SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

________________

FORM 10-Q

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

For the quarterly period ended ~~September~~December 3031, 2018

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

For the transition period from to

Commission file number 0-26395

SALON MEDIA GROUP, INC.

(Exact name of Registrant as specified in its charter)

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

870 Market Street

San Francisco, CA 94102

(Address of principal executive offices)

(415) 870-7566

(Registrant's telephone number, including area code)

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

None

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

Common Stock, $0.001 Par Value

(Title of Class)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, 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 [X] 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 Rule 12b-2 of the act. Yes [ ] No [X]

The number of outstanding shares of the Registrant's Common Stock, par value $0.001 per share, on June 1, 2019 was 151,056,477 shares.

FORM 10-Q

SALON MEDIA GROUP, INC.

INDEX

PART I	FINANCIAL INFORMATION	Page Number
ITEM 1:	Financial Statements
	Condensed Balance Sheets as of September 30, 2018 (unaudited) and March 31, 2018	3
	Condensed Balance Sheets as of December 31, 2018 (unaudited) and March 31, 2018	3
	Condensed Statements of Operations for the three months and six months ended September 30, 2018 and 2017 (unaudited)	4
	Condensed Statements of Operations for the three months and six months ended December 31, 2018 and 2017 (unaudited)	4
	Condensed Statements of Stockholders’ Deficit for the three and six months ended September 30, 2018 and 2017 (unaudited)	5
	Condensed Statements of Stockholders’ Deficit for the three and six months ended December 31, 2018 and 2017 (unaudited)	5
	Condensed Statements of Cash Flows for the six months September 30, 2018 and 2017 (unaudited)	6
	Condensed Statements of Cash Flows for the six months December 31, 2018 and 2017 (unaudited)	6
	Notes to Condensed Financial Statements (unaudited)	7
ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
ITEM 3:	Quantitative and Qualitative Disclosures About Market Risk	29
ITEM 4:	Controls and Procedures	29
PART II	OTHER INFORMATION
ITEM 1:	Legal Proceedings	30
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
ITEM 3.	Defaults upon Senior Securities	31
ITEM 4.	Mine Safety and Disclosures	31
ITEM 5.	Other Information	31
ITEM 6:	Exhibits	33
	Signatures	34

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SALON MEDIA GROUP, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and par value amounts)

	September 30,			March 31,
	December 31,			March 31,
	2018			2018 (1)
	(unaudited)
Assets
Current assets:
Cash	$	63196		$	52
Accounts receivable, net of allowance of $15		~~444~~678			433
Prepaid expenses and other current assets		7163			65
Total current assets		~~578~~937			550
Property, software development and equipment, net		~~283~~246			359
Other assets, principally deposits		38			38
Total assets	$	~~899~~1,221		$	947
Liabilities and Stockholders’ Deficit
Current liabilities:
Short-term borrowings and accrued interest	$	1,~~474~~493		$	1,439
Convertible promissory notes, net		~~200~~700			200
Convertible promissory notes – related party		645			535
Convertible promissory notes – related party, net		659			535
Unsecured advances – related party		115			-
Accounts payable		1,443			1,198
Accounts payable		1,597			1,198
Accrued liabilities		811			841
Accrued liabilities		943			841
Deferred Revenue		4			-
Deferred Revenue		20			-
Total current liabilities		5,110			4,213
Total current liabilities		4,994			4,213
Deferred rent		-			-
Total liabilities		45,~~994~~110			4,213
Commitments and contingencies (See Note 7)
Commitments and contingencies (See Note 8)
Stockholders’ deficit:
Series A convertible preferred stock, $0.001 par value, 5,000,000 shares authorized, 1,648,830 shares issued and outstanding as of September 30, 2018 and March 31, 2018 (liquidation preference of $4,089 as of September 30, 2018 and March 31, 2018, respectively)		2			2
Series A convertible preferred stock, $0.001 par value, 5,000,000 shares authorized, 1,648,830 shares issued and outstanding as of December 31, 2018 and March 31, 2018 (liquidation preference of $4,089 as of December 31, 2018 and March 31, 2018, respectively)		2			2
Common stock, $0.001 par value, 900,000,000 shares authorized, 151,056,477 shares issued and outstanding as of September 30, 2018 and March 31, 2018		151			151
Common stock, $0.001 par value, 900,000,000 shares authorized, 151,056,477 shares issued and outstanding as of December 31, 2018 and March 31, 2018		151			151
Additional paid-in capital		135,~~453~~972			134,667
Accumulated deficit		(~~139~~140,~~701~~014	)		(138,086	)
Total stockholders' deficit		(43,~~095~~889	)		(3,266	)
Total liabilities and stockholders' deficit	$	~~899~~1,221		$	947

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

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

SALON MEDIA GROUP, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended						~~Six~~Nine Months Ended
	September 30,						September 30,
	December 31,						December 31,
	2018			2017			2018			2017
Revenues	$	~~714~~962		$	1,~~160~~247		$	12,~~318~~280		$	23,~~621~~868
Operating expenses:
Production and content		~~565~~538			~~1,014~~808			1,~~207~~745			2,~~036~~844
Sales and marketing		-15			~~129~~111			-15			~~305~~416
Technology		~~136~~99			~~186~~192			~~300~~399			~~398~~590
General and administrative		~~592~~634			~~532~~644			1,~~346~~980			~~866~~1,589
Total operating expenses		1,~~293~~286			1,~~861~~755			24,~~853~~139			35,~~605~~439
Loss from operations		(~~579~~324	)		(~~701~~508	)		(1,~~535~~859	)		(~~984~~1,571	)
Change in fair value of share based liability		-			(79	)		-			(79	)
Interest expense		(4262	)		(1415	)		(80142	)		(2843	)
Non-cash interest expense – beneficial conversion feature		-			-(94	)		-			(~~275~~369	)
Net loss	$	(621	)	$	(794	)	$	(1,615	)	$	(1,366	)
Gain on settlement of accounts payable		73			-			73			-
Basic and diluted net loss per share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
Net loss	$	(313	)	$	(696	)	$	(1,928	)	$	(2,062	)
Weighted average shares used in computing basic and diluted net loss per share		151,056			150,367			150,056			150,185
Basic and diluted net loss per share	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.01	)
Weighted average shares used in computing basic and diluted net loss per share		151,056			151,056			151,056			150,476

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

SALON MEDIA GROUP, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(in thousands, except per share data)

(unaudited)

	Three Months Ended September 30, 2018
	Three Months Ended December 31, 2018
	Preferred Stock				Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		(Deficit)			Deficit
Balance, June 30, 2018		1,648,830	$	2		151,056,477	$	151	$	135,057	$	(139,080	)	$	(3,870	)
Stock-based compensation		-		-		-		-		396		-			396
Net loss		-		-		-		-		-		(621	)		(621	)
Balance, September 30, 2018		1,648,830	$	2		151,056,477	$	151	$	135,453	$	(139,701	)	$	(4,095	)
Stock-based compensation		-		-		-		-		400		-			400
Issuance of warrants in connection with convertible notes		-		-		-		-		119		-			119
Net loss		-		-		-		-		-		(313	)		(313	)
Balance, December 31, 2018		1,648,830	$	2		151,056,477	$	151	$	135,972	$	(140,014	)	$	(3,889	)

	Three Months Ended September 30, 2017
	Three Months Ended December 31, 2017
	Preferred Stock				Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		(Deficit)			Deficit
Balance, June 30, 2017		-	$	-		150,000,000	$	150	$	125,328	$	(135,553	)	$	(10,075	)
Shares converted from convertible notes		1,648,830		2		-		-		7,135		-			7,137
Shares from options exercised		-		-		1,056,477		1		10		-			11
Stock-based compensation		-		-		-		-		353		-			353
Reclassification of options to liabilities		-		-		-		-		1,010		-			1,010
Net loss		-		-		-		-		-		(794	)		(794	)
Balance, September 30, 2017		1,648,830	$	2		151,056,477	$	151	$	133,836	$	(136,347	)	$	(2,358	)
Debt discount from convertible notes		-		-		-		-		269		-			269
Stock-based compensation		-		-		-		-		446		-			446
Net loss		-		-		-		-		-		(696	)		(696	)
Balance, December 31, 2017		1,648,830	$	2		151,056,477	$	151	$	134,551	$	(137,043	)	$	(2,339	)

	Six Months Ended September 30, 2018
	Nine Months Ended December 31, 2018
	Preferred Stock				Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		(Deficit)			Deficit
Balance, March 31, 2018		1,648,830	$	2		151,056,477	$	151	$	134,667	$	(138,086	)	$	(3,266	)
Stock-based compensation		-		-		-		-		~~786~~1,186		-			~~786~~1,186
Net loss		-		-		-		-		-		(1,615	)		(1,615	)
Issuance of warrants in connection with convertible notes		-		-		-		-		119		-			119
Balance, September 30, 2018		1,648,830	$	2		151,056,477	$	151	$	135,453	$	(139,701	)	$	(4,095	)
Net loss		-		-		-		-		-		(1,928	)		(1,928	)
Balance, December 31, 2018		1,648,830	$	2		151,056,477	$	151	$	135,972	$	(140,014	)	$	(3,889	)

	Six Months Ended September 30, 2017
	Nine Months Ended December 31, 2017
	Preferred Stock				Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		(Deficit)			Deficit
Balance, March 31, 2017		-	$	-		150,000,000	$	150	$	125,053	$	(134,981	)	$	(9,778	)
Debt discount from convertible notes		-		-		-		-		~~275~~544		-			~~275~~544
Shares converted from convertible notes		1,648,830		2		-		-		7,135		-			7,137
Shares from options exercised		-		-		1,056,477		1		10		-			11
Stock-based compensation		-		-		-		-		~~353~~799		-			~~353~~799
Reclassification of options to liabilities		-		-		-		-		1,010		-			1,010
Net loss		-		-		-		-		-		(12,~~366~~062	)		(~~1.366~~2,062	)
Balance, September 30, 2017		1,648,830	$	2		151,056,477	$	151	$	133,836	$	(136,347	)	$	(2,358	)
Balance, December 31, 2017		1,648,830	$	2		151,056,477	$	151	$	134,551	$	(137,043	)	$	(2,339	)

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

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

	Six Months Ended
	Nine Months Ended
	September 30,
	December 31,
	2018			2017
Cash flows from operating activities:
Net loss	$	(1,~~615~~928	)	$	(12,~~366~~062	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss from retirement of assets, net		-			5
Bad debt expense and change in allowance for doubtful accounts		1			6
Depreciation		76113			1352
Stock-based compensation		786			353
Gain on settlement of accounts payable		73			-
Mark to market adjustment of options liability		-			79
Stock-based compensation		1,186			799
Amortization of debt discount		14			94
Non-cash interest expense – beneficial conversion feature		-			275
Changes in operating assets and liabilities:
Accounts receivable		(12246	)		~~279~~(115	)
Prepaid expenses and other current assets		(62	)		5084
Accounts payable		399			237
Other assets		-			(5	)
Accrued liabilities		137			26
Accounts payable		172			(31	)
Accrued liabilities		28			226
Deferred rent		-			(58	)
Deferred revenue		204			18-
Net cash used in operating activities		(~~214~~581	)		(88730	)
Cash flows from investing activities:
Purchase of equipment and capitalized website development costs		-			(150	)
Net cash used in investing activities		-			(150	)
Cash flows from financing activities:
Proceeds from convertible promissory notes		-500			~~275~~785
Proceeds from convertible promissory notes – related party		~~110~~225			-
Proceeds from unsecured advances – related party		115			-
Proceeds from related party advances		-			40
Repayments of related party advances		-			(40	)
Net proceeds from issuance of common stock		-			1011
Net cash provided by financing activities		~~225~~725			~~285~~796
Net increase in cash		11			47
Net increase (decrease) in cash		144			(84	)
Cash, beginning of period		52			183
Cash, end of period	$	63196		$	~~230~~99
Amount paid for interest	$	-		$	-
Amount paid for taxes	$	-		$	-
Supplemental schedule of non-cash financing activity:
Issuance of warrants in connection with convertible notes	$	119		$	-
Conversion of accrued interest to convertible notes	$	4		$	-
Reclassification of stock options liability back to stockholders’ deficit	$	-		$	1,010
Conversion of convertible promissory note to common stock	$	-		$	275

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

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

1.	The Company and Significant Accounting Policies

The Company

Salon Media Group, Inc. (“Salon,” the “Company” or “We”) is an Internet media company that produces a content Website with various subject-specific sections. Salon was originally incorporated in July 1995 in the State of California and reincorporated in Delaware in June 1999. Salon operates in one business segment.

Basis of Presentation

These interim financial statements are unaudited and have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly Salon's financial position, results of operations and cash flows for the periods presented. These financial statements and related notes should be read in conjunction with the audited financial statements for the fiscal year ended March 31, 2018, which are included in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018 filed with the Securities and Exchange Commission (“SEC”) on June 10, 2019. Pursuant to the rules of the SEC, these financial statements do not include all disclosures required by generally accepted accounting principles (“GAAP”). The results for the ~~six~~nine months ended ~~September~~December 3031, 2018 are not necessarily indicative of the expected results for any other interim period or for the fiscal year ending March 31, 2019.

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 had an accumulated deficit as of ~~September~~December 3031, 2018 of $~~139~~140,~~701~~014. In addition, Salon expects to incur a net loss from operations for the fiscal year ending March 31, 2019. 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 years 2017 and 2018. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Our operating forecast for the remainder of the fiscal year ending March 31, 2019 anticipates smaller operating losses than fiscal year 2018. We estimate we will require approximately $0.5 million in additional funding to meet our operating needs for the balance of our fiscal year. Operating costs for the ~~six~~nine months ended ~~September 30~~December, 2018 decreased by 1725% compared to the same period last year, reflecting additional steps we have taken to better match our operating expense with revenues. However, we commenced collective bargaining with the Writers Guild of America, East, Inc. (“WGAE”) in November 2015, and until the negotiations are finalized we will not have a clear idea of any potential increase in our budget. If planned revenues continue to be less than expected, or if planned expenses are more than expected, the cash shortfall may be higher, which will result in a commensurate increase in required financing.

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

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.

Cash and Cash Equivalents

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

Concentration 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.

~~Three~~Four customers accounted for approximately 1217%, 13%, 11% and 1110% of revenues for the three months ended ~~September~~December 3031, 2018. ~~One~~Two ~~customer~~customers accounted for approximately 5432% and 11% of revenues for the three months ended ~~September~~December 3031, 2017. Two customers accounted for approximately 1211% and 1110% of revenues for the ~~six~~nine months ended ~~September~~December 3031, 2018. ~~Two~~One ~~customers~~customer accounted for approximately 5425% ~~and 10%~~ of revenues for the ~~six~~nine months ended ~~September~~December 3031, 2017. ~~Two~~Five customers accounted for approximately 18%, 18%, 13%, 11% and 1011% of trade accounts receivable as of ~~September~~December 3031, 2018. Three customers accounted for approximately 16%, 12% and 10% of trade accounts receivable as of March 31, 2018.

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.

Reclassifications

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

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

Accounting Standards Not Yet Adopted

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 statements, as our agreements with noteholders containing equity linked instruments do not include down round provisions.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU modifies the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU No. 2016-13 will be effective for the Company as of January 1, 2020. The Company is currently reviewing the impact of this new guidance on our condensed 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.

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

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.

Accounting Standards Adopted

In May 2014 (and subsequently updated with clarifying standard), the FASB issued 2014-09 “Revenue from Contracts with Customers” related to new accounting requirements for the recognition of revenue from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services. Subsequent to the release of this guidance, the FASB has issued additional updates intended to provide interpretive clarifications and to reduce the cost and complexity of applying the new revenue recognition standard both at transition and on an ongoing basis. The new revenue standard may be applied retrospectively to each period presented or modified retrospectively with the cumulative effect recognized as of the date of adoption. The Company adopted the new revenue recognition standard on April 1, 2018, using the modified retrospective transition method.

The cumulative impact of adopting this new standard was immaterial and no adjustments to the opening balance of retained earnings were recorded. The implementation did not have a material impact on the Company’s condensed financial statements.

ASC 606 outlines a five-step process for recognizing revenue from contracts with customers: i) identify the contract with the customer, ii) identify the performance obligations in the contract, (iii) determine the transaction price, iv) allocate the transaction price to the separate performance obligations in the contract, and (v) recognize revenue associated with the performance obligations as they are satisfied.

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606, the Company determines the performance obligations that are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to each respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company's performance obligations are transferred to customers at a point in time, typically upon receipt of the services by the customer.

See “Revenue Recognition” in Note 2 for additional discussion of our revenue recognition accounting policies and expanded disclosures.

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

2.	Revenue Recognition

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’s revenues are primarily from the sale of advertising space on its Website. Salon recognizes revenue once persuasive evidence of an arrangement exists, the fee is fixed or determinable, delivery has occurred, and collectability is reasonably assured. Revenues are recognized ratably over the period over in which Salon’s obligations to deliver advertisement impressions are fulfilled. Payments received before Salon’s obligations are fulfilled are classified as “deferred revenue” in Salon’s balance sheets.

Advertisement sales agreements are generally short-term agreements, usually less than ninety days, and frequently have cancellation clauses. Revenues derived from such arrangements are recognized during the period the advertising space is provided, as long as no significant obligations remain at the end of the period. Salon’s obligations may include the guarantee of a minimum number of times that an advertisement appears in a page viewed by a visitor to Salon’s Website. To the extent the minimum guaranteed amounts are not delivered, Salon defers recognition of the corresponding revenue until the remaining guaranteed amounts are achieved, if mutually agreeable with an advertiser. If these “make good” impressions are not agreeable to an advertiser, no further revenue is recognized.

The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company acts as a principal or an agent in the transaction. 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. The Company assesses whether it or the third-party supplier is the primary obligor and evaluates the terms of its customer arrangements as part of this assessment. In addition, the Company considers other key indicators such as latitude in establishing price, inventory risk, nature of services performed, discretion in supplier selection and credit risk.

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

Our total revenue and the sources thereof for the three and ~~six~~nine months ended ~~September~~December 3031, 2018 and 2017 were as follows (in thousands):

	Three Months Ended				~~Six~~Nine Months Ended
	September 30,				September 30,
	December 31,				December 31,
	2019		2018		2019		2018
Advertising	$	~~565~~817	$	~~988~~939	$	1,~~029~~846	$	23,~~201~~140
Subscription Program		413		-		721		-
Referral and Other		~~145~~132		~~172~~308		~~282~~413		~~420~~728
Total	$	~~714~~962	$	1,~~160~~247	$	12,~~318~~280	$	23,~~621~~868

3.	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 has been fully drawn as of ~~September~~December 3031, 2018. 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 ~~September~~December 3031, 2018 and March 31, 2018, accrued interest on short-term borrowings totaled approximately $~~474~~493 and $439, respectively.

As of ~~September~~December 3031, 2018, and March 31, 2018, the weighted average interest rate on the Company’s short-term borrowings ~~remained~~was ~~constant~~approximately at3.6% ~~approximately~~and 3.5%, respectively.

Convertible Promissory Notes

Interest bearing convertible promissory notes

During the ~~six~~nine months ended ~~September~~December 3031, 2018, 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.

~~Unsecured~~Interest ~~Advances~~bearing senior secured notes

During the ~~six~~nine months ended ~~September~~December 3031, 2018, 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.

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

4During the nine months ended December 31, 2018, the Company received $500 from PubLife, LLC upon execution of a term sheet for the sale of the Salon. ~~Common~~com ~~Stock~~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.

On4. ~~September~~Significant ~~30, 2018, 900,000,000 common shares, par value $0,001, were authorized, of which 151,056,477 shares were issued and outstanding.~~Agreements

~~5. Employee~~Technology ~~Stock~~Support ~~Option Plans~~Agreement

~~Salon~~On ~~has~~October ~~two~~25, ~~stock~~2018 ~~option plans approved by stockholders:~~ the ~~Salon~~Company ~~Media~~entered ~~Group,~~into ~~Inc.~~a ~~2004~~Technology ~~Stock~~Support ~~Plan~~Agreement (the ~~“2004~~"Technology ~~Stock Plan”~~Agreement") ~~and~~with ~~the~~PubLife ~~Salon~~LLC ~~Media~~under ~~Group,~~which ~~Inc.~~PubLife ~~2014~~agreed ~~Stock~~to ~~Incentive~~provide ~~Plan~~certain ~~(the~~technology ~~“2014~~support ~~Stock~~to ~~Incentive~~the ~~Plan”)~~Company, asincluding ~~described~~all inweb ~~Note~~development 7,activities ~~“Employee~~for ~~Stock~~a ~~Option~~six ~~Plans,”~~month ofterm ~~the notes to financial statements~~ in ~~Salon’s~~consideration ~~Annual~~of ~~Report~~$1 per ~~on Form 10-K for the fiscal year ended March 31, 2018~~month. The ~~2004~~payment ~~Stock~~terms ~~Plan~~under ~~expired~~this inagreement ~~November~~were ~~2014,~~amended ~~after~~under ~~which~~the noterms ~~further~~of ~~options~~the ~~were~~Asset ~~permitted~~Purchase toAgreement be(as ~~granted~~set forth below).

~~Salon~~General ~~has~~Advertising ~~granted~~Services options pursuant to plans not approved (“Non-Plan”) by stockholders. We did not grant any Non-Plan options during the six months ended September 30, 2018. During the six months ended September 30, 2017 we granted to our CEO and to each member of our board of directors (the “Board”) an option to purchase 31,260,505 and 5,384,615 shares of Common Stock, respectively.Agreement

WeOn ~~did~~October ~~not~~25, ~~grant~~2018, ~~any~~the ~~options~~Company ~~during~~entered into a General Advertising Services Agreement (the ~~six~~"Advertising ~~months~~Agreement") ~~ended~~with ~~September~~Proper ~~30,~~Media ~~2018.~~LLC ~~During~~("Agent") under which the ~~six~~Company ~~months~~retained ~~ended~~Agent ~~September~~to 30provide advertisement sales and trafficking services for our websites, ~~2017~~including salon.com and related sites. The term of this agreement is for one -year, wewhich ~~granted~~term ~~options~~shall be extended for successive one-year periods under terminated by either party within 30 days’ notice prior to ~~all~~the ~~employees~~end of ~~the~~any term. The Company agreed to ~~acquire~~pay aagent ~~total~~its revenue share of 7all revenue invoiced by Agent in connection with Agent's performance of the services under this agreement. In addition,~~633~~ if the Company refers a 3rd party publishing partner and Agent executes an advertising services agreement with such 3rd party,~~918~~ ~~shares~~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 ~~2014~~terms ~~Stock~~of ~~Incentive~~the ~~Plan~~Asset Purchase Agreement (as set forth below).

~~The~~WGAE ~~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:~~Agreement

	Six months ended September 30,
	2018				2017
Risk-free interest rates		1.75	–	2.55%		1.75%
Expected lives (in years)		5.7	–	6.3	5.7	–	6.3
Expected volatility		437	–	453%		451%
Dividend yield			0%			0%

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 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.

We applied the expected term of 6.3 years during the six months ended September 30, 2017, to more appropriately estimate expectations of exercise behavior of the options. The expected stock price volatility is based on historical volatility of Salon’s stock over a period equal to the expected term of the options. The risk-free interest rate is based on the implied yield available on U.S. Treasury securities with a term equivalent to the service period of the stock options. We have not paid dividends in the past.

As of September 30, 2018, the aggregate stock compensation remaining to be amortized to expense was $3,523. Salon expects this stock-based compensation balance to be amortized as follows: $589 during the remainder of fiscal year 2019; $1,398 during fiscal year 2020; $1,109 during fiscal year 2021; and $427 during fiscal year 2022. The expected amortization reflects only outstanding stock option awards as of September 30, 2018.

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

~~The~~5. ~~following~~Common ~~table summarizes activities under Salon’s plans for the six months ended September 30, 2018:~~Stock

				Weighted-
	Outstanding			Average		Aggregate
	Stock			Exercise		Intrinsic
	Options			Price		Value
Balance as of April 1, 2018		58,077,000		$	0.06	$	284
Granted		-			-
Exercised		-			-
Expired and forfeited		(4,127,000	)	$	0.06
Outstanding at September 30, 2018		53,950,000		$	0.06	$	-
Exercisable as of September 30, 2018		20,321,000		$	0.06	$	-
Vested and expected to vest as of September 30, 2018		66,652,000		$	0.06	$	-

On December 31, 2018, 900,000,000 common shares, par value $0,001, were authorized, of which 151,056,477 shares were issued and outstanding.

~~We did not grant any options during the six months ended September 30, 2018~~6. ~~During~~Employee ~~the six months ended September 30, 2017, we granted options to all employees of the Company to acquire a total of 7,633,918 shares under the 2014~~ Stock ~~Incentive~~Option Plan. The weighted-average fair value of options vested during each of the six month periods ended September 30, 2018 and September 30, 2017 was $0.15 per share and $0.13 per share, respectively. There were no options exercised during the six months ended September 30, 2018.Plans

~~Our~~Salon ~~Board~~has ~~also~~two stock option plans approved aby ~~resolution~~stockholders: onthe ~~June~~Salon 12Media Group, Inc. 2004 Stock Plan (the “2004 Stock Plan”) and the Salon Media Group, Inc. 2014 toStock ~~amend~~Incentive Plan (the “2014 Stock Incentive Plan”), toas ~~comply~~described ~~with~~in ~~certain~~Note ~~California~~7, ~~Code~~“Employee Stock Option Plans,” of ~~Regulations~~the ~~and~~notes ~~Internal~~to ~~Revenue~~financial ~~Service~~statements ~~regulations.~~in AsSalon’s ofAnnual ~~September~~Report 30on Form 10-K for the fiscal year ended March 31, 2018,. ~~options~~The ~~totaling~~2004 ~~10,481,985~~Stock ~~were~~Plan ~~awarded~~expired ~~under~~in ~~the~~November 2014, ~~Stock~~after ~~Incentive~~which ~~Plan~~no further options were permitted to be granted.

WeSalon ~~recognized~~has ~~stock~~granted options pursuant to plans not approved (“Non-~~based~~Plan”) ~~compensation~~by ~~expense~~stockholders. ofWe ~~$786~~did ~~and~~not ~~$432~~grant any Non-Plan options during the ~~six~~nine months ended ~~September~~December 3031, 2018. ~~and~~During the nine months ended December 31, 2017 we granted to our CEO and to each member of our board of directors (the “Board”) an option to purchase 31,260,505 and 5,384,615 shares of Common Stock, respectively.

We did not grant any options during the nine months ended December 31, 2018. During the nine months ended December 31, 2017, we granted options to all employees of the Company to acquire a total of 7,711,418 shares under the 2014 Stock Incentive Plan.

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:

	Nine months ended December 31,
	2018				2017
Risk-free interest rates		1.75	–	2.55%	1.75	–	2.05%
Expected lives (in years)		5.7	–	6.3	5.7	–	6.3
Expected volatility		437	–	453%		453%
Dividend yield			0%			0%

We applied the expected term of 6.3 years during the nine months ended December 31, 2017, to more appropriately estimate expectations of exercise behavior of the options. The expected stock price volatility is based on historical volatility of Salon’s stock over a period equal to the expected term of the options. The risk-free interest rate is based on the implied yield available on U.S. Treasury securities with a term equivalent to the service period of the stock options. We have not paid dividends in the past.

As of December 31, 2018, the aggregate stock compensation remaining to be amortized to expense was $3,209. Salon expects this stock-based compensation balance to be amortized as follows: $235 during the remainder of fiscal year 2019; $1,411 during fiscal year 2020; $1,127 during fiscal year 2021; and $436 during fiscal year 2022. The expected amortization reflects only outstanding stock option awards as of December 31, 2018.

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

~~6. Net~~The ~~Loss~~following ~~Per~~table ~~Share~~summarizes ~~Attributable~~activities tounder ~~Common~~Salon’s ~~Shareholders~~plans for the nine months ended December 31, 2018:

				Weighted-
	Outstanding			Average		Aggregate
	Stock			Exercise		Intrinsic
	Options			Price		Value
Balance as of April 1, 2018		58,077,000		$	0.06	$	284
Granted		-			-
Exercised		-			-
Expired and forfeited		(4,279,000	)	$	0.13
Outstanding at December 31, 2018		53,798,000		$	0.06	$	-
Exercisable as of December 31, 2018		23,543,000		$	0.06	$	-
Vested and expected to vest as of December 31, 2018		70,077,000		$	0.06	$	-

We did not grant any options during the nine months ended December 31, 2018. During the nine months ended December 31, 2017, we granted options to acquire a total of 44,356,538 shares of Common Stock. The weighted-average fair value of options vested during each of the nine-month periods ended December 31, 2018 and December 31, 2017 was $0.15 per share and $0.18 per share, respectively. There were no options exercised during the nine months ended December 31, 2018.

Our Board also approved a resolution on June 12, 2014 to amend the 2014 Stock Incentive Plan to comply with certain California Code of Regulations and Internal Revenue Service regulations. As of December 31, 2018, options totaling 10,481,985 were awarded under the 2014 Stock Incentive Plan.

We recognized stock-based compensation expense of $1,186 and $799 during the nine months ended December 31, 2018 and 2017, respectively.

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

7.	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 period, as follows:

	Three Months Ended						~~Six~~Nine Months Ended
	September 30,						September 30,
	December 31,						December 31,
	2018			2017			2018			2017
Numerator:
Net loss	$	(~~621~~313	)	$	(~~794~~696	)	$	(1,~~615~~928	)	$	(12,~~366~~062	)
Denominator:
Weighted average shares used in computing basic and diluted net loss per share		151,056,000			~~150~~151,~~367~~056,000			151,056,000			150,~~185~~476,000
Basic and diluted net loss per share	$	(0.0100	)	$	(0.0100	)	$	(0.01	)	$	(0.01	)
Antidilutive securities including options and preferred stock not included in net loss per share calculation		~~281~~282,~~441~~495,000			223,~~378~~403,000			~~281~~282,~~441~~495,000			223,~~378~~403,000

~~7. Commitments and Contingencies~~16

OnSALON ~~October~~MEDIA 17GROUP, ~~2017, Salon signed a two-year office lease agreement for its San Francisco headquarters at 870 Market Street, San Francisco, California~~INC. 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 $44 for the remaining 9 months of the lease.

InNOTES ~~August~~TO ~~2016,~~CONDENSED weFINANCIAL informed our landlord at our office space at 132 West 31st 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 31st 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 at the time of filing the initial lawsuit (and currently approximately $630 as of the date of this report) plus damages and attorneys fees. Counsel for Salon is currently evaluating potential defenses and counterclaims, based on the laws and facts.STATEMENTS

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

(unaudited)

8.	Commitments and Contingencies

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 $30 for the remaining 6 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 at the time of filing the initial lawsuit (and currently approximately $630 as of the date of this report) plus damages and attorneys fees. 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. 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 253 W. 28^th Street, New York, New York is rented on a month-to-month basis and does not carry a lease agreement.

1517

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

89. Preferred Stock

As part of the Company’s committed efforts to raise capital, 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 the private placement (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. The completion of the purchase and sale of the Series A Preferred Stock occurred in three stages, each a “Closing.”

The initial Closing (“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 Jordan Hoffner, director and then CEO (until May 3, 2019), and certain of his family members, the Company’s ~~then~~former Chief Financial Officer (“CFO” until September 28, 2018), Elizabeth Hambrecht, and the Company’s Director, William Hambrecht.

The second Closing (“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, Elizabeth Hambrecht, Ryan Nathanson, the Company’s former Chief Operating Officer, and Jordana Brondo, the Company’s former Chief Revenue Officer.

The final Closing (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.

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.

1618

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

After payment of the full preferential amounts has been made to the holders of the shares of Series A Preferred Stock pursuant to the Certificate of Designation, if any remaining assets of the Company are available for distribution to stockholders, the holders of shares of Common Stock and Series A Preferred Stock shall be entitled to receive the remaining assets of the Company available for distribution to stockholders ratably in proportion to the shares of Common Stock then held by them and the shares of Common Stock to which they have the right to acquire upon conversion of the shares of Series A Preferred Stock held by them. Following the 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 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 ~~September~~December 3031, 2018 are as follows:

Preferred Stock

Shares Outstanding

Per Share

Exchange Rate

Common

Equivalent Shares

Series A

1,648,830

100

164,883,000

Total

1,648,830

164,883,000

The Company intends to fully convert the Series A Preferred Stock into 164,883,000 shares of Common Stock prior to June 30, 2019.

1719

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

910. Subsequent Events

Interest bearing convertible promissory notes & senior secured notes

On December 7, 2018, the Company exchanged the advances received during the six months ended September 30, 2018 of $114.5 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.

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.

Technology Support Agreement

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

General Advertising Services Agreement

On October 25, 2018, the Company entered into a General Advertising Services Agreement (the "Advertising Agreement") with Proper Media LLC ("Agent") under which the Company 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. The Company 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 the Company refers 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).

WGAE Agreement

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

Asset Purchase Agreement

On March 6, 2019, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Salon.com, LLC (“Buyer”) under which the Company 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 in payable in cash at closing; (ii) $100 shall be deposited with the Escrow Agent, which amount shall be released to the Company 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.

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:

(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 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 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 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.

Departure of Directors or Principal Officers

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

Effective as of September 28, 2018, Elizabeth Hambrecht resigned as the Company’'s Chief Financial Officer.

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

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.

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

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that involve risks and uncertainties, including but not limited to statements regarding our strategy, plans, objectives, expectations, intentions, financial performance, cash-flow breakeven timing, financing, economic conditions, Internet advertising market performance, social media and other non-web opportunities and revenue sources. Although Salon believes its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. Salon’s actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of the factors set forth above and in Salon’s public filings. Salon assumes no obligation to update any forward-looking statements 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors That May Affect Salon’s Future Results and Market Price of Stock." In this report, the words “anticipates,” “believes,” “expects,” “estimates,” “intends,” “future,” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Form 10-Q should be considered in conjunction with the audited financial statements, which are included in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018 (the “Fiscal 2018 Annual Report”) filed with the Securities and Exchange Commission. Matters of interest therein include, but are not limited to, our disclosure of critical accounting policies.

Overview

Salon is 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.

We have a history of significant losses and expect to incur a loss from operations for our fiscal year ending March 31, 2018 and potentially for future years. M&K CPA’s, PLLC, Salon’s independent registered public accounting firm for the fiscal years ended March 31, 2018 and 2017, included a “going-concern” audit opinion on the financial statements for those years. The audit opinions report substantial doubt about our ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability. As a result of the factors noted in 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.

During the quarter ended ~~September~~December 3031, 2018, we continued to execute our business strategy to refine and broaden our editorial products in order to attract both a premier audience and additional advertising, which would increase revenues. We face increased competition, however, from both new and larger websites for traffic and online advertising campaigns, while industry trends continue a shift 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. Through our programmatic advertising efforts, we directly sell audience packages based on real-time advertising demand and engage third-party agencies to sell advertisements on our Website through programmatic advertising open marketplaces, thereby placing less emphasis on a traditional media sales effort. The highlights of our ~~September~~December 2018 quarter are listed below:

Highlights from Quarter ended ~~September~~December 3031, 2018

● Net revenues decreased 4017% to $01.70 million in the quarter ended ~~September~~December 3031, 2018 versus $1.2 million in the same period in 2017. For the ~~six~~nine-month period ended ~~September~~December 3031, 2018, net revenues decreased 5041% to $12.3 million, versus $23.69 million in the same period in 2017. The decrease in revenue was a result of a continued significant industry shift in online advertising from advertising sold by a direct sales team to advertising increasingly being sold through software-based “programmatic” technology. Our advertising sold through networks that access these programmatic buys accounted for 6859% of our advertising revenues for the ~~September~~December 2018 quarter. We have been making changes to our advertising footprint to capture the greater programmatic opportunity for our display and video advertising inventory and will continue to focus our efforts to allow better management of our advertising inventory and targeting for our advertisers.

● Net losses from operations were $0.63 million during the three months ended ~~September~~December 3031, 2018, and $1.69 million for the ~~six~~nine months ended ~~September~~December 3031, 2018, a decrease from $0.75 million during the three months ended ~~September~~December 3031, 2017 and ana ~~increase~~decrease from $1.46 million, during the ~~six~~nine months ended ~~September~~December 3031, 2017. The ~~increase~~overall decrease in losses resulted from decreases in revenues offset by a decrease in operating expenses. Operating expense in the ~~September~~December 2018 quarter was $1.3 million as compared to $1.98 million in the ~~September~~December 2017 quarter, and $24.91 million for the ~~six~~nine months ended ~~September~~December 3031, 2018 as compared to $35.64 million for the corresponding period in 2017. The financials included several non-recurring items, including $0.3 million non-cash interest expense recorded for the beneficial feature of capital raising transactions for the six months ended September 30, 2017. We will continue to look for ways to reduce expenses in areas that we expect can help reduce losses and accelerate a path to profitability.

● Average unique visitors to the Salon.com Website during the quarter ended ~~September~~December 3031, 2018 was 56.70 million, a 3547% decrease compared to the quarter ended ~~September~~December 3031, 2017, and an increase of 224.7% compared to the quarter ended ~~June~~September 30, 2018, according to data compiled by Google Analytics. Our continued focus on more breaking news and new categories attributed to the quarter over quarter increase along with the ongoing strategy of growing quality traffic, in order to maximize our ability to monetize our page views with higher CPM video and display advertising. We attribute the year over year decreased traffic to a combination of events, including the changes in the algorithms used by Facebook to promote news content, changed Google search algorithms which led to lower referral traffic from Facebook and Google, respectively, increased competition from other sites for breaking political news and reduced referral traffic from other major websites like Yahoo and Twitter.

● We have continued to roll out our strategy to produce original video content focused on news, politics, and entertainment under the banner of Salon TV, Salon Talks and Salon Stage. Our goal is to add high quality diversified content to our Website, and to attract premium video advertising that commands higher CPMs as compared to display advertising. Featured guests on Salon Talks this quarter have included ~~Alan~~Kathy ~~Dershowitz~~Griffin, ~~Martin~~Oscar ~~O’Malley,~~winners ~~The~~Mira ~~Jayhawks~~Sorvino, ~~Lawrence~~Melissa ~~O’Donnell~~Leo and Cuba Gooding, ~~Neil~~Jr., ~~deGrasse~~Parkland ~~Tyson~~student Delaney Tarr, and ~~Lori~~former ~~Loughlin~~HUD Secretary Julian Castro, among others.

● We continue to offer a paid subscription program that is targeted at our mobile users who prefer not to see advertisements. The offering is a Salon ad-free app for mobile and tablet, available on Apple, Google Play, Amazon Fire and Roku. WeIn ~~are~~October ~~also~~2018, ~~exploring~~we ~~the~~furthered ~~potential~~our ofpaid ~~gated premium~~ content, ~~where~~strategy awhen ~~user~~we ~~will~~launched ~~have~~a anbrowser-based ~~option~~subscription tooffering ~~pay~~for ~~per~~both ~~piece~~mobile ofand ~~content.~~desktop ~~Finally,~~as wewell ~~are~~as ~~exploring~~a ~~the~~feature ~~prospect~~where ofa ~~expanding~~user ~~our~~has ~~subscription~~an ~~product~~option to ~~the~~pay ~~desktop~~per ~~and~~piece ~~mobile~~of ~~browsers~~content.

● The quarter ended ~~September~~December 3031, 2018 featured great journalism — including original reporting and analysis — as Salon covered in-depth the top stories in news, politics and entertainment. Our daily coverage of the 2018 Congressional and gubernatorial races, the Trump Administration, the ~~#MeToo movement~~economy, continued investigation of the alleged Russian interference in the U. S. Presidential race, ~~the~~mass ~~2018 Congressional elections~~shootings, ~~the opioid epidemic,~~ immigration ~~reform~~ and ~~summer~~the ~~movies~~fall television season generated the most interest. We have also continued our broadened, thoughtful and smart coverage on relationships, lifestyle, food and business that have been popular with our users.

● WeIn ~~continued~~October ~~collective~~2018, ~~bargaining~~we entered into an agreement with the WGAE for a three-year period. As wea doresult ~~not~~of ~~yet~~the ~~have~~ongoing annegotiations ~~agreement~~and ~~with~~accompanying ~~our~~legal ~~union~~fees ~~employees,~~as wewell ~~remain~~as ~~uncertain~~the onhigher ~~how~~cost itstructure ~~will~~per ~~impact~~the ~~our~~negotiated ~~financial status~~agreement, orthe ifeffect itwas ~~will~~detrimental ~~have~~to athe ~~negative~~company’s ~~impact~~financial onstanding ~~our~~as ~~ability~~we had to ~~obtain~~endure ~~additional~~layoffs ~~financing,~~of ifmanagement ~~necessary~~and operations staff in order to accommodate the editorial staff.

● Social media and referral traffic from other websites continue to be major drivers of traffic, at approximately 3637% of Website visitors as of ~~September~~December 3031, 2018, and are a significant focus across the Company. We make regular updates to the Website to optimize content to be shared on social media with a special focus on our mobile platforms. Across all social platforms, we average over 2 million followers.

● Mobile users accounted for 6669% of all users in ~~September~~December 2018, which is slightly up from 6466% from ~~June~~September 2018. We continue to have a company-wide focus on our users’ mobile needs, especially quick and easy access to fast-loading content optimized for better readability on smaller screens. We also have increased focus on monetization of mobile traffic through implementation of native and other mobile-optimized advertising.

●

We continually work toward leaner, more efficient technological systems through automation, improved architecture and adoption of emerging best practices.

Material Agreements entered into during Fiscal 2019

Advances/Secured Notes from Related Parties

From June 2018 through August 2018, we received $114.5 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 $118.9. 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.

Technology Support 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 per month. The payment terms under this agreement were amended under the terms of the Asset Purchase Agreement (as set forth below).

General Advertising Services Agreement

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).

WGAE Agreement

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.

Asset Purchase Agreement

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 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.

First Amendment to 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:

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.

Sources of Revenue

Most of Salon’s revenues are derived from advertising from the sale of promotional space on its Website. The sale of promotional space is generally for less than ninety days in duration. Advertisers pay for advertising 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, and we also generate nominal revenue from the licensing of content that previously appeared in our Website.

Expenses

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

Sales and marketing expenses consist primarily of salaries and related personnel costs associated with Salon’s sales team and our business development efforts.

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

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

Interest expense includes accrued interest on our outstanding debt and non-cash 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 and restricted stock grants to employees, non-employee directors and consultants. These costs are included in the various departmental expenses.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires 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 in our Fiscal 2018 Annual Report. 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 are used or different conditions were to prevail.

Revenue Recognition

Salon recognizes revenues once persuasive evidence of an arrangement exists, the fee is fixed or determinable, delivery has occurred, and collectability is reasonably assured. Revenues are recognized ratably over the period in which our obligations to deliver advertisement impressions are fulfilled. The duration of the advertisements is generally short-term and frequently have cancellation clauses. Payments received before our obligations are fulfilled are classified as “deferred revenues” in Salon’s balance sheet.

We generate advertising revenue from advertisements displayed on our Website. Advertising revenue comprised 78% and 8479% of our revenues for the ~~six~~nine months ended ~~September~~December 3031, 2018 and ~~September~~December 3031, 2017, 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 effort.

Accounting for Stock-Based Compensation

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

We recognized stock-based compensation expense of $~~786~~1,186 and $~~432~~880 during the ~~six~~nine months ended ~~September~~December 3031, 2018 and ~~September~~December 3031, 2017, respectively. As of ~~September~~December 3031, 2018, we had an aggregate of $3,~~523~~209 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: $~~589~~235 during the remainder of fiscal 2019; $1,~~398~~411 during fiscal 2020; $1,~~109~~127 during fiscal 2021; and $~~427~~436 during fiscal 2022. The expected amortization reflects only outstanding stock option awards as of ~~September~~December 3031, 2018. We expect to continue to issue stock-based awards to our employees in future periods.

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

Results of Operations for the Three and ~~Six~~Nine Months Ended ~~September~~December 3031, 2018 Compared to the Three and ~~Six~~Nine Months Ended ~~September~~December 3031, 2017

Revenues

Revenues decreased 4217% to approximately $01.70 million for the three months ended ~~September~~December 3031, 2018 from approximately $1.2 million for the three months ended ~~September~~December 3031, 2017. Revenues decreased 5041% to approximately $12.3 million for the ~~six~~nine months ended ~~September~~December 3031, 2018 from approximately $23.69 million for the ~~six~~nine months ended ~~September~~December 3031, 2017.

Advertising revenues decreased 4011% to approximately $0.68 million for the three months ended ~~September~~December 3031, 2018 from approximately $1.0.9 million for the three months ended ~~September~~December 3031, 2017. Direct advertisement sales were approximately 3241% and programmatic advertisement sales were approximately 6859% of total advertising revenue for the three months ended ~~September~~December 3031, 2018.

Advertising revenues decreased 5542% to approximately $1.08 million for the ~~six~~nine months ended ~~September~~December 3031, 2018 from approximately $23.21 million for the ~~six~~nine months ended ~~September~~December 3031, 2017. Direct advertisement sales were approximately 2331% and programmatic advertisement sales were approximately 7669% of total advertising revenue for the ~~six~~nine months ended ~~September~~December 3031, 2018.

Revenues from all other sources, mostly referral fees, decreased 5067% to approximately $0.1 million for the three months ended ~~September~~December 3031, 2018 from approximately $0.23 million for the three months ended ~~September~~December 3031, 2017. Revenues from all other sources, decreased 2543% to approximately $0.34 million for the ~~six~~nine months ended ~~September~~December 3031, 2018 from approximately $0.47 million for the ~~six~~nine months ended ~~September~~December 3031, 2017. The overall decreases were attributed to lower revenues from a renewed referral fee customer agreement.

Expenses

Production and content

Production and content expenses decreased 4433% to approximately $0.65 million for the three months ended ~~September~~December 3031, 2018 from approximately $1.0.8 million for the three months ended ~~September~~December ~~30,~~31 2017. Production and content expenses decreased 4139% to approximately $1.27 million for the ~~six~~nine months ended ~~September~~December 3031, 2018 from approximately $2.08 million for the ~~six~~nine months ended ~~September~~December 3031, 2017. The decrease was mainly attributed to personnel changes and a decrease in internet hosting and ad serving fees.

Sales and marketing

Sales and marketing expenses decreased ~~100~~86% to approximately $0.001 million for the three months ended ~~September~~December 3031, 2018 from approximately $0.1 million for the three months ended ~~September 30~~December, 2017. Sales and marketing expenses decreased ~~100~~96% to approximately $0.001 million for the ~~six~~nine months ended ~~September~~December 3031, 2018 from approximately $0.34 million for the ~~six~~nine months ended ~~September~~December 3031, 2017. The decrease was mainly attributed to personnel reductions.

Technology

Technology expenses decreased 2748% to approximately $0.1 million for the three months ended ~~September~~December 3031, 2018 from approximately $0.2 million for the three months ended ~~September~~December 3031, 2017. Technology expenses decreased 2532% to approximately $0.34 million for the ~~six~~nine months ended ~~September~~December 3031, 2018 from approximately $0.46 million for the ~~six~~nine months ended ~~September~~December 3031, 2017. The decrease was mainly attributed to personnel reductions.

General and administrative

General and administrative expenses ~~increased~~remained ~~11%~~relatively toflat at approximately $0.6 million for the three months ended ~~September~~December 3031, 2018 ~~from approximately $0.5 million for the three months ended September 30, 2018~~ and 2017. General and administrative expenses increased 5525% to approximately $12.30 million for the ~~six~~nine months ended ~~September~~December 3031, 2018 from approximately $01.96 million for ~~the~~nine ~~six~~ months ended ~~September~~December 3031, 2017. The overall increase was mainly attributed to non-cash stock-based compensation.

Interest expense

Interest expense ~~increased~~remained ~~200%~~relatively toflat at approximately $0.0401 million for the three months ended ~~September~~December 3031, 2018 ~~from~~and ~~approximately~~December ~~$0.01 million for the three months ended September 30~~31, 2017. Interest expense decreased 7466% to approximately $0.081 million for the ~~six~~nine months ended ~~September~~December 3031, 2018 from approximately $0.304 million for the ~~six~~nine months ended ~~September~~December 3031, 2017. The decrease was primarily attributed to the decrease of non-cash charges from the beneficial conversion feature of convertible promissory notes.

Liquidity and capital resources

Net cash used in operations was approximately $0.26 million for the ~~six~~nine months ended ~~September~~December 3031, 2018. The principal uses of cash during the ~~six~~nine months ended ~~September~~December 3031, 2018 were to fund the $1.69 million net loss, inclusive of $01.82 million stock-based compensation expense and the net activities from various working capital for the period. The accounts receivable, net as of ~~September~~December 3031, 2018 of approximately $0.47 million, represent primarily advertising sales during the period, and are expected to be collected within the next four months.

Net cash provided by financing activities was approximately $0.27 million and $0.38 million for the ~~six~~nine months ended ~~September~~December 3031, 2018 and ~~September~~December 3031, 2017, reflecting proceeds from convertible promissory notes ~~and unsecured advances~~.

We estimate that we will require approximately $0.5 million in additional funding to meet our operating needs for the remaining nine months of fiscal year 2019, ending March 31, 2019. ~~Until the collective bargaining negotiations with WGAE are finalized, however, we will not have a clear idea of any potential increase in our budget.~~ If planned revenues are less than expected, or if planned expenses are more than expected, the cash shortfall may be higher, which will result in a commensurate increase in required financing.

During the ~~six~~nine months ended ~~September~~December 3031, 2018, we issued $0.11 million in 10% convertible promissory notes and $0.~~115~~619 million in 10% senior secured notes payable. If we were not able to obtain additional funding from related parties or others, we would be required to curtail or discontinue operations, or consider other alternatives.

Off-Balance-Sheet Arrangements and Contractual Obligations

We have an operating lease primarily for office space facilities, this lease expires in less than 12 months and is not recorded on the balance sheet, we recognize lease expense for this lease on a straight-line basis over the lease term.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

Item 4. Controls and Procedures

Evaluation of Our Disclosure Controls and Internal Controls

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-Q (~~September~~December 3031, 2018), as is defined in Rule 13a-15(e) promulgated under the Exchange Act. Our disclosure controls and procedures are intended to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the 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-Q, our disclosure controls and procedures were not effective due to the following material weaknesses:

Lack of segregation of duties;

Failure to implement accounting controls

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

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

Changes in Internal Controls Over Financial Reporting

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

PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

In August 2016, we informed our landlord at our office space at 132 West 31st 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 31st 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 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 ~~attorneys~~attorney fees (and currently approximately $630 as of the date of this report). Counsel for Salon is currently evaluating potential defenses and counterclaims, based on the laws and facts.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

Advances/Secured Notes from Related Parties

Technology Support Agreement

General Advertising Services Agreement

WGAE Agreement

Asset Purchase Agreement

First Amendment to Asset Purchase Agreement

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.

Item 6. Exhibits

(a) Exhibits.

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**

XBRL Taxonomy Extension Schema

101.CAL**

XBRL Taxonomy Extension Calculation

101.DEF**

XBRL Taxonomy Extension Definition

101.LAB**

XBRL Taxonomy Extension Labels

101.PRE**

XBRL Taxonomy Extension Presentation

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

Signatures

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

SALON MEDIA GROUP, INC.

Dated: June 11, 2019	By:	/s/ Richard MacWilliams
Dated: June 12, 2019		/s/ Richard MacWilliams
		Richard MacWilliams
		Acting Chief Executive Officer (Principal Executive Officer)

/s/ Trevor Colhoun

Trevor Colhoun

Chief Financial Officer

(Principal Financial and Accounting Officer)

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