holders to purchase 11,312,600 shares of our common stock at an exercise price of $0.01 per share. The warrants expire five years from the issuance date and can be exercised with cash or cancellation of the secured notes referenced above.

During the fiscal year ended March 31, 2019, the Company received $500 from PubLife, LLC upon execution of a term sheet for the sale of the Salon.com business, which is the basis for the Asset Purchase Agreement discussed below. Upon closing of the Asset Purchase Agreement, this $500 is to be credited against the purchase price. If the Company fails to close the Asset Purchase Agreement or breaches the term sheet with PubLife related to the Asset Purchase Agreement, this $500 will convert into a 10% secured promissory note payable within 90-days of issuance, secured by all of the Company’s assets and senior to all indebtedness of the Company.

Note 7. Related Party Transactions

Promissory Notes

Various related parties have provided immediately available funds to serve as a bridge to the Company’s 2018 and 2019 equity capital raises through the issuance and sale of interest bearing convertible promissory notes that are convertible into shares of the Company’s Common Stock in accordance with the terms of these notes and their securities purchase agreements.

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

The following is a summary of these related party bridge convertible promissory notes issued during the fiscal year ended March 31, 2019:

Note Date	Related Party Purchasers		Principal Amount			Interest Rate			Maturity Date		Purchase Agreement		Equity Capital Raise
10/26/17		Humilis Holdings Capital Fund LP (1)	$	125		$	10	%		10/26/18		10/26/17		2017
11/30/17		Eu Revocable Trust (2)	$	50			10	%		11/30/18		11/30/17		2017
11/30/17		Jordan Hoffner (3)	$	75			10	%		11/30/18		11/30/17		2017
12/12/17		Jordan Hoffner (3)	$	38			10	%		12/12/18		12/12/17		2017
12/12/17		Jordan Hoffner (3)	$	22			10	%		12/12/18		12/12/17		2017
01/09/18		Jordan Hoffner (3)	$	75			10	%		01/09/19		01/09/18		2017
02/26/18		Jordan Hoffner (3)	$	100			10	%		02/26/19		02/26/18		2018
03/29/18		Jordan Hoffner (3)	$	50			10	%		03/29/19		03/29/18		2018
04/10/18		Eu Revocable Trust (2)	$	50			10	%		04/10/19		04/10/18		2019
04/12/18		Humilis Holdings Capital Fund LP (4)	$	50			10	%		04/12/19		04/12/18		2019
04/07/18		Jordan Hoffner (3)	$	10			10	%		04/27/19		04/07/18		2019
12/07/18		Humilis Holdings Capital Fund LP (4)	$	52			10	%		06/30/19		12/07/18		2019
12/07/18		Jordan Hoffner (3)	$	67			10	%		06/30/19		12/07/18		2019
Total Convertible Related Party Promissory Notes			$	764
Less: Debt Discount			$	(53	)
Total Convertible Related Party Promissory Notes, net of discount			$	711

(1)	Trevor Colhoun, Director, is one of the Managing Members of Humilis Holdings Capital Management Company which provides management services to Humilis Holdings Capital Fund LP.

(2)	Elizabeth Hambrecht was the CFO of the Company until September 28, 2018, she is the daughter of William Hambrecht, Director, and she is the trustee of the Trust.

(3)	Jordan Hoffner was the CEO of the Company until May 3, 2019, he is currently a Director.

(4)	Trevor Colhoun, Director, is one of the Managing Members of Humilis Holdings Capital Fund LP

Purchase Agreements

On January 24, 2017, the Company entered into the Purchase Agreement with the Purchasers to issue and sell in the Private Placement up to 2,417,471 shares of the Company’s Series A Preferred Stock, at a purchase price of $1.24 per share. The purchase and sale of the shares of the Series A Preferred Stock were completed in three stages: (1) Initial Closing, (2) Second Closing and (3) Final Closing.

The Initial Closing was completed on January 26, 2017. In the Initial Closing, we sold to the Purchasers an aggregate of 805,824 shares of Series A Preferred Stock for a total purchase price of $1 million. The investors in the Initial Closing included the Company’s former CEO, Jordan Hoffner, and certain of his family members, the Company’s former CFO, Elizabeth Hambrecht, and the Company’s Director, William Hambrecht.

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

The Second Closing was completed on March 23, 2017. In the Second Closing, we sold to the Purchasers an aggregate of 173,252 shares of Series A Preferred Stock for a total purchase price of $215. The Second Closing included only investors who had previously indicated interest in participating in the Private Placement. The investors in the Second Closing included Mr. Hoffner, Ryan Nathanson, the Company’s former Chief Operating Officer, and Ms. Jordana Brondo, the Company’s former Chief Revenue Officer.

The Final Closing was completed on July 20, 2017. In the Final Closing, we sold to the Purchasers an aggregate of 221,601 shares of Series A Preferred Stock for a total purchase price of $275. The Final Closing included only investors who had previously indicated interest in participating in the Private Placement. The investors in the Final Closing included Jordan Hoffner, Elizabeth Hambrecht and William Hambrecht.

The following summarizes related party purchasers in the Initial, Second and Final Closings:

Related-party Purchasers	Shares of Series A Preferred Stock		Stage of Closing	Aggregate Purchase Price
Humilis Holdings Capital Fund LP (1)		443,203	Initial	$	550
Hambrecht 1980 Revocable Trust (2)		80,582	Initial	$	100
Eu Revocable Trust (3)		40,291	Initial	$	50
Jordan Hoffner		20,146	Initial	$	25
Pershing LLC as Custodian, Jordan Jon Hoffner IRA Rollover (4)		20,146	Initial	$	25
Larry Hoffner (5)		20,146	Initial	$	25
Pershing LLC as Custodian, Jordan Jon Hoffner IRA Rollover (4)		40,291	Second	$	50
Jordana Brondo (6)		32,233	Second	$	40
Ryan Nathanson (7)		12,087	Second	$	15
Hambrecht 1980 Revocable Trust (2)		120,873	Final	$	150
Jordan Jon Hoffner Pershing LLC (4)		80,582	Final	$	100
Eu Revocable Trust (3)		20,146	Final	$	25
Total		930,726		$	1,155

(1)	Trevor Colhoun, Director, is a Managing Member of Humilis Holdings Capital Management Company which provides management services to Humilis Holdings Capital Fund LP.

(2)	William Hambrecht, Director, father of Elizabeth Hambrecht, former CFO; Mr. Hambrecht is the trustee of the Trust.

(3)	Elizabeth Hambrecht, former CFO, is the trustee of the Trust.

(4)	Jordan Hoffner, former CEO, is the Custodian of the account.

(5)	Larry Hoffner is the father of Jordon Hoffner, former CEO.

(6)	Former Chief Revenue Officer.

(7)	Former Chief Operating Officer.

SALON MEDIA GROUP, INC.

NOTES FINANCIAL STATEMENTS

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

Note 11. Employee Stock Option Plans

Salon has two stock option plans approved by stockholders: the Salon Media Group, Inc. 2004 Stock Plan (the “2004 Stock Plan”) that was approved by Salon’s stockholders in November 2004 and the Salon Media Group, Inc. 2014 Stock Incentive Plan (the “2014 Stock Incentive Plan”) that was approved by Salon’s stockholders in March 2014. The 2004 Stock Plan and the 2014 Stock Incentive Plan, each with an effective term of ten years following its approval by the stockholders of the Company, allow the issuance of incentive and non-statutory options to employees and non-employees of Salon. The 2004 Plan expired in November 2014, after which no further options were permitted to be granted.

Under the 2014 Stock Incentive Plan, the maximum aggregate number of shares which may be issued 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 1% of the number of shares outstanding as of such date or a lesser number of shares determined by the administrator.

Under the 2014 Stock Incentive Plan, incentive and nonqualified stock options may be granted to officers, employees, directors and consultants of Salon. Options generally vest over periods of four years. Options generally become exercisable as to 25% of the option shares one year from the date of grant and then ratably over the following 36 months (1/48 per month). The exercise price of options is determined by the Board and is equal to the fair market value of the stock on the grant date. Generally, Salon’s options expire, if not exercised, ten years after the date of grant.

SALON MEDIA GROUP, INC.

NOTES FINANCIAL STATEMENTS

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

Salon may grant restricted stock awards to officers that typically vest over an approximate four-year period. Restricted stock awards are considered outstanding at the time of grant, as the stock award holders are entitled to dividends and voting rights.

Salon has also granted options pursuant to Non-Plans. Non-Plans are equity compensation plans not approved by stockholders. On September 6, 2017, we granted to our CEO an option to purchase 31,260,505 shares of Common Stock pursuant to the terms and conditions of the Salon Media Group, Inc. Non Plan Stock Option agreement, with our standard vesting of 25% of the option shares one year from the date of grant and then ratably over the following 36 months (1/48 per month).

As of March 31, 2019, Salon has approximately 13,050,000 shares authorized to be issued under the 2014 Stock Incentive Plan of which approximately 10,530,000 shares remain available for future grant.

Stock based compensation expense recognized for the years ended March 31, 2019 and 2018 and 2017 was $1,526 and $1,262, which consisted of stock-based compensation expense related to stock options.

As of March 31, 2019, the aggregate stock compensation remaining to be amortized to expense was $2,888. Salon expects this stock-based compensation balance to be amortized as follows: $1,310 during fiscal year 2020; $1,134 during fiscal year 2021; and $444 during fiscal year 2022. The expected amortization reflects only outstanding stock option awards as of March 31, 2019.

No amounts were recorded relating to excess tax benefits from the exercise of stock-based compensation awards during the year ended March 31, 2019, 2018 and 2017 and as a result there were no differences in net cash used in operating and financing activities.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions and fair value per share:

	Year Ended March 31,
	2019				2018
Risk-free interest rates		1.75	–	2.55%		1.75	–	2.55%
Expected lives (in years)		5.7	–	6.3		5.7	–	6.3
Expected volatility		437	–	453%		437	–	453%
Dividend yield			0.0%				0.0%

We did not grant any options during the fiscal year ended March 31, 2019.

SALON MEDIA GROUP, INC.

NOTES FINANCIAL STATEMENTS

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

Due to insufficient authorized shares of Common Stock as of November 14, 2016, the vested options as of November 14, 2016 a fair value of $818, were reclassified from equity to liabilities and re-measured at fair value and presented under accrued liabilities. The balance of this option liability was $931 as of March 31, 2017, respectively. The Amendment was filed on August 1, 2017, after which the $1,010 option liability was reclassified back to equity during the quarter ended September 30, 2017, upon the resulting increased authorization of shares of Common Stock.

On March 14, 2018, the Board approved a stock option repricing program (the “Reprice”), authorizing Salon’s officers to reprice certain outstanding stock options held by active employees and directors that have option exercise prices above the current fair market value of Salon’s Common Stock. Salon believes the repricing of such stock options will encourage the continued service of valued employees and directors, and motivate such service providers to perform at high levels, both of which are critical to Salon’s continued success. Salon does not expect to incur any additional stock-based compensation charges as a result of this repricing.

The following table summarizes activity under Salon’s plans for the years ended March 31, 2018 and 2019:

	Outstanding Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding as of March 31, 2017		19,177,000		$	0.21		8.2	$	223
Granted		44,379,000		$	0.06
Exercised		(1,057,000	)	$	0.01
Expired or forfeited		(4,422,000	)	$	0.15
Outstanding as of March 31, 2018		58,077,000		$	0.06		9.1	$	284
Granted		0
Exercised		0
Expired or forfeited		(7,141,000	)	$	0.14
Outstanding as of March 31, 2019		50,936,000		$	0.06		8.1	$	0
Exercisable as of March 31, 2019		24,408,000		$	0.06		7.9	$	0
Vested and expected to vest as of March 31, 2019		70,635,000		$	0.06		8.1	$	0

SALON MEDIA GROUP, INC.

NOTES FINANCIAL STATEMENTS

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

The following table summarizes information about stock options outstanding as of March 31, 2019:

			Options Outstanding						Options Exercisable
					Weighted
					Average		Weighted				Weighted
			Number of		Remaining		Average		Number of		Average
Range of			Shares		Contractual		Exercise		Shares		Exercise
Exercise Prices			Outstanding		Life (Years)		Price (1)		Exercisable		Price
$0.05	-	$0.06		50,726,000		8.1	$	0.06		24,198,000	$	0.06
$0.11	-	$0.16		190,000		0.5	$	0.12		190,000	$	0.12
$0.24	-	$0.24		20,000		5.6	$	0.24		20,000	$	0.24
				50,936,000		8.1	$	0.06		24,408,000	$	0.06

(1)

On March 14, 2018, the Board approved a stock option Reprice, authorizing Salon’s officers to reprice 57,835,494 options using a new exercise price of $0.06. The stock option originally had a range of exercise prices from $0.08 to $0.24. We valued this reprice by comparing the original exercise price to the modified exercise price and the difference between the two is immaterial and we did not incur any additional stock-based compensation charges as a result of this repricing.

The weighted average grant date fair value per share of the stock option awards granted in the years ended March 31, 2019 and 2018 was $0.0 and $0.13, respectively. The weighted average fair value of options vested during the years ended March 31, 2019 and 2018 was $0.15 and $0.19 per share, respectively.

The total intrinsic value of options exercised during the years ended March 31, 2019 and 2018 were nil. A total of 1,056,477 options were exercised during the year ended March 31, 2018, respectively. No options were exercised during the year ended March 31, 2019.

Note 13. Commitments and Contingencies

On October 17, 2017, we signed a two-year office lease agreement for our San Francisco headquarters at 870 Market Street, San Francisco, California. The two-year lease, for approximately 1,072 square feet, commenced on December 1, 2017 and will terminate on November 30, 2019. On April 9, 2019 the Company terminated the lease effective June 30, 2019. The outstanding lease obligation is approximately $15 for the remaining three months of the lease.

In August 2016, we informed our landlord at our office space at 132 West 31^st Street, New York, New York, of our intention to move out of the premises, and we engaged a property agent to find a sub-tenant for the space. The lease for the New York space commenced on July 1, 2014 and will expire on September 30, 2019. In January 2017, we were asked to vacate the office space at 132 West 31^st Street due to nonpayment of our monthly rent, and on January 30, 2017 we released the letter of credit of $204 to the landlord in payment of the past due rent. On August 3, 2017, we received a notice of legal action (the “Complaint”) from the landlord. This civil summons and complaint in New York State Court seeks to recover all unpaid rents for the remainder of our five-year lease, equal to approximately $918 plus damages and attorney fees. Counsel for Salon is currently evaluating potential defenses and counterclaims, based on the laws and fact.

The potential amount of this contingent liability is indeterminate, since it is unknown whether the landlord will lease the premises to a new tenant, in which case the rents from the new tenant are an off-set to this liability. While counsel for Salon is evaluating potential defenses and counterclaims to the Complaint, we are unable to determine the foregoing liability, if any, with any degree of certainty, due to the uncertain nature of litigation matters. The parties are currently engaged in discovery proceedings and no trial date has been set. The landlord has moved for partial summary judgement as to liability, which motion has not yet been opposed, argued or decided by the Court.

On November 18, 2018, Jordana Brondo, a former employee of Salon Media Group, brought a formal claim against the Company for Judicial Arbitration and Mediation Services under JAMS in San Francisco, CA. Under her claim, Ms. Brondo alleges wrongful termination under the basis of gender discrimination pregnancy discrimination, wrongful termination in violation of public policy, and retaliation. Ms. Brondo seeks general damages, special damages, punitive damages, cost of fees and attorney fees in the amount of $1,600. The Company has denied the allegations and is actively defending the matter. In addition, the Company has insurance to cover any unexpected liability. The matter is currently pending.

Our current office space in New York, located at 315 West 36^th Street, New York, New York is rented on a month-to-month basis and does not carry a lease agreement.

Rent expense under operating lease agreements was $333 and $555 for the years ended March 31, 2019 and 2018, respectively.

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

Total future minimum payments under our operating lease and short-term borrowing in effect as of March 31, 2019 are as follows:

	Total			1 Year or less			1 - 3 Years
Operating lease	$	15		$	15		$	-
Short-term borrowing		1,000			1,000			-
Short-term borrowing interest		512			512
Convertible promissory notes, net		700			700			-
Convertible promissory notes – related party, net		764			764			-
Less: Debt discount		(53	)		(53	)
Total	$	2,938		$	2,938		$	-

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

Salon has entered into an employment agreement with a certain key executive under which severance payments in the aggregate amount of approximately $300 would become due and payable in the event of his termination other than for cause or as a result of a change in control.

Note 15. Preferred Stock

As part of our committed efforts to raise capital, on January 24, 2017, Salon entered into the Purchase Agreement with various investors to issue and sell to the Purchasers in the Private Placement an aggregate principal amount of at least $1 million of the Company’s Series A Preferred Stock. The Company has authorized the issuance and sale in the Private Placement of up to 2,417,471 shares of the Series A Preferred Stock, each of which is convertible into 100 shares of Common Stock, at the purchase price of $1.24 per share. We expect completion of the purchase and sale of the Series A Preferred Stock will occur in three stages.

The Second Closing was completed on March 23, 2017. In the Second Closing, we sold to the Purchasers an aggregate of 173,252 shares of Series A Preferred Stock for a total purchase price of $215. The Second Closing included only investors who had previously indicated interest in participating in the Private Placement. The investors in the Second Closing included Jordan Hoffner, Ryan Nathanson, the Company’s former Chief Operating Officer, and Jordana Brondo, the Company’s former Chief Revenue Officer.

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

In event of a liquidation, the holders of the Series A Preferred Stock are entitled to receive, prior and in preference to any distribution of any assets or property of Salon to the holders of Common Stock, and by reason of their ownership, an amount per share equal to two (2) times the original issue price of $1.24 per share of Series A Preferred Stock. If the assets and funds available for distribution are insufficient to permit the payment to the holders of Series A Preferred Stock of their full preferential amounts, then the entire assets and funds of Salon legally available for distribution to stockholders will be distributed among the holders of Series A Preferred Stock ratably in proportion to the full preferential amounts which they are entitled to receive. Holders of shares of Series A Preferred Stock are not entitled to receive dividends, pursuant to the Certificate Designation of Preferences, Rights and Limitations of the Series A Preferred Stock.

After payment of the full preferential amounts has been made to the holders of the shares of Series A Preferred Stock pursuant to the Certificate of Designation, if any remaining assets of the Company are available for distribution to stockholders, the holders of shares of Common Stock and Series A Preferred Stock shall be entitled to receive the remaining assets of the Company available for distribution to stockholders ratably in proportion to the shares of Common Stock then held by them and the shares of Common Stock to which they have the right to acquire upon conversion of the shares of Series A Preferred Stock held by them. Following the Final Closing of the Private Placement on July 20, 2017, the Series A Preferred Stock accounts for approximately 52% of outstanding shares on an as converted basis and assuming an increase in authorized share capital so that all shares can convert to Common Stock.

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

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

The exchange rate and common equivalent shares of our Series A Preferred Stock as of March 31, 2019 are as follows:

Preferred Stock

Shares Outstanding

Per Share

Exchange Rate

Common

Equivalent Shares

Series A

1,648,830

100.000

164,883,000

Total

1,648,830

164,883,000

Effective June 28, 2019, the Company effectuated a mandatory conversion of the 1,648,830 shares of its Series A Preferred Stock into 164,883,000 shares of our Common Stock.

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

Note 16. Subsequent Events

First Amendment to Asset Purchase Agreement

On April 15, 2019, the Company entered into a First Amendment to Asset Purchase Agreement ("First Amendment") with Buyer. The primary purpose of the First Amendment was to amend the payment terms under the Technology Agreement and the Advertising Agreement as set forth below:

(c) for the month of May 2019 and for each month thereafter: (i) ad fees under the Advertising Agreement shall be payable at 6.5%, (ii) tech management fees payable pursuant to the Technology Agreement shall be $10 plus costs per the Technology Agreement and (iii) an amount equal to 10% APR applied to the Deposit.

The Company also amended Section 10.9 of the Asset Purchase Agreement to include the term sheet related to the acquisition for the documents related to the entire agreement of the parties.

Second Amendment to Asset Purchase Agreement

Settlement Agreements with Jordan Hoffner and Elizabeth Hambrecht

SALON MEDIA GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

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

Departure of Directors or Principal Officers

Effective May 3, 2019, Jordan Hoffner resigned as the Company’s Chief Executive Officer.

Appointment of Officers

Effective May 3, 2019, in connection with Mr. Hoffner’s resignation as Chief Executive Officer, the board appointed Richard MacWilliams as the Company’s acting Chief Executive Officer and the board also appointed Trevor Colhoun as the Company’s acting Chief Financial Officer to fill the vacancy from Ms. Elizabeth Hambrecht’s prior resignation. Messrs. MacWilliams and Colhoun both currently serve as Directors of the Company. Mr. MacWilliams will receive $7.5 per month for his role as acting CEO and Mr. Colhoun will receive $2.5 per month for his role as acting CFO. The relevant biographies for Mr. MacWilliams and Mr. Colhoun are set forth below.

Mandatory Conversion of Series A Preferred Stock

Effective June 28, 2019, the Company effectuated a mandatory conversion of its 1,648,830 shares of Series A Preferred Stock into 164,883,300 shares of the Company’s Common Stock.

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

Our management, with the participation of the Company’s executive and principal financial officers, or persons performing similar functions, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-K (March 31, 2019), as is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Our disclosure controls and procedures are intended to ensure that the information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and (ii) accumulated and communicated to our management, including the Company’s management, as the principal executive and financial officers, respectively, to allow timely decisions regarding required disclosures.

Based on that evaluation, our management concluded that, as of the end of the period covered by this Form 10-K, our disclosure controls and procedures were not effective due to the following material weaknesses:

To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses.

Our management has concluded that the financial statements included in this Form 10-K present fairly, in all material respects our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our financial statements included in this report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statement included in the report fairly present in all material aspects our financial condition, results of operations and cash flows for the years presented.

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.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework (2013). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.

Because of the above material weakness, management has concluded that we did not maintain effective internal control over financial reporting as of March 31, 2019, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.

The effectiveness of our internal control over financial reporting as of March 31, 2019 has not been audited by our independent registered public accounting firm by virtue of our exemption from such requirement as a smaller reporting company.

During the most recent fiscal quarter, there have not been any significant changes in our internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Richard MacWilliams was elected to serve as Chairman of the Board on January 25, 2017. Mr. MacWilliams is co-founder and Managing Partner of Vista Capital Advisors. Previously, Mr. MacWilliams was Chairman of BoardEx and Executive Vice President of Bridge Information Systems. He joined Bridge as a result of Bridge’s acquisition of EJV Partners where he was President and CEO. Prior to joining EJV, Mr. MacWilliams served as Executive Vice President and trading manager for Drexel Burnham Government Securities and held a similar post at Donaldson Lufkin & Jenrette (DLJ). While at DLJ, Mr. MacWilliams was also President and CEO of ACLI Commodity Services, a worldwide commodity trading company. Mr. MacWilliams received a BA from Bucknell University, where he is a former trustee.

Trevor Colhoun was elected to serve as Director on January 25, 2017. Mr. Colhoun is a Managing Member of Humilis Holdings Capital Management LLC. From September 2009 to December 2013, Mr. Colhoun was Manager of Walnut Financial Services, Inc., which he founded as a subsidiary of Humilis Holdings LP. Walnut Financial is a private equity factoring fund. From 2007 to present, Mr. Colhoun has acted as Managing Partner of Humilis Holdings, LP, an investment fund that directed capital in private equity, debt, and real estate equity. Prior to Humilis Holdings, Mr. Colhoun served as Vice President of Capital Markets at Piper Jaffray from 2002 to 2007. During his tenure at Piper Jaffray, Mr. Colhoun was instrumental in leading over 50 public company transactions and along with his partner were the largest producers in the firm. Before joining Piper Jaffray, Mr. Colhoun was an Associate in Institutional Sales with C.E. Unterberg, Towbin, a technology only investment bank, from 2000 to 2002. Mr. Colhoun served as an Equity Analyst for Bear Stearns from 1998 to 2000 for the firm’s internal equity hedge fund.

Jordan Hoffner was appointed CEO and Director effective May 23, 2016. Mr. Hoffner is an accomplished media executive with two decades of digital media, traditional media and technology experience. Prior to joining Salon Media Group, Mr. Hoffner served as CEO of Federated Media, a Media General company and leader in native advertising and influencer marketing for digital and TV. Based in San Francisco, he has held senior level strategy and business development roles at Google and YouTube. While at YouTube, Mr. Hoffner accepted the company’s 2008 Peabody Award for promoting a free exchange of ideas expressed in video formats around the world. In addition, Mr. Hoffner is an entrepreneur and angel investor having started multiple businesses in the media and technology sector. He began his career as an NBC News producer before rising to VP, Digital Studios at NBC Universal. He earned a Bachelor of Arts with honors from Vassar College and a MBA in finance from NYU’s Stern School of Business. He currently sits as a council member for the nonprofit organization Common Sense Media.

William Hambrecht has served as a Director of Salon since February 2012. Mr. Hambrecht founded the San Francisco-based financial services firm WR Hambrecht + Co in 1998 and serves as its Chairman and Co-CEO. Prior to WR Hambrecht + Co, he co-founded and led Hambrecht & Quist, which specialized in investing in Silicon Valley companies. Mr. Hambrecht has served as a director for numerous private and public corporations. He previously served as a Director for Motorola Inc. (2008 – 2011) and AOL Inc. (2009 – 2011), was on the Board of Trustees for The American University of Beirut (2003 – 2011) and served on the Advisory Council to The J. David Gladstone Institute (2005 – 2010). In October 2006, Mr. Hambrecht was inducted into the American Academy of Arts and Sciences. He also was appointed to the board of the Presidio Trust by President Barack Obama in 2010. Mr. Hambrecht graduated from Princeton University in 1957.

Salon has adopted a Code of Conduct and Policy Regarding Reporting of Possible Violations (the “Code of Conduct”). The Code of Conduct can be found at Salon’s Website at www.salon.com/about/ir.

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers, directors and persons who beneficially own more than 10% of the Company’s Common Stock to file initial reports of ownership and reports of changes in ownership with the Commission. Such persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms filed by such persons.

Based solely on Salon’s review of such forms furnished to us and written representations from certain reporting persons, we believe that all filing requirements applicable to our executive officers, directors and more than 10% stockholders were complied with, except that Messrs. Colhoun and Hoffner failed to file Form 4s with respect to their receipt of warrants to purchase common stock on December 2018.

The Audit Committee reviews, acts on and reports to the Board with respect to various auditing and accounting matters, including the adequacy of the Company’s financial reporting and disclosure controls and processes, the adequacy of the Company’s internal control policies, the selection of the Company’s independent registered public accounting firm, the scope of the annual audits, fees to be paid to the Company’s independent registered public accounting firm, the performance of the Company’s independent registered public accounting firm and the accounting practices of the Company. The Audit Committee operates under a charter that is available on our website at www.salon.com/about/ir.

During the fiscal year ended March 31, 2019, the members of our Audit Committee were Messrs. MacWilliams, Hambrecht, Colhoun and Hoffner. The Company has adopted the NYSE MKT Rules to determine the independence of the members of the Board. Pursuant to the NYSE MKT Rules, the Company has determined that Messrs. MacWilliams and Colhoun are independent directors were independent during the year ended March 31, 2019. As a result of their appointments as officers of the Company on May 3, 2019, Messrs. MacWilliams and Colhoun are no longer independent as of the date of filing of this Report.

The following table shows, for the fiscal year ended March 31, 2019, the compensation of Salon’s (i) principal executive officer; (ii) principal financial officer; and (iii) the two most highly compensated executive officers, collectively the “Named Executive Officers”:

No equity awards were granted during the 2019 fiscal year to the Named Executive Officers.

The following table sets forth the outstanding equity awards for each Named Executive Officer as of March 31, 2019.

Salon has a 401(k) savings plan for its employees that allows for matching contributions and profit-sharing. Due to limited cash, Salon has never made matching or profit-sharing contributions and has no intention to do so in the 2019 fiscal year. Salon does not have a deferred compensation plan for any employee. None of Salon’s executive officers is covered by a pension plan or other similar benefit plan that provides for payments or other benefits at, following, or in conjunction with retirement.

Salon’s prior employment agreement with Mr. Hoffner provides for certain benefits in the event of an involuntary termination of service related to a change in control of Salon as defined within. Under the agreement, Mr. Hoffner will be entitled to a lump sum cash severance payment in an amount equal to one year of his base salary; and, if Mr. Hoffner is covered under the Company’s group health plan at the time of such a termination, the Company will reimburse him for one year’s payment of COBRA premiums. Mr. Hoffner resigned as Chief Executive Officer on May 3, 2019. Mr. Hoffner waived his rights to receive severance in connection with his execution of the Settlement Agreement and Release with us on July 1, 2019.

The following table details the total compensation paid to Salon’s non-employee directors for its 2019 fiscal year. The amounts shown are the compensation costs recognized by Salon in fiscal year 2019 for option awards, as determined pursuant to ASC 718, excluding any estimates of future forfeitures. For a discussion of the assumptions used to calculate the value of the option awards, see Note 7 of Notes to the Financial Statements.

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

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

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

Cash constraints have hampered Salon in attracting new executives. Due to insufficient cash, Salon has only been able to offer its CEO and CFO only a competitive base annual salary and until this past fiscal year, has not been able to implement a non-equity incentive compensation plan, or award meaningful annual cash bonuses to these executives. As a consequence, Salon has had to rely on stock option and restricted stock awards in lieu of cash compensation for these officers. Salon has also had to rely on offering substantial equity awards to entice prospective new executives to join Salon. Besides cash constraints, Salon faces challenges in hiring and retaining executives due to a relatively small pool of available executive talent in its industry, and because it competes with more established media companies and better funded upstarts. Salon has experienced difficulties in finding and retaining suitable executives to lead its sales and technology efforts, positions in high demand. As Salon’s brand recognition has increased, so has the demand for its trained talent.

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

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

Base Salary. Salaries for Salon’s executive officers are initially set based on negotiation with the individual executive officers at the time of recruitment and with reference to salaries for comparable positions in the industry for individuals of similar education and background. Salon also considers the individual’s experience, reputation in his or her industry and expected contributions to Salon. Base salary is continuously evaluated to ensure it is competitive and may be adjusted from time to time if Salon believes that it is no longer competitive, to match changes to an individual’s job performance or duties, or to retain an executive. Cost of living salary adjustments may also be granted to executive officers on an ad hoc basis. In each case, Salon takes into account the results achieved by the executive, his or her future potential, scope of responsibilities and experience, competitive salary practices, the potential impediment in reaching profitability if the executive were to leave Salon, and cash projections. Salon has not utilized benchmarks or compensation studies in determining salary levels, but may do so in the future.

Bonuses and Non-Equity Incentive Plan Compensation. Certain named executives are eligible for a cash bonus. Due to limited cash, historically no meaningful cash bonuses have been granted in the past to Salon’s CEO, CFO, or Editor-in-Chief. In fiscal years 2018 and 2019, we did not pay any cash bonuses to our executives.

In order to align corporate goals and provide incentives for its Named Executive Officers, it is anticipated that the Compensation Committee will approve bonus plans for fiscal year 2020 consistent with those implemented in fiscal year 2019, which will specify operating and profitability targets that should increase the enterprise value of the Company.

All bonus plans and non-equity incentive plans are approved by Salon’s Compensation Committee upon consultation with the CEO.

Stock Options. Salon grants stock options to newly hired executives at the next regularly scheduled meeting of the Board, and thereafter to align the executives’ interests with those of its stockholders and as incentives to remain with Salon. Salon believes that options to purchase its Common Stock, priced at the market price on the date of grant, are the best tool to motivate executives to build stockholder value. In addition, stock options have been an appealing form of compensation to Salon because they require no cash outlay. However, these grants affect Salon’s results of operations as they require Salon to record non-cash stock-based compensation. As options are not transferable, they have no value to the executive unless the price of the stock increases after the grant. Because these options typically vest over a four-year period, they are an incentive for executives to build Salon’s value over time and encourage executives to remain in the long-term employment with Salon.

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

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

The number of stock options Salon granted to executives has varied widely and irregularly. No options were granted to executives during fiscal year 2019. During fiscal year 2018, the Board granted options to acquire 31,597,043 shares to Mr. Hoffner, 721,154 shares to Ms. Hambrecht and 3,720,857 shares to Mr. Nathanson.

The Salon Media Group, Inc. 2004 Stock Plan expired on November 17, 2014 and no additional options may be issued under this Plan.

The Board adopted the 2014 Stock Incentive Plan on January 21, 2014 and also approved a resolution on June 12, 2014 to amend the 2014 Stock Incentive Plan to comply with certain California Code of Regulations and IRS regulations. The 2014 Stock Incentive Plan provides for the grant of incentive stock options to our employees and any parent and subsidiary corporations’ employees, and for the grant of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and dividend equivalent rights to our employees, directors and consultants and our parent and subsidiary corporations’ employees, directors and consultants. As of March 31, 2019, Salon’s 2014 Stock Incentive Plan allows for the future granting of approximately 10,530,000 shares of Common Stock.

Restricted Stock. The Company’s 2014 Stock Incentive Plan allows for the grant of restricted stock awards. It is contemplated that such awards will vest over a period of four years and be subject to accelerated vesting in the event that the holder is terminated for reasons other than cause, or if a change in control event were to occur. Salon feels that the issuance of restricted stock will be a valuable incentive tool for its executives as this type of equity award will have immediate value upon vesting with no cash outlay by the Company.

There was no issuance of restricted stock during fiscal year ended March 31, 2019.

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

Retirement and Other Benefits. Salon has a 401(k) savings plan for its employees that allows for matching contributions and profit sharing. Due to limited cash, Salon has never made matching or profit-sharing contributions and has no intention to do so in the 2019 fiscal year. Salon does not have a deferred compensation plan for any employee.

Jordan Hoffner was appointed CEO and Director effective May 23, 2016 with a base salary of $300,000 per annum, succeeding former CEO, Cynthia Jeffers. Mr. Hoffner’s last day with the Company was May 3, 2019.

Elizabeth Hambrecht, who was appointed CFO on November 11, 2014, is entitled to a base salary of $200,000 per annum. Prior to her appointment, Ms. Hambrecht had served as Interim CFO and Secretary since July 2, 2013. Ms. Hambrecht’s last day with the Company was September 27, 2018.

Ryan Nathanson was appointed Chief Operating Officer effective February 1, 2017 with a base salary of $225,000 per annum. Mr. Nathanson’s last day with the Company was July 27, 2018.

Jordana Brondo who had served as former Chief Revenue Officer effective June 20, 2017, was entitled to a base salary of $190,000 per annum. Ms. Brondo’s last day with the company was date was August 25, 2017.

Section 162(m) of the Internal Revenue Code limits deductions for executive compensation in excess of $1 million except for certain compensation which qualifies for a performance-based exception. Certain types of compensation in excess of $1 million are deductible by a company if performance criteria are specified in detail and are contingent on stockholder approval of the compensation arrangement. As Salon has been unable to award bonuses and other forms of non-equity incentive compensation to any of its Named Executive Officers due to limited cash, the $1 million limitation has not been a factor for Salon. In the future, Salon and the Compensation Committee will endeavor to structure executive compensation plans to achieve maximum deductibility under Section 162(m) with minimal effects on flexibility and corporate objectives.

Salon has expensed stock option grants and restricted stock under ASC 718 which requires companies to include the fair value of equity compensation as a compensation expense in their income statements.

The Compensation Committee of Salon has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Form 10-K.

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

Information regarding Equity Compensation Plans may be found in Part II, Item 5, commencing on page 30 of this Form 10-K.

The following table sets forth information regarding the beneficial ownership of Common Stock and Common Stock equivalents of Salon as of July 1, 2019 (a) by each stockholder who is known by Salon to be the beneficial owner of more than 5% of the outstanding Common Stock and Common Stock equivalents or the combined total voting power of all classes of capital stock of Salon on a fully diluted, as converted basis, (b) by each Director and nominee, (c) each Named Executive Officer in the Summary Compensation Table, and (d) by all executive officers and directors of Salon as a group.

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

In May 2007, Salon entered into a line of credit with Deutsche Bank Securities, Inc. for borrowings of up to $1 million plus accrued interest. In September 2016, this credit agreement was transferred to Raymond James after Deutsche Bank Securities, Inc. sold its accounts. This agreement is guaranteed in its entirety by John Warnock, Salon’s former Chairman. As of March 31, 2019 and March 31, 2018, the line was fully drawn. Raymond James may demand repayment of amounts borrowed at any time. Additionally, Mr. Warnock may also choose to terminate his guarantee, which would trigger a demand for repayment. Accrued interest thereon is $512,000.

The Company did not receive any cash advances during the fiscal year ended March 31, 2019. On September 26, 2017, Salon received $40,000 in cash, unsecured and interest-free, from our CEO as working capital and was repaid on September 29, 2017. The Company did not receive any other cash advances during the fiscal year ended March 31, 2018.

Various related parties have provided immediately available funds to serve as a bridge to the Company’s 2017, 2018 and 2019 equity capital raises through the issuance and sale of interest bearing convertible promissory notes that are convertible into shares of the Company’s Common Stock at $0.001 par value per share in accordance with the terms of these notes and their securities purchase agreements.

The following is a summary of these related party bridge convertible promissory notes issued during the fiscal year ended March 31, 2019:

The Initial Closing was completed on January 26, 2017. In the Initial Closing, we sold to the Purchasers an aggregate of 805,824 shares of Series A Preferred Stock for a total purchase price of $1 million. The investors in the Initial Closing included the Company’s CEO (until his resignation on May 3, 2019), Jordan Hoffner, and certain of his family members, the Company’s then CFO (until her resignation on September 28, 2018), Elizabeth Hambrecht, and the Company’s Director, William Hambrecht.

The Second Closing was completed on March 23, 2017. In the Second Closing, we sold to the Purchasers an aggregate of 173,252 shares of Series A Preferred Stock for a total purchase price of $0.215 million. The Second Closing included only investors who had previously indicated interest in participating in the Private Placement. The investors in the Second Closing included Mr. Hoffner, Ryan Nathanson, the Company’s former Chief Operating Officer, and Ms. Jordana Brondo, the Company’s former Chief Revenue Officer.

The Final Closing was completed on July 20, 2017. In the Final Closing, we sold to the Purchasers an aggregate of 221,601 shares of Series A Preferred Stock for a total purchase price of $0.275 million. The Final Closing included only investors who had previously indicated interest in participating in the Private Placement. The investors in the Final Closing included Jordan Hoffner, Elizabeth Hambrecht and William Hambrecht.

The following summarizes related party purchasers in the Initial, Second and Final Closings:

In June 2018, a Company controlled by our director Trevor Colhoun advanced us $50,000, which advance accrued interest at a rate of 10% per annum and payable on the 1-year anniversary of the advance. On December 7, 2018, this advance and all accrued interest was exchanged for a secured note in the amount of approximately $52,236. This note bears a 10% interest rate and are payable on June 30, 2019. In addition, on December 7, 2018, we issued warrants to a company controlled by our director Trevor Colhoun to purchase 4,940,000 shares of our common stock at an exercise price of $0.01 per share. The warrants expire five years from the issuance date and can be exercised with cash or cancellation of the secured note referenced above.

From July 2018 through August 2018, Jordan Hoffner, our director and former CEO, advanced us $64,500, which advance accrued interest at a rate of 10% per annum and payable on the one-year anniversary of such advance. On December 7, 2018, this advance and all accrued interest was exchanged for a secured note in the amount of approximately $66,662. This note bears a 10% interest rate and are payable on June 30, 2019. In addition, on December 7, 2018, we issued warrants to a company controlled by our director Trevor Colhoun to purchase 6,372,600 shares of our common stock at an exercise price of $0.01 per share. The warrants expire five years from the issuance date and can be exercised with cash or cancellation of the secured note referenced above.

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

Salon has primarily relied on cash infusion from related persons to meet cash operating needs from the year ended March 31, 2003 through the year ended March 31, 2019. During this period of inadequate cash, the Board approved related person transactions after full disclosure of the interests of related parties. Subsequent to March 31, 2007, Salon’s Audit Committee separately, or in conjunction with the full Board, excluding those related parties involved in such transactions reviewed, approved and/or ratified all related party transactions, as the Audit Committee is empowered to do under Salon's Audit Committee Charter.

Salon has disclosed in filings with the SEC all related party transactions. The SEC defines a related party transaction to include any transaction, arrangement or relationship in which Salon is a participant and in which any of the following persons has or will have a direct or indirect material interest:

The Company has adopted the NYSE MKT Rules to determine the independence of the members of the Board. Pursuant to the NYSE MKT Rules, the Company has determined that Messrs. MacWilliams and Colhoun were independent directors during the year ended March 31, 2019. As a result of the appointments as officers of the Company on May 3, 2019, Messrs. MacWilliams and Colhoun are no longer independent as the date of this Report.

M&K CPA’s, PLLC is Salon’s independent registered public accounting firm. The aggregate audit fees billed by M&K CPA’s, PLLC were approximately $35,000 and for the year ended March 31, 2019. M&K CPA’s, PLLC did not perform any services for which Salon incurred fees for non-audit related fees, or other fees.

During the year ended March 31, 2019, all audit and tax fees were pre-approved by the Audit Committee. The Audit Committee has adopted a policy that it must pre-approve all fees for audit services, tax services and other services.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

PART I		Page Number

ITEM 1.	Business	3

ITEM 1A.	Risk Factors	13

ITEM 1B.	Unresolved Staff Comments	27

ITEM 2.	Properties	27

ITEM 3.	Legal Proceedings	28

ITEM 4.	Mine Safety Disclosures	28

PART II

ITEM 5.	Market for Registrant’s Common Equity and Related Stockholder Matters, and Issuer Purchases of Equity Securities	29

ITEM 6.	Selected Financial Data	31

ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk	41

ITEM 8.	Financial Statements and Supplementary Data	42

ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	70

ITEM 9A.	Controls and Procedures	70

ITEM 9B.	Other Information	71

PART III

ITEM 10.	Directors, Executive Officers and Corporate Governance	72

ITEM 11.	Executive Compensation	74

ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	81

ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	83

ITEM 14.	Principal Accountant Fees and Services	86

PART IV

ITEM 15.	Exhibits, Financial Statement Schedules	87

SIGNATURES		90

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Plan category	Number of securities to	Weighted-average	Number of securities
	be issued upon exercise	exercise price of	remaining available for
	of outstanding options	outstanding options	future issuance under
	and rights	and rights (1)	equity compensation
			plans, excluding
			securities reflected in
			column (a)

	(a)	(b)	(c)

Equity compensation plans	2,790,516	$0.07	10,529,550
approved by security
holders

Equity compensation plans	48,145,592	$0.06	None
not approved by security
holders

Total	50,936,108	$0.06	10,529,550

ITEM 8. Financial Statements and Supplementary Data

	Page

Report of Independent Registered Public Accounting Firm	43

Balance Sheets as of March 31, 2019 and 2018	44

Statements of Operations for the years ended March 31, 2019 and 2018	45

Statements of Stockholders’ Deficit for the years ended March 31, 2019 and 2018	46

Statements of Cash Flows for the years ended March 31, 2019 and 2018	47

Notes to Financial Statements	48

	March 31,
	2019			2018
ASSETS
Current assets:
Cash	$	269		$	67
Prepaid expenses and other current assets		52			50
Current assets held for sale (Note 4)		439			433
Total current assets		760			550

Non-current assets held for sale (Note 4)		210			397
Total assets	$	970		$	947

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Short-term borrowings and accrued interest	$	1,512		$	1,439
Convertible promissory notes, net		700			200
Convertible promissory note – related party, net		711			535
Accrued liabilities		904			752
Current liabilities held for sale (Note 4)		1,431			1,287
Total current liabilities		5,258			4,213

Non-current assets held for sale (Note 4)		-			-
Total liabilities		5,258			4,213

Commitments and contingencies (Note 13)

Stockholders’ deficit:
Series A convertible preferred stock, $0.001 par value, 5,000,000 shares authorized, 1,648,830 and outstanding in 2019 and 2018 (liquidation value of $4,089 in 2019)		2			2
Common stock, $0.001 par value, 900,000,000 shares authorized in 2019 and 2018, 151,056,477 shares issued and outstanding in 2019 and 2018		151			151
Additional paid-in capital		136,312			134,667
Accumulated deficit		(140,753	)		(138,086	)
Total stockholders’ deficit		(4,288	)		(3,266	)
Total liabilities and stockholders' deficit	$	970		$	947

	Fiscal Year Ended				Fiscal Year Ended
	March 31, 2019				March 31, 2018
For the quarter ended	High		Low		High		Low
June 30	$	0.10	$	0.01	$	0.20	$	0.09
September 30		0.04		0.01		0.20		0.08
December 31		0.04		0.02		0.11		0.05
March 31	$	0.03	$	0.02	$	0.10	$	0.05

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

	Preferred				Common				Additional					Total
	Stock				Stock				Paid-In		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital		(Deficit)			Deficit
Balance, March 31, 2017		-		-		150,000,000		150	$	125,053		(134,981	)		(9,778	)

Shares converted from convertible notes		1,648,830		2		-		-		7,135		-			7,137
Shares from options exercised		-		-		1,056,477		1		11		-			12
Stock-based compensation		-		-		-		-		1,183		-			1,183
Debt discount from convertible notes		-		-		-		-		275		-			275
Reclassification of options to liabilities		-		-		-		-		1,010		-			1,010
Net loss		-		-		-		-		-		(3,105	)		(3,105	)

Balance, March 31, 2018		1,648,830		2		151,056,477		151		134,667		(138,086	)		(3,266	)

Stock-based compensation		-		-		-		-		1,526		-			1,526
Issuance of warrants in connection with convertible notes		-		-		-		-		119		-			119
Net loss		-		-		-		-		-		(2,667	)		(2,667	)

Balance, March 31, 2019		1,648,830	$	2		151,056,477	$	151	$	136,312	$	(140,753	)	$	(4,288	)

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

	Shares		Weighted Average Exercise Price ($)		Weighted Average Remaining Contractual Terms
Outstanding as of March 31, 2017		0	$	-		-
Granted		0	$	-		-
Expired		0	$	-		-
Outstanding as of March 31, 2018		0	$	-		-
Granted		11,312,600	$	0.01		4.69
Expired		0	$	-		-
Outstanding as of March 31, 2019		11,312,600	$	0.01		4.69
Exercisable as of March 31, 2019		11,312,600	$	0.01		4.69

	2.	Failure to implement accounting controls
	3.	Procedures related to identification and approval of related party transactions

Name	Age	Position
Richard MacWilliams^{(1) (2) (3)}	67	Chairman of the Board and Acting CEO
Trevor Colhoun^{(1) (2)}	42	Director and Acting CFO
Jordan Hoffner⁽¹⁾	49	Director
William Hambrecht⁽¹⁾	83	Director

								Non-Equity
						Option		Incentive Plan
Name and Principal Position	Year	Salary ($)		Bonus ($)		Awards ($) (1)		Compensation ($)		Total ($)

Jordan Hoffner (2)	2019		93,613		-		1,398,394		-		1,492,007
Chief Executive Officer (Until May 3, 2019)	2018		223,637		-		889,261		-		1,112,898
Elizabeth Hambrecht (3)	2019		15,603		-		-		-		15,603
Chief Financial Officer (Until September 27, 2018)	2018		69,470		-		96,004		-		165,474
Ryan Nathanson (4)	2019		65,278		-		19,143		-		84,421
Chief Operating Officer (Until July 27, 2018)	2018		222,917		-		37,546		-		260,462
Jordana Brondo (5)	2019		-		-		-		-		-
Chief Revenue Officer (Until August 25, 2017)	2018		153,626		-		-		-		153,626

	Fees Earned
	or Paid in		Option
Name	Cash		Awards (4)		Total
William Hambrecht (1) (3)	$	-	$	16,972	$	16,972
Richard MacWilliams (2)	$	25,000	$	28,286	$	53,286
Trevor Colhoun (3)	$	25,000	$	16,972	$	41,972

	Amount and
	Nature of
	Beneficial		Percent
Name and Address of Beneficial Owner (1)	Ownership (2)		of Class (3)
John Warnock (4)		89,211,240		28.24%
Humilis Holdings Capital Fund LP (5)		58,643,830		17.72%
Elizabeth Hambrecht (6)		21,006,878		6.57%
Shea Ventures (7)		16,832,962		5.33%

Executive Officers and Directors
William R. Hambrecht (8)		77,575,364		24.49%
Jordan Hoffner (9)		61,098,546		16.93%
Trevor Colhoun (10)		59,340,945		17.89%
Richard MacWilliams (11)		1,161,859		*
All executive officers and directors as a group (4 persons)		199,176,714		52.61%

Note Date	Related Party Purchasers	Note Type	Principal Amount		Interest Rate		Maturity Date	Purchase Agreement	Equity Capital Raise
10/26/17	Humilis Holdings Capital Fund LP (1)	Convertible	$	125		10%	10/26/18	10/26/17		2017
11/30/17	Eu Revocable Trust (2)	Convertible	$	50		10%	11/30/18	11/30/17		2017
11/30/17	Jordan Hoffner (3)	Convertible	$	75		10%	11/30/18	11/30/17		2017
12/12/17	Jordan Hoffner (3)	Convertible	$	38		10%	12/12/18	12/12/17		2017
12/12/17	Jordan Hoffner (3)	Convertible	$	22		10%	12/12/18	12/12/17		2017
01/09/18	Jordan Hoffner (3)	Convertible	$	75		10%	01/09/19	01/09/18		2017
02/26/18	Jordan Hoffner (3)	Convertible	$	100		10%	02/26/19	02/26/18		2018
03/29/18	Jordan Hoffner (3)	Convertible	$	50		10%	03/29/19	03/29/18		2018
04/10/18	Eu Revocable Trust (2)	Convertible	$	50		10%	04/10/19	04/10/18		2019
04/12/18	Humilis Holdings Capital Fund LP (4)	Convertible	$	50		10%	04/12/19	04/12/18		2019
04/07/18	Jordan Hoffner (3)	Convertible	$	10		10%	04/27/19	04/07/18		2019
12/07/18	Humilis Holdings Capital Fund LP (4)	Senior Secured	$	52		10%	06/30/19	12/07/18		2019
12/07/18	Jordan Hoffner (3)	Senior Secured	$	67		10%	06/30/19	12/07/18		2019
	Total		$	764

1.	Financial Statements

	The information concerning Salon’s financial statements and the Report of M&K CPA’s, PLLC, Salon’s Independent Auditors required by this item are incorporated by reference herein to the section of this Report in Item 8, entitled “Financial Statements and Supplementary Data.”

3.	Exhibits

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

Exhibit
Number			Description of Document
2.1			Asset Purchase Agreement dated March 6, 2019 between Salon Media Group, Inc. and Salon.com, LLC, incorporated by reference to our Current Report on Form 8-K filed on May 8, 2019
2.2			First Amendment to Asset Purchase Agreement between Salon Media Group, Inc. and Salon.com, LLC, incorporated by reference to our Current Report on Form 8-K filed on May 8, 2019
2.3			Second Amendment to Asset Purchase Agreement between Salon Media Group, Inc. and Salon.com, LLC
3.1(1)			Certificate of Designation of Series A Mandatorily Convertible Voting Preferred Stock, dated January 24, 2017
3.2(1)			Certificate of Amendment of Restated Certificate of Incorporation of Salon Media Group, Inc., dated January 25, 2017
3.3(3)			Restated Certificate of Incorporation of the Registrant, filed with the Secretary of State of the Delaware on March 13, 2014
3.4(4)			Restated Bylaws of Salon, as amended through March 13, 2014.
4.1			Secured Note dated December 7, 2018 in the amount of $52,236.22 issued by Salon Media Group, Inc. in favor of Humilis Holdings Capital Fund LP, incorporated by reference to our Annual Report on Form 10-K for the year ended March 31, 2018 filed on June 10, 2019.
4.2			Secured Note dated December 7, 2018 in the amount of $66,662.77 issued by Salon Media Group, Inc. in favor of Jordan Hoffner, incorporated by reference to our Annual Report on Form 10-K for the year ended March 31, 2018 filed on June 10, 2019.
4.3			Warrant dated December 7, 2018 to purchase 4,940,000 shares of common stock issued by Salon Media Group, Inc. in favor of Humilis Holdings Capital Fund LP, incorporated by reference to our Annual Report on Form 10-K for the year ended March 31, 2018 filed on June 10, 2019.
4.4			Warrant dated December 7, 2018 to purchase 6,372,600 shares of common stock issued by Salon Media Group, Inc. in favor or Jordan Hoffner, incorporated by reference to our Annual Report on Form 10-K for the year ended March 31, 2018 filed on June 10, 2019.
10.1(1)			Purchase Agreement, dated as of January 24, 2017
10.2(1)			Stock Exchange Agreement, dated as of November 14, 2016
10.3(1)			Amendment to Stock Exchange Agreement, dated January 19, 2017.

10.4(1)			Bridge Financing Agreement, dated as of August 5, 2016
10.5(1)			Bridge Financing Agreement, dated as of August 5, 2016
10.6(1)			Bridge Finance Amendment, dated January 25, 2017.
10.7(1)			Bridge Finance Amendment, dated January 25, 2017.
10.8(2)			Purchase Agreement, dated as of March 23, 2017
10.9(5)			Salon Media Group, Inc. 2004 Stock Plan.
10.10(5)			Form of the Salon Media Group, Inc. Notice of Grant of Stock Option and Stock Option Agreement.
10.11(6)			Employment Agreement with David Talbot dated July 22, 2011.
10.12(7)			Separation Agreement between Norman Blashka and Salon Media Group, Inc. entered into on June 4, 2012.
10.13(8)			Employment Agreement with Cynthia Jeffers, dated December 3, 2012.
10.14(9)			Employment Agreement with Elizabeth Hambrecht, dated July 2, 2013.
10.15			Employment Agreement with Jordan Hoffner, dated June 9, 2016, incorporated by reference to our Annual Report on Form 10-K for the year ended March 31, 2018 filed on June 10, 2019.
10.16(10)			Employment Agreement with Jordana Havriluk Brondo, dated June 20, 2017.
10.17(11)			Asset Sale Agreement between the Well Group, Inc. and Salon Media Group, Inc. entered into on September 20, 2012.
10.18(12)			Form of Purchase Agreement, dated as of March 1, 2013
10.19(12)			Voting Agreement, dated as of February 28, 2013
10.20(13)			2014 Stock Incentive Plan
10.21(14)			Office Lease between 132 West 31st Street Building Investors II, LLC and Salon Media Group, Inc., dated April 16, 2014
10.22			Technology Support Agreement dated October 25, 2018 between Salon Media Group, Inc. and PubLife, LLC, incorporated by reference to our Current Report on Form 8-K filed on May 8, 2019
10.23			General Advertising Services Agreement dated October 25, 2018 between Salon Media Group, Inc. and Proper Media, incorporated by reference to our Current Report on Form 8-K filed on May 8, 2019
10.24			Security Agreement dated December 7, 2018 between Salon Media Group, Inc., Humilis Holdings Capital Fund LP and Jordan Hoffner, incorporated by reference to our Annual Report on Form 10-K for the year ended March 31, 2018 filed on June 10, 2019.
10.25			Agreement dated November 2018 between Salon Media Group, Inc. and Writers Guild of America, East, incorporated by reference to our Annual Report on Form 10-K for the year ended March 31, 2018 filed on June 10, 2019.
10.26			Settlement Agreement and Release dated July 1, 2019 between Salon Media Group, Inc. and Jordan Hoffner.
10.27			Settlement Agreement and Release dated July 1, 2019 between Salon Media Group, Inc. and Elizabeth Hambrecht.
31.1			Certification of Richard MacWilliams, Acting Chief Executive Officer of the Registrant pursuant to Section 302, as adopted pursuant to the Sarbanes-Oxley Act of 2002.
31.2			Certification of Trevor Colhoun, Acting Chief Financial Officer of the Registrant pursuant to Section 302, as adopted pursuant to the Sarbanes-Oxley Act of 2002.
32.1			Certification of Richard MacWilliams, Acting Chief Executive Officer of the Registrant pursuant to Section 906, as adopted pursuant to the Sarbanes-Oxley Act of 2002.
32.2			Certification of Trevor Colhoun, Acting 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**			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

Footnote					Footnote Description
1					Incorporated by reference to the exhibits filed with the Registrant’s Current Report on Form 8-K filed on January 27, 2017.
2					Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 27, 2017.
3					Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on March 13, 2014.
4					Incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed on March 13, 2014.
5					Incorporated by reference to the exhibits filed with Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005, filed on June 29, 2005.
6					Incorporated by reference to the exhibits filed with Salon’s Current Report on Form 8-K filed on July 27, 2011.
7					Incorporated by reference to the exhibits filed with Salon’s Current Report on Form 8-K filed on June 4, 2012.
8					Incorporated by reference to the exhibits filed with Salon’s Current Report on Form 8-K filed December 10, 2012.
9					Incorporated by reference to the exhibits filed with Salon’s Current Report on Form 8-K filed July 2, 2013.
10					Incorporated by reference to the exhibits filed with Salon’s Current Report on Form 8-K filed June 23, 2017.
11					Incorporated by reference to the exhibits filed with Salon’s Quarterly Report on Form 10-Q filed November 14, 2012.
12					Incorporated by reference to the exhibits filed with Salon’s Current Report on Form 8-K filed March 7, 2013.
13					Incorporated by reference to the exhibits filed with Salon’s Current Report on Form 8-K filed March 13, 2014.
14					Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 14, 2014.

	SALON MEDIA GROUP, INC.



	By:	/s/ Richard MacWilliams
		Richard MacWilliams
		Acting Chief Executive Officer

Signature	Title	Date

/s/ Richard MacWilliams	Acting Chief Executive Officer and Chairman	July 10, 2019
Richard MacWilliams	of the Board (Principal Executive Officer)

/s/ Trevor Colhoun	Acting Chief Financial Officer and Director	July 10, 2019
Trevor Colhoun	(Principal Financial and Accounting Officer)

/s/ Jordan Hoffner	Director	July 10, 2019
Jordan Hoffner