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PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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SALON MEDIA GROUP, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and par value amounts)

 

 

(1)

Derived from the Company’s audited financial statements.

(2)

Series A Mandatorily Convertible Preferred Stock at March 31, 2017 is classified as Mezzanine Equity, see Note 6.

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)

 

 

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

 

 

SALON MEDIA GROUP, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

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)

 

SALON MEDIA GROUP, INC.

NOTES TO ONDENSED FINANCIAL STATEMENTS

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

(unaudited)

 

 

 

 

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

 

 

 

 

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

 

 

 

SALON MEDIA GROUP, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

 

 

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

 

This 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, 2017 (the “Fiscal 2017 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. BPM LLP, Salon’s independent registered public accounting firm for the fiscal years ended March 31, 2017, 2016 and 2015, 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 December 31, 2017, 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 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 December 2017 quarter are listed below:

 

 

Highlights from Quarter ended December 31, 2017

 

●

Net revenues were consistent at $1.2 million in the quarter ended December 31, 2017 versus $1.2 million in the same period in 2016. For the nine-month period ended December 31, 2017, net revenues increased 10% to $3.9 million, versus $3.5 million in the same period in 2016. The increase 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 84% of our advertising revenues for the December 2017 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. This has allowed us to improve our cost-per-thousand impression (“CPMs”) from our programmatic advertising by over 50% in the December 2017 quarter as compared to the December 2016 quarter. However, the higher programmatic CPMs were offset by a smaller ad footprint due to redesign of the Website, which led to a smaller inventory of ad products to sell, so a smaller relative increase in revenues.

 

●

Net losses from operations were $0.6 million during the three months ended December 31, 2017, and $1.7 million for the nine months ended December 31, 2017, a decrease from $1.0 million and $2.7 million, respectively, during the same periods last year. The decrease in losses resulted from a nominal increase in revenues and a decrease in operating expenses. Operating expense in the December 2017 quarter was $1.8 million as compared to $2.2 million in the December 2016 quarter, and $5.5 million for the nine months ended December 31, 2017 as compared to $6.2 million for the corresponding period in 2016. The financials included several non-recurring items, including $0.4 million non-cash interest expense recorded for the beneficial conversion feature of capital raising transactions during the nine months ended December 31, 2017, as well as $4.4 million non-cash interest expense recorded for the beneficial feature of capital raising transactions for the nine months ended December 31, 2016. 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 December 31, 2017 was 13.1 million, flat compared to the quarter ended December 31, 2016, and an increase of 11% compared to the quarter ended September 30, 2017, according to data compiled by Google Analytics. Our focus on growing traffic has shifted from volume to quality, in order to maximize our ability to monetize our page views with higher CPM video and display advertising. We attribute the flat traffic to a combination of events, including the changes in the algorithms used by Facebook to promote news content, which led to lower referral traffic from Facebook, 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 have included Senator Al Franken, scientist Bill Nye, Deepak Chopra, Dan Rather, Pearl Jam guitarist Mike McCready and Van Jones, among others, while Salon Stage hosted acoustic sets by, among others, the Revivalists, Josh Ritter, Lukas Nelson, Bela Fleck, Wyclef Jean and more.

 

 

●

We have been implementing our plan to launch a subscription program, which we expect to launch in the March 2018 quarter, that will be targeted at our users who prefer not to see advertisements. Initially, we will offer a Salon ad-free app for mobile and tablet. We are also exploring the potential of gated premium content, where a user will have an option to pay per piece of content. We plan to launch gated premium content initially to international users, as user adoption is higher for this service in countries in Europe.

 

●

The quarter ended December 31, 2017 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 Trump Administration, the #MeToo movement, continued investigation of the alleged Russian interference in the U. S. Presidential race, legalization of marijuana, and yearend reviews of music, TV and movies generated the most interest. The intersection of culture and politics also continued to drive user interest, including stories about Queen Elizabeth’s reference to The Crown in her Christmas Day broadcast, and Vanity Fair’s suggestion that Hillary Clinton take up knitting. We have also provided broadened, thoughtful and smart coverage on relationships, lifestyle and business that have been popular with our users.

 

●

In mid-September 2017, we launched a new mobile-first website that was built to give our users a faster and better experience. We have re-built our Website to capitalize on mobile user behavior and to allow for maximum flexibility to deploy future technologies and features. One immediate benefit is that our Website speed, as measured before ads are loaded, is over 120% faster than the old website. The Website also was built to increase user engagement and allows us to release community functions such as a like and unlike button, that has led to an immediate increase in comments, which generates more page views and revenue opportunities. We will be launching additional community features, including community pages focused by topic, to support our mission to Make the Conversation Smarter.

 

●

We continued collective bargaining with WGAE. As we do not yet have an agreement with our union employees, we remain uncertain on how it will impact our financial status, or if it will have a negative impact on our ability to obtain additional financing, if necessary.

 

●

Social media and referral traffic from other websites continue to be major drivers of traffic, at approximately 26% of Website visitors as of December 31, 2017, 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. In December 2017, we surpassed 990,000 Facebook “likes” and one million Twitter followers. In December 2016, we had approximately 945,000 Facebook “likes,” and 910,000 Twitter followers.

 

●

Mobile users accounted for 70% of all users in December 2017, which is stable from September 2017. 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. During the quarter, we launched a newly redesigned Website to maximize speed and navigation, and enhance our revenue capabilities.

 

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, commissions, bonuses and related personnel costs, travel, and other costs associated with Salon’s sales team and our business development efforts. They also include marketing promotions.

 

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 2017 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 79% and 80% of our revenues for the nine months ended December 31, 2017 and December 31, 2016, 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 $880,000 and $412,000 during the nine months ended December 31, 2017 and December 31, 2016, respectively. As of December 31, 2017, we had an aggregate of $4,697,000 of stock-based compensation remaining to be amortized to expense over the remaining requisite service period of the underlying awards. We currently expect this stock-based compensation balance to be amortized as follows: $340,000 during the remainder of fiscal 2018; $1,400,000 during fiscal 2019; $1,409,000 during fiscal 2020; $1,116,000 during fiscal 2021; and $432,000 during fiscal 2022. The expected amortization reflects only outstanding stock option awards as of December 31, 2017. We expect to continue to issue stock-based awards to our employees in future periods.

 

Due to insufficient authorized shares of Common Stock as of November 14, 2016, the vested options as of this date with a fair value of $818,000, were reclassified from equity to liabilities and re-measured at fair value. The vested options were presented in Salon’s March 31, 2017 financial statements under accrued liabilities. The balance of the option liability was $931,000 as of March 31, 2017. Upon the increased authorization of shares of Common Stock, which took place upon the filing of the Amendment with the Secretary of State of the State of Delaware on August 1, 2017, the option liability of $1,010,000 was reclassified back to equity.

 

 

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

 

Results of Operations for the Three and Nine Months Ended December 31, 2017 Compared to the Three and Nine Months Ended December 31, 2016

 

Revenues

 

Revenues remained flat at approximately $1.2 million for the three months ended December 31, 2017 and December 31, 2016. Revenues increased 10% to approximately $3.9 million for the nine months ended December 31, 2017 from approximately $3.5 million for the nine months ended December 31, 2016. The increase is primarily due to an 11% increase in overall advertising revenue as a result of higher average CPMs year over year.

 

Advertising revenues remained flat at approximately $0.9 million for the three months ended December 31, 2017 and December 31, 2016. Direct advertisement sales were approximately 16% and programmatic advertisement sales were approximately 84% of total advertising revenue for the three months ended December 31, 2017.

 

Advertising revenues increased 11% to approximately $3.1 million for the nine months ended December 31, 2017 from approximately $2.8 million for the nine months ended December 31, 2016. The increase is a result of higher average CPMs year over year. Direct advertisement sales were approximately 12% and programmatic advertisement sales were approximately 87% of total advertising revenue for the nine months ended December 31, 2017.

 

Revenues from all other sources, mostly referral fees, remained constant at approximately $0.3 million for the three months ended December 31, 2017 from the same period a year ago. Revenues from all other sources, remained constant at approximately $0.7 million for the nine months ended December 31, 2017 from the same period a year ago.

 

Expenses

 

Production and content

 

Production and content expenses decreased 30% to approximately $0.8 million for the three months ended December 31, 2017 from approximately $1.2 million for the three months ended December 31, 2016. Production and content expenses decreased 8% to approximately $2.8 million for the nine months ended December 31, 2017 from approximately $3.1 million for the nine months ended December 31, 2016. The decreases were mainly attributed to decreased costs associated with internet hosting and market research.

 

Sales and marketing

 

Sales and marketing expenses decreased 46% to approximately $0.1 million for the three months ended December 31, 2017 from approximately $0.2 million for the three months ended December 31, 2016. Sales and marketing expenses decreased 41% to approximately $0.4 million for the nine months ended December 31, 2017 from approximately $0.7 million for the nine months ended December 31, 2016. The decreases were mainly attributed to personnel reductions.

 

 

Technology

 

Technology expenses decreased 32% to approximately $0.2 million for the three months ended December 31, 2017 from approximately $0.3 million for the three months ended December 31, 2016. Technology expenses decreased 34% to approximately $0.6 million for the nine months ended December 31, 2017 from approximately $0.9 million for the nine months ended December 31, 2016. The decreases were mainly attributed to personnel reductions.

 

General and administrative

 

General and administrative expenses increased 29% to approximately $0.7 million for the three months ended December 31, 2017 from approximately $0.6 million for the three months ended December 31, 2016. General and administrative expenses increased 11% to approximately $1.7 million for the nine months ended December 31, 2017 from approximately $1.5 million for the nine months ended December 31, 2016. The increases were mainly attributed to non-cash stock-based compensation for new options granted during the nine months ended December 31, 2017.

 

Interest expense

 

Interest expense decreased 99.7% to approximately $0.01 million for the three months ended December 31, 2017 from approximately $4.4 million for the three months ended December 31, 2016. Interest expense decreased 91% to approximately $0.4 million for the nine months ended December 31, 2017 from approximately $4.5 million for the nine months ended December 31, 2016. These decreases were primarily attributed to the decrease of non-cash charges from the beneficial conversion feature of convertible promissory notes in the December 2016 quarter.

 

Liquidity and capital resources

 

Net cash used in operations was approximately $0.7 million for the nine months ended December 31, 2017. The principal uses of cash during the nine months ended December 31, 2017 were to fund the $2.0 million net loss, inclusive of $0.4 million non-cash interest expense, $0.9 million stock-based compensation expense, and the net activities from various working capital for the period. The accounts receivable, net as of December 31, 2017 of approximately $0.8 million, represent primarily advertising sales during the period, and are expected to be collected within the next four months.

 

Net cash provided by financing activities was approximately $0.8 million and $1.2 million for the nine months ended December 31, 2017 and December 31, 2016, respectively, reflecting proceeds from convertible promissory notes, short-term advances from related parties and issuances of common stock, offset by repayments of related party advances.

 

We estimate that we will require approximately $0.3 million in additional funding to meet our operating needs for the remaining three months of fiscal 2018, ending March 31, 2018. 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 nine months ended December 31, 2017, we issued $275 in interest-free demand promissory notes and $510 in 10% convertible promissory notes. 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.

 

 

During the three months ended December 31, 2017, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with each of Spear Point Capital Fund, LP, Erika Tanenbaum, Hilary Tanenbaum, Eu Revocable Trust, TEC Opportunities, and Jordan Hoffner (each a “Bridge Note Purchaser”) pursuant to which the Company sold to the Bridge Note Purchasers an aggregate principal amount of $510 in mandatorily convertible notes.  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 notes will convert at a discount into shares of Common Stock upon a qualified financing by the Company of at least $1 million. The conversion price will equal to 70% of the price per share paid in the qualified financing if such financing occurs within four months from the date of the Securities Purchase Agreement, or 70% less 2% per each month after the fourth month anniversary; provided however that the Conversion Price will never be less than the greater of (A) sixty percent (60%) of the purchase price paid in the qualified financing and (B) the price per share paid by investors in the most recently consummated offering of the Company’s common stock, or $0.0124 per share, the conversion price in the Series A Mandatorily Convertible Preferred Private Placement, if the financing occurs more than four months after the date of the Securities Purchase Agreement.

 

 

Off-Balance-Sheet Arrangements

 

We have no off-balance-sheet arrangements.

 

 

Contractual Obligations

 

The following summarizes our contractual obligations as of December 31, 2017:

 

		Payments Due By Period
		Total				1 Year or Less				1 - 3 Years
Operating lease		$	113			$	58			$	55
Short-term borrowing			1,000				1,000				-
Short-term borrowing interest			424				424				-
Total		$	1,537			$	1,482			$	55

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Salon maintains all of its cash in immediately available cash deposits at its bank. These funds are not subject to market risk and no interest is paid on such funds. In May 2007, we entered into a credit agreement with Deutsche Bank Securities, Inc. that allows us to borrow up to $1.0 million at a rate of prime less 0.25% which subjects Salon to interest rate risk. In September 2016, this credit agreement was sold to Raymond James. Our obligations under this agreement are guaranteed in their entirety by former Chairman of the Board, John Warnock. As of December 31, 2017, we had $1.0 million in principal and $0.4 million of accrued interest outstanding under this agreement, payable on demand. The interest rate under the agreement may increase, though management does not believe that the impact of a potential rate increase will materially affect the financial condition of the Company. As Salon conducts all of its business in the United States, Salon is not subject to foreign exchange risk.

 

Item 4. Controls and Procedures

 

Evaluation of Our Disclosure Controls and Internal Controls

 

Our management, with the participation of our CEO and CFO, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q (December 31, 2017), 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 CEO and CFO, as the principal executive and financial officers, respectively, to allow timely decisions regarding required disclosures.

 

Based on that evaluation, our CEO and CFO concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures were effective.

 

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

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

 

Changes in Internal Controls Over Financial Reporting

 

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

 

 

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PART II: OTHER INFORMATION

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Item 1. Legal Proceedings.

 

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

 

Item 1A. Risk Factors.

 

Salon’s business faces significant risks. The risks described below may not be the only risks Salon faces. Additional risks that are not yet known or that are currently immaterial may also impair its business operations or have a negative impact on its stock price. If any of the events or circumstances described in the following risks actually occurs, its business, financial condition or results of operations could suffer, and the trading price of its Common Stock could decline. The Risk Factors set forth below have not materially changed from those included in our Fiscal 2017 Annual Report.

 

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

 

We have a history of significant losses and expect to incur a loss from operations, based on U.S. GAAP, for our fiscal year ending March 31, 2018 and to be determined in future years. Even if we attain profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If revenues grow more slowly than we anticipate or operating expenses exceed expectations, financial results will most likely be severely harmed and our ability to continue operations will be seriously jeopardized.

 

BPM LLP, Salon’s independent registered public accounting firm for the fiscal years ended March 31, 2015 through 2017 included a “going-concern” audit opinion on the financial statements for each of those years. The audit opinions report substantial doubt about our ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability. As a result of the 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.

 

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

 

 

Salon’s projected cash flows may not meet expectations.

 

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

 

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

 

 

We have relied on related parties for significant investment capital.

 

We have relied on cash infusions from related parties to fund operations for many years. The related parties are primarily John Warnock, former Chairman of the Board, and William Hambrecht. William Hambrecht is a Director and the father of our CFO, Elizabeth Hambrecht.

 

On January 24, 2017, Salon entered into the Purchase Agreement with various investors to issue and sell to the investors in a Private Placement shares of the Company’s Series A Preferred Stock that will automatically convert into shares of Common Stock, upon the filing of the Amendment and resulting increase in authorized shares of Common Stock, which occurred on August 1, 2017, and the delivery to the Company’s stockholders of an information statement, pursuant to the Purchase Agreement. As reported in Salon’s Current Reports on Form 8-K, filed with the SEC on January 27, 2017, March 27, 2017 and July 26, 2017, the Initial Closing of $1 million, the Second Closing of $0.215 million and the Final Closing of $0.275 million were completed on January 26, 2017, March 23, 2017, and July 20, 2017, respectively.

 

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

 

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

 

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

 

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

 

 

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

 

As of July 20, 2017, after the Closing of the Private Placement of an aggregate principal amount of $1.69 million of the Series A Preferred Stock, approximately 67% of our voting securities are controlled, directly or indirectly by John Warnock, William Hambrecht and Spear Point Capital Fund, LP. These three investors, if aligned, could combine to make business decisions with which non-principal stockholders disagree, and which may affect the value of the non-principal stockholders’ investments.

 

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

 

As of December 31, 2017, our directors and officers owned approximately 155 million shares of Common Stock, on an as converted basis, and upon the increase in authorized share capital upon the filing of the Amendment with the Secretary of State of Delaware after the Final Closing of the Private Placement. The increased authorized share capital will allow the shares of Series A Preferred Stock to convert into shares of Common Stock, pursuant to the terms of the Purchase Agreement. The 155 million shares, as converted, represent approximately 49% of post-offering fully diluted ownership, following the Initial, Second and Final Closings of the Private Placement. As our shares of Common Stock are normally thinly traded, if our principal stockholders were to sell their shares of Common Stock, the price per share of our shares of Common Stock could be adversely affected. 

 

Existing stockholders may experience significant dilution from the issuance of our common stock pursuant to our recently issued convertible notes.

 

We currently have $585,000 in convertible notes issued as part of a bridge note financing. These notes will convert at a discount into shares of Common Stock upon a qualified financing by the Company of at least $1 million. The conversion price will equal to 70% of the price per share paid in the qualified financing if such financing occurs within four months from the date of the Securities Purchase Agreement, or 70% less 2% per each month after the fourth month anniversary; provided however that the Conversion Price will never be less than the greater of (A) sixty percent (60%) of the purchase price paid in the qualified financing and (B) the price per share paid by investors in the most recently consummated offering of the Company’s common stock, or $0.0124 per share, the conversion price in the Series A Mandatorily Convertible Preferred Private Placement, if the financing occurs more than four months after the date of the Securities Purchase Agreement. The issuance and sale of our common stock to these bridge note holders for any conversions may have a dilutive impact on our shareholders.

 

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

 

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

 

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

 

Holders of shares of Series A Preferred Stock have liquidation preferences over holders of shares of Common Stock of the first approximately $4.0 million in potential sales proceeds as of December 31, 2017. If a liquidation event were to occur, the holders of shares of Series A Preferred Stock would be entitled to receive the first $4.0 million of cash distributions. 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. Upon the filing of the Amendment and resulting increase in our authorized share capital, which occurred on August 1, 2017, and the future delivery to the Company’s stockholders of the information statement, the shares of Series A Preferred Stock will automatically convert into shares of Common Stock.

 

 

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

 

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

 

●

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

 

●

sell and market our Website or other rich media advertisements;

 

●

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

 

●

increase the dollar amount of our advertising orders;

 

●

improve our Website’s technology for serving advertising;

 

●

handle temporary high volume traffic spikes to our Website;

 

●

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

 

●

attract and retain key sales personnel.

 

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

 

Internet users increasingly use mobile devices rather than PCs to access the Internet. Approximately 70% of our monthly users are now visiting our Website on mobile devices. As mobile platforms encompass a larger share of our readers, our ability to grow advertising revenue is increasingly dependent on our ability to generate revenue from advertisements displayed on mobile devices. While we plan to continue to devote technology resources to support our mobile browser product and advertising products, if our mobile browser product and advertising products for mobile devices do not attract and retain users and advertisers to generate mobile revenue, our operating and financial results will be adversely impacted. We are dependent upon our products operating on mobile operating systems we do not control. The mobile phone manufacturer and its operating systems might block access to our Website or make it hard for users to find our Website through their devices, or block certain advertisements or charge us for delivery of advertisements, all of which would harm our operations and suppress revenue potential.

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

Our success depends on our key personnel, including our executive officers, and the loss of key personnel, including our CEO, could disrupt our business.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

Privacy concerns could impair our business.

 

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

 

 

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

 

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

 

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

 

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

 

●

our ability to attract and retain advertisers;

 

●

our ability to attract and retain a large number of users;

 

●

our ability to increase referrals from our social media presence;

 

●

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

 

●

our ability to maximize our mobile presence;

 

●

the timing and uncertainty of our advertising sales cycles;

 

●

the mix of advertisements sold by us or our competitors;

 

●

economic and business cycles;

 

●

our ability to attract, integrate and retain qualified personnel;

 

●

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

 

●

the amount and timing of operating costs.

 

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

 

 

We have no immediate plans to pay dividends.

 

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

 

There is a limited trading market for our common stock.

 

Our common stock is traded on the OTC Markets (QB Marketplace Tier) under the symbol “SLNM.” During the three-months ended January 31, 2018, the average daily trading volume of our common stock was approximately 2,780 shares. There has been limited trading activity in our stock recently, and when it has traded, the price has fluctuated widely. We consider our common stock to be “thinly traded” and any last reported sale prices may not be a true market-based valuation of the common stock. A consistently active trading market for our stock may not develop at any time in the future. Stockholders may experience difficulty selling their shares if they choose to do so because of the illiquid market and limited public float for our stock.

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

●

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

 

●

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

 

●

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

 

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

 

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

 

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

 

 

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

 

From September 1, 2017 to January 10, 2018, we issued $585,000 in convertible notes issued as part of a bridge note financing. These notes will convert at a discount into shares of Common Stock upon a qualified financing by the Company of at least $1 million. The conversion price will equal to 70% of the price per share paid in the qualified financing if such financing occurs within four months from the date of the Securities Purchase Agreement, or 70% less 2% per each month after the fourth month anniversary; provided however that the Conversion Price will never be less than the greater of (A) sixty percent (60%) of the purchase price paid in the qualified financing and (B) the price per share paid by investors in the most recently consummated offering of the Company’s common stock, or $0.0124 per share, the conversion price in the Series A Mandatorily Convertible Preferred Private Placement, if the financing occurs more than four months after the date of the Securities Purchase Agreement. The proceeds from this bridge financing were used to fund operations.    The issuances were exempt pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information.

 

On August 1, 2017, we filed a Certificate of Amendment to our Certificate of Incorporation increasing our authorized common stock to nine hundred million (900,000,000) shares.

 

Item 6. Exhibits

 

(a) Exhibits.

 

3.1	Certificate of Amendment to Restated Certificate of Incorporation filed with the Delaware Secretary of State on August 1, 2017. The form of Amendment was filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 27, 2017; which is incorporated herein by reference.

 

10.1	Securities Purchase Agreement, dated October 26, 2017

 

10.2	Office lease dated October 17, 2017 for the premises located at 870 Market Street, San Francisco, California.

 

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

 

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

 

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

 

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

 

 

101.INS**

XBRL Instance

101.SCH**

XBRL Taxonomy Extension Schema

101.CAL**

XBRL Taxonomy Extension Calculation

101.DEF**

XBRL Taxonomy Extension Definition

101.LAB**

XBRL Taxonomy Extension Labels

101.PRE**

XBRL Taxonomy Extension Presentation

 

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

 

 

Signatures

 

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

 

 

SALON MEDIA GROUP, INC.
Dated: February 8, 2018		/s/ Jordan Hoffner                          Jordan Hoffner Chief Executive Officer
Dated: February 8, 2018		/s/ Elizabeth Hambrecht                Elizabeth Hambrecht Chief Financial Officer

               

38