SALON.COM TEETERS ON THE BRINK

SEC Filing Suggests a Web Star May Soon Flame Out

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NEW YORK (AdAge.com) -- Salon Media Group, parent of Salon.com, has informed the Security and Exchange Commission that it may be forced out of business by the same financial difficulties that have devastated the Internet publishing world it played a major role in pioneering.

In documents filed with the SEC, the San Francisco company, whose online publishing operations are among the Web's oldest and most celebrated, disclosed that its auditors, PricewaterhouseCoopers, have given it a negative "going concern" opinion and that its stock could be unlisted from the Nasdaq stock market.

"The audit opinion reported substantial doubt about Salon's ability to continue as a going concern, citing issues such as the history of losses and absence of current profitability," said the company's report.

'We're still here'
However, Salon Media Group's senior vice president of business operations, Patrick Hurley, told AdAge.com that "our auditor provided the same 'going concern' opinion last year. And we're still here."

Salon posted net losses of $11.3 million on $3.6 million in revenues for the fiscal year ended March 31 and has an accumulated deficit of $76.6 million. Its stock has been trading below 15 cents since October and traded at 6 cents June 28, when its market capitalization stood at $849,000. Shares could be delisted Aug. 13 if they don't post a price above $1 for 10 days by the deadline. Salon had $1.5 million of cash as of March 31.

Founded in 1995
Founded by journalists from the San Francisco Examiner in 1995, Salon Magazine was one of the first major media enterprises that set out to create a publishing using the Internet to distribute high-quality literary work produced by high-level journalists researching and writing in a Harper's Weekly style.

Initially, the company's Web operations were known as salon1999.com and SalonMagazine.com because an Austin, Texas, hairdresser had already registered the domain, Salon.com.

In 1997, after it was named Time magazine's Web site of the Year, Salon was widely hailed as the leader of a new era of writers and writing online -- a position that would soon be challenged by the Microsoft Corp.-backed enterprise that became Salon's chief competitor for the cyber literati audience, Slate.com.

An icon of a then-expanding dot-com economy, Salon was backed by such investors as the Hambrecht & Quist investment bank, Adobe Ventures and Constellation Ventures/Bear Stearns.

'Salon... Makes You Think'
In 1999, the publication acquired the domain, Salon.com, changed its name from Salon Magazine to Salon.com, reorganized as a network of Web sites rather than a single site, and retained the San Francisco advertising agency of Odiorne, Wilde, Narraway & Partners. That shop launched a national print, outdoor, radio and online campaign trumpeting the slogan, "Salon ... Makes You Think."

Meanwhile, its gripping, long-format reporting from the killing fields of the former Yugoslavia to the Monica Lewinsky scandal made Salon.com a magnet for a reported 3.6 million online monthly readers.

As it has struggled to build a profitable business model, Salon.com was one of the first to adopt mega-sized Web ads that dominate the Web pages in whose middle they appear.

Still dependent on advertising
It has also been trying to convert itself into a subscription model and is reported to have about 35,000 paying subscribers for its "Premium" service that provides access to its articles sans advertising. Mr. Hurley said "Roughly 30% of our articles are Premium on average and we still derive more of our revenues from advertising."

Salon.com has also ventured into online personals, featuring a front page photo of the "Catch of the Day" with quotes about such things as the person's favorite on-screen sex scene. The Salon.com store offers a wide selection of logo-emblazoned t-shirts, mugs, tote bags and mouse pads.

But its most recent filing with the SEC appears to indicate that while Salon has, indeed, been a publication that has made its readers think, it has yet to find a way to make its investors profit.

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Hoag Levins contributed to this report.

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