The accompanying notes are an integral part of these condensed financial statements.
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, 2017, which are included in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017 filed with the Securities and Exchange Commission (“SEC”) on June 23, 2017. 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 months ended September 30, 2017 are not necessarily indicative of the expected results for any other interim period or for the fiscal year ending March 31, 2018.
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 30, 2017 of $136,347. In addition, Salon expects to incur a net loss from operations for the fiscal year ending March 31, 2018. 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, 2018 anticipates smaller operating losses than fiscal year 2017. We estimate we will require approximately $0.75 million in additional funding to meet our operating needs for the balance of our fiscal year. Operating costs for the six months ended September 30, 2017 decreased by 8% 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.
Cash
Cash consists of cash on deposit with banks and have original maturities of three months or less.
SALON MEDIA GROUP, INC.
NOTES TO
CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
Concentration of Credit Risk
Financial instruments that potentially subject Salon to concentration
s 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.
One
customer accounted for approximately 54% of revenues for the three months ended September 30, 2017. Two customers accounted for approximately 22% and 13% of revenues for the three months ended September 30, 2016. Two customers accounted for approximately 54% and 10% of revenues for the six months ended September 30, 2017. One customer accounted for approximately 24% of revenues for the six months ended September 30, 2016. Three customers accounted for approximately 26%, 11% and 10% of trade accounts receivable as of September 30, 2017. Three customers accounted for approximately 35%, 18% and 15% of trade accounts receivable as of March 31, 2017.
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.
Recently Issued Accounting Pronouncements
In July 2017, the Financial Accounting Standards Board (“
FASB”) issued a two-part Accounting Standards Update (“ASU”) 2017-11, “Earnings Per Share (Topic 260).” Part I addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Part II does not require any transition guidance because those amendments do not have an accounting effect. ASU 2017-11 is effective for public entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.
In February 2017, the FASB issued ASU 2017-05, “
Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20)”, which clarifies the scope and application of ASC Topic 610-20 on accounting for the sale or transfer of nonfinancial assets, that is assets with physical value such as real estate, equipment, intangibles or similar property. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.
SALON MEDIA GROUP, INC.
NOTES TO
CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
In January 2017, the FASB
issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill in Step 2 of the goodwill impairment test. Under ASU 2017-04, goodwill impairment charges will be based on the excess of a reporting unit’s carrying amount over its fair value as determined in Step 1 of the testing. ASU 2017-04 is effective for interim and annual testing dates after January 1, 2019, with early adoption permitted for interim and annual goodwill impairment testing dates after January 1, 2017. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof
.
In January 2017, the FASB issued ASU 2017-01, “
Business Combinations – Clarifying the Definition of a Business,” which clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We do not expect the adoption of ASU 2017-01 to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.
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 and does not believe adoption will have a material impact on its financial statements.
In February 2016, the FASB issued
ASU 2016-02 “Leases” intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Additionally, this guidance will require disclosures to help investors and other financial statement users to better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The guidance should be applied under a modified retrospective transition approach for leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. Any leases that expire before the initial application date will not require any accounting adjustment. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. The Company is evaluating the full impact this guidance will have on its financial statements.
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 standard and related amendments are effective for annual reporting periods beginning after December 15, 2017, and interim periods. The Company expects to adopt this standard in the first quarter of fiscal year 2019 and it is evaluating the full impact this guidance will have on its financial statements.
SALON MEDIA GROUP, INC.
NOTES TO
ONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudite
d)
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 30, 2017. 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 30, 2017 and March 31, 2017, accrued interest on short-term borrowings totaled approximately $410 and $382, respectively.
As of
September 30, 2017 and March 31, 2017, the weighted average interest rate on the Company’s short-term borrowings remained constant at approximately 3.5%.
Convertible
Promissory Notes
During the
six months ended September 30, 2017, we issued $275 in interest-free demand promissory notes that were converted into 221,601 shares of Salon’s Series A Mandatorily Convertible Voting Preferred Stock (the “Series A Preferred Stock”). These 221,601 shares of Series A Preferred Stock will automatically convert into 22.16 million shares of Common Stock upon the filing with the Secretary of State of the State of Delaware of the Certificate of Amendment of Restated Certificate of Incorporation (the “Amendment”), which occurred on August 1, 2017 and increased the number of authorized shares of Common Stock, and the future delivery to the Company’s stockholders of an information statement, pursuant to the Purchase Agreement.
Additionally, $
275 of the issued demand promissory notes contained a conversion price that is deemed beneficial to the holders of the notes. Accordingly, the Company recorded non-cash interest expense aggregating $275 for the additional value of the beneficial conversion feature during the six months ended September 30, 2017 with an offsetting entry to Additional Paid-in Capital.
Advances from Related Parties
During
each of the six months ended September 30, 2017 and the six months ended September 30, 2016, the Company received from John Warnock $0 and $450, respectively, in unsecured, interest-free cash advances as working capital to fund operations. As of March 31, 2017, all outstanding advances were exchanged into shares of Common Stock or shares of Series A Preferred Stock.
On September 26, 2017, the Company received from Jordan Hoffner
, the Company’s Chief Executive Officer (“CEO”), $40 in a short-term, unsecured, interest-free cash advance as working capital to fund operations. This advance was repaid on September 29, 2017.
SALON MEDIA GROUP, INC.
NOTES TO
CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
3.
|
Employee Stock Option Plans
|
Salon has two stock option plans approved by stockholders: the Salon Media Group, Inc. 2004 Stock Plan (the “2004 Stock Plan”) and the Salon Media Group, Inc. 2014 Stock Incentive Plan (the “2014 Stock Incentive Plan”),
as described in Note 7, “Employee Stock Option Plans,” of the notes to financial statements in Salon’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017. The 2004 Stock Plan expired in November 2014, after which no further options were permitted to be granted.
Salon has granted options pursuant to plans not approved (“
Non-Plan”) by shareholders. On June 9, 2016, we granted to our CEO an option to purchase 12,654,318 shares of Common Stock pursuant to the terms and conditions of the Salon Media Group, Inc. Non Plan Stock Option agreement, with vesting in equal monthly installments over a four-year period commencing with the grant date. On September 6, 2017, we granted to our 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.
During the six months ende
d 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 Plan. The fair value of each option grant (2014 Stock Incentive Plan and Non-Plan) was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions and fair value per share:
|
|
Six months ended September 30,
|
|
|
|
2017
|
|
|
201
6
|
|
Risk-free interest rates
|
|
|
1.75%
|
|
|
|
1.10
|
–
|
1.15%
|
|
Expected lives (in years)
|
|
5.7
|
–
|
6.3
|
|
|
4.0
|
–
|
6.3
|
|
Expected volatility
|
|
|
451%
|
|
|
|
|
393%
|
|
|
Dividend yield
|
|
|
0%
|
|
|
|
|
0%
|
|
|
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, 2017, the aggregate stock compensation remaining to b
e amortized to expense was $4,986. Salon expects this stock-based compensation balance to be amortized as follows: $755 during the remainder of fiscal year 2018; $1,363 during fiscal year 2019; $1,372 during fiscal year 2020; $1,080 during fiscal year 2021; and $416 during fiscal year 2022. The expected amortization reflects only outstanding stock option awards as of September 30, 2017.
Due to insufficient authorized shares of Common Stock as of November 14, 2016, the vested options as of November 14, 2016 with a fair value of $818, were reclassified from equity to liabilities and re-measured at fair value and presented under accrued lia
bilities. The balance of this option liability was $931 as of March 31, 2017, respectively. The Amendment was filed on August 1, 2017, after which the $1,010 option liability was reclassified back to equity during the quarter ended September 30, 2017, upon the resulting increased authorization of shares of Common Stock.
SALON MEDIA GROUP, INC.
NOTES TO
CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
The following table summarizes activities under Salon
’s plans for the six months ended September 30, 2017:
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Value
|
|
Balance as of April 1, 2017
|
|
|
19,177,000
|
|
|
$
|
0.21
|
|
|
$
|
223
|
|
Granted
|
|
|
44,279,000
|
|
|
$
|
0.13
|
|
|
|
|
|
Exercised
|
|
|
(1,056,000
|
)
|
|
$
|
0.01
|
|
|
|
|
|
Expired and forfeited
|
|
|
(3,904,000
|
)
|
|
$
|
0.16
|
|
|
|
|
|
Outstanding at September 30, 2017
|
|
|
58,496,000
|
|
|
$
|
0.16
|
|
|
$
|
885
|
|
Exercisable as of September 30, 2017
|
|
|
6,497,000
|
|
|
$
|
0.21
|
|
|
$
|
885
|
|
Vested and expected to vest as of September 30, 2017
|
|
|
50,692,000
|
|
|
$
|
0.16
|
|
|
$
|
885
|
|
Options to purchase 44,279,038 shares of Common Stock and 12,955,218 shares of Common Stock were awarded during the six months ended September 30, 2017 and September 30, 2016, respectively.
The weighted-average fair value of options granted during each of the six months ended September 30, 2017 and September 30, 2016 was $0.13 per share and $0.23 per share, respectively. The weighted-average fair value of options vested during each of the six months ended September 30, 2017 and September 30, 2016 was $0.13 per share and $0.21 per share, respectively. A total of 1,056,477 options were exercised during the six months ended September 30, 2017.
Our Board also approved a resolution on June 12, 20
14 to amend the 2014 Stock Incentive Plan to comply with certain California Code of Regulations and Internal Revenue Service regulations. As of September 30, 2017, options totaling 10,382,485 were awarded under the 2014 Stock Incentive Plan.
We recognized stock-based compensation expense
of $433 and $208 during the six months ended September 30, 2017 and 2016, respectively.
SALON MEDIA GROUP, INC.
NOTES TO
CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
4.
|
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 Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(794
|
)
|
|
$
|
(866
|
)
|
|
$
|
(1,366
|
)
|
|
$
|
(1,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic and diluted net loss per share
|
|
|
150,367,000
|
|
|
|
76,257,000
|
|
|
|
150,185,000
|
|
|
|
76,251,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive securities including options and preferred stock not included in net loss per share calculation
|
|
|
223,378,000
|
|
|
|
20,662,000
|
|
|
|
223,378,000
|
|
|
|
20,662,000
|
|
5
.
|
Commitments and Contingencies
|
On October 17, 2012, Salon signed a five-year office
lease agreement for its San Francisco headquarters at 870 Market Street, San Francisco, California. The five-year lease, for approximately 2,405 square feet, commenced on December 1, 2012 and will terminate on November 30, 2017.
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 to settle the unpaid 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 $720, plus damages. Counsel for Salon is currently evaluating potential defenses and counterclaims, based on the laws and facts.
Our current office space in New York, located at 315 West 36
th
Street, New York, New York is rented on a month-to-month basis and does not carry a lease agreement.
SALON MEDIA GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
Total future minimum payments under operating leases and short-term borrowing in effect as of
September 30, 2017 are as follows:
|
|
Payments Due By Period
|
|
|
|
Total
|
|
|
Year 1
|
|
Operating leases
|
|
$
|
16
|
|
|
$
|
16
|
|
Short-term borrowing
|
|
|
1,000
|
|
|
|
1,000
|
|
Short-term borrowing interest
|
|
|
410
|
|
|
|
410
|
|
Total
|
|
$
|
1,426
|
|
|
$
|
1,426
|
|
We continue collective bargaining with the
WGAE. As we do not yet have an agreement with our union employees, we remain uncertain how it will impact our financial status, or if it will have a negative impact on our ability to obtain additional financing, if necessary.
6.
|
Preferred Stock
– Mezzanine Equity
|
As part of our 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 that will automatically convert into shares of Common Stock, upon the filing of the Amendment with the Secretary of State of the State of Delaware after the final closing of the Private Placement and delivery of the information statement to the Company’s stockholders, pursuant to the Purchase Agreement. 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, and certain of his family members, the Company’s Chief Financial Officer (“CFO”), 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 $0.215 million. The Second Closing included only investors who had previously indicated interest in participating in the Private Placement. The investors in the Second Closing included Jordan Hoffner, Elizabeth Hambrecht, Ryan Nathanson, the Company’s 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 $0.275 million. The Final Closing included only investors who had previously indicated interest in participating in the Private Placement.
The investors in the Final Closing included Jordan Hoffner, Elizabeth Hambrecht, and William Hambrecht.
SALON MEDIA GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
Due to insufficient authorized shares of our Common Stock
prior to the quarter ended September 30, 2017, these Series A Preferred shares were previously disclosed under mezzanine equity on our Balance Sheet. The Amendment was filed and the resulting increase in authorized shares of Common Stock occurred on August 1, 2017. After delivery of the information statement to the Company’s stockholders, pursuant to the Purchase Agreement, these Series A Preferred Stock of $6,862 were reclassified from mezzanine equity to stockholders’ deficit.
In event of a liquidation, the holders of the Series A Preferred Stock are entitled to receive, prior and in preference to any distribution of any assets or property of Salon to the holders of Common Stock, and by reason of their ownership, an amount per share equal to two (2) times the original issue price of $1.24 per share of Series A Preferred Stock. If the assets and funds available for distribution are insufficient to permit the payment to the holders of Series A Preferred Stock of their full preferential amounts, then the entire assets and funds of Salon legally available for distribution to stockholders will be distributed among the holders of Series A Preferred Stock ratably in proportion to the full preferential amounts which they are entitled to receive.
Holders of shares of Series A Preferred Stock are not entitled to receive dividends, pursuant to the Certificate Designation of Preferences, Rights and Limitations of the Series A Preferred Stock.
After payment of the full preferential amounts has been made to the holders of the shares of Series A Preferred Stock pursuant to the Certificate of Designation, if any remaining assets of the Company are available for distribution to stockholders, the holders of shares of Common Stock and Series A Preferred Stock shall be entitled to receive the remaining assets of the Company available for distribution to stockholders ratably in proportion to the shares of Common Stock then held by them and the shares of Common Stock to which they have the right to acquire upon conversion of the shares of Series A Preferred Stock held by them.
Following the Final Closing of the Private Placement on July 20, 2017, the Series A Preferred Stock accounts for approximately 52% of outstanding shares on an as converted basis after an increase in authorized share capital and assuming all shares can convert to Common Stock.
The holders of the shares of Series A Preferred Stock are entitled to vote together with the holders of the shares of Common Stock as though part of that class, and they are entitled to vote on all matters and to that number of votes equal to the largest number of whole shares of Common Stock into which the shares of Series A Preferred Stock could be converted.
Neither the shares of Series A Preferred Stock nor the underlying shares of Common Stock have been registered for sale under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration under such act or an applicable exemption from registration requirements.
The
exchange rate and common equivalent shares of our Series A Preferred Stock as of September 30, 2017 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
|
|
SALON MEDIA GROUP, INC.
NOTES TO
CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
On October 26, 2017, the Company entered into a securities purchase agreement (the “
Securities Purchase Agreement”) with each of
Spear Point Capital Fund, LP, Erika Tanenbaum and Hilary Tanenbaum (each a “Bridge Note Purchaser”) pursuant to which the Company sold to the Bridge Note Purchasers an aggregate principal amount of $0.25 million 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. The conversion price will equal 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 month, but not less than the price per share paid in the Private Placement, if the financing occurs more than four months after the date of the Securities Purchase Agreement. The Securities Purchase Agreement is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference. The above description of the material terms of the Securities Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.1.