##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended: June 30, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from ___to___
 Commission File Number: 000-50879
 PLANETOUT INC.
  DELAWARE
    
    94-3391368(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)1355 SANSOME STREET, SAN FRANCISCO, CALIFORNIA
    
    94111(Address of Principal Executive Offices)
    
    (Zip Code)
 (415) 834-6500
 
  þ o
 o þ




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##### Table of Contents



PlanetOut Inc.
 INDEX
 Form 10-Q
 For the Quarter ended June 30, 2005
 PAGEPART I  FINANCIAL INFORMATIONItem 1
    
    Unaudited Condensed Consolidated Financial Statements
    
    
    3Unaudited Condensed Consolidated Balance Sheets as of December 31, 2004 and June 30, 2005
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2004 and 2005 and the Six Months Ended June 30, 2004 and 2005
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2005
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2
    
    Management's Discussion and Analysis on Financial Condition and Results of Operations
    
    
    12Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4
    
    Controls and Procedures
    
    
    28PART II  OTHER INFORMATION
    
    
    28Item 1
    
    Legal Proceedings
    
    
    28Item 2
    
    Unregistered Sales of Equity Securities And Use of Proceeds
    
    
    28Item 3
    
    Defaults Upon Senior Securities
    
    
    30Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    30Item 5
    
    Other Information
    
    
    30Item 6
    
    Exhibits
    
    
    31SIGNATURES
    
    
    32EXHIBIT INDEX
    
    
    33EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 Page 2




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PART I
 FINANCIAL INFORMATION
 PlanetOut Inc.
 
 Item 1. Unaudited Condensed Consolidated Financial Statements
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except per share amount)
 December 31,
    
    June 30,2004
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    43,128
    
    
    $
    43,229Accounts receivable, net
    
    
    2,075
    
    
    
    2,417Prepaid expenses and other current assets
    
    
    2,209
    
    
    
    2,149Total current assets
    
    
    47,412
    
    
    
    47,795Property and equipment, net
    
    
    7,011
    
    
    
    8,037Goodwill
    
    
    3,403
    
    
    
    3,403Investment in unconsolidated affiliate
    
    
    57
    
    
    
    32Other assets
    
    
    1,325
    
    
    
    1,096Total assets
    
    $
    59,208
    
    
    $
    60,363LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,040
    
    
    $
    656Accrued liabilities
    
    
    1,469
    
    
    
    2,159Deferred revenue
    
    
    3,506
    
    
    
    4,141Capital lease obligations, current portion
    
    
    998
    
    
    
    525Notes payable, current portion
    
    
    190
    
    
    
    236Total current liabilities
    
    
    8,203
    
    
    
    7,717Capital lease obligations, less current portion
    
    
    491
    
    
    
    320Notes payable, less current portion
    
    
    142
    
    
    
    Deferred rent
    
    
    1,608
    
    
    
    1,832Total liabilities
    
    
    10,444
    
    
    
    9,869Contingencies (Note 5)Stockholders equity:Common stock: $0.001 par value, 100,000 shares authorized, 16,943 and
17,171 shares issued and outstanding at December 31, 2004
and June 30, 2005, respectively
    
    
    17
    
    
    
    17Additional paid-in capital
    
    
    88,387
    
    
    
    88,208Note receivable from stockholder
    
    
    (603
    )
    
    
    (603
    )Unearned stock-based compensation
    
    
    (1,619
    )
    
    
    (891
    )Accumulated other comprehensive loss
    
    
    (106
    )
    
    
    (114
    )Accumulated deficit
    
    
    (37,312
    )
    
    
    (36,123
    )Total stockholders equity
    
    
    48,764
    
    
    
    50,494Total liabilities and stockholders equity
    
    $
    59,208
    
    
    $
    60,363
  Page 3




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PlanetOut Inc.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share amounts)
 Three months ended June 30,
    
    Six months ended June 30,2004
    
    2005
    
    2004
    
    2005Revenue:Subscription services
    
    $
    4,051
    
    
    $
    5,172
    
    
    $
    7,840
    
    
    $
    10,025Advertising services
    
    
    1,712
    
    
    
    2,566
    
    
    
    2,809
    
    
    
    3,958Transaction services
    
    
    347
    
    
    
    332
    
    
    
    901
    
    
    
    752Total revenue
    
    
    6,110
    
    
    
    8,070
    
    
    
    11,550
    
    
    
    14,735Operating costs and expenses:Cost of revenue (inclusive of stock-based compensation expense of
$202 and $15 for the three months ended June 30, 2004 and 2005, respectively
and $351 and $27 for the six months ended June 30, 2004 and 2005, respectively)
    
    
    2,014
    
    
    
    2,320
    
    
    
    4,157
    
    
    
    4,445Sales and marketing (inclusive of stock-based compensation expense of
$200 and $18 for the three months ended June 30, 2004 and 2005, respectively
and $287 and $25 for the six months ended June 30, 2004 and 2005, respectively)
    
    
    2,315
    
    
    
    2,532
    
    
    
    3,987
    
    
    
    4,988General and administrative (inclusive of stock-based compensation expense of
$307 and $109 for the three months ended June 30, 2004 and 2005, respectively
and $550 and $66 for the six months ended June 30, 2004 and 2005, respectively)
    
    
    1,301
    
    
    
    1,615
    
    
    
    2,596
    
    
    
    2,863Depreciation and amortization
    
    
    559
    
    
    
    848
    
    
    
    1,029
    
    
    
    1,668Total costs and expenses
    
    
    6,189
    
    
    
    7,315
    
    
    
    11,769
    
    
    
    13,964Income (loss) from operations
    
    
    (79
    )
    
    
    755
    
    
    
    (219
    )
    
    
    771Equity in net loss of unconsolidated affiliate
    
    
    (13
    )
    
    
    (16
    )
    
    
    (33
    )
    
    
    (25
    )Interest expense
    
    
    (130
    )
    
    
    (30
    )
    
    
    (190
    )
    
    
    (68
    )Other income (expense), net
    
    
    15
    
    
    
    313
    
    
    
    31
    
    
    
    552Income (loss) before income taxes
    
    
    (207
    )
    
    
    1,022
    
    
    
    (411
    )
    
    
    1,230Provision for income taxes
    
    
    (5
    )
    
    
    (12
    )
    
    
    (5
    )
    
    
    (41
    )Net income (loss)
    
    
    (212
    )
    
    
    1,010
    
    
    
    (416
    )
    
    
    1,189Accretion on redeemable convertible preferred stock
    
    
    (437
    )
    
    
    
    
    
    
    (875
    )
    
    
    Net earnings (loss) attributable to common stockholders
    
    $
    (649
    )
    
    $
    1,010
    
    
    $
    (1,291
    )
    
    $
    1,189Net earnings (loss) per share:Basic
    
    $
    (0.37
    )
    
    $
    0.06
    
    
    $
    (0.74
    )
    
    $
    0.07Diluted
    
    $
    (0.37
    )
    
    $
    0.06
    
    
    $
    (0.74
    )
    
    $
    0.07Weighted-average shares used to compute net earnings per share:Basic
    
    
    1,773
    
    
    
    17,092
    
    
    
    1,749
    
    
    
    17,015Diluted
    
    
    1,773
    
    
    
    18,249
    
    
    
    1,749
    
    
    
    18,192
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PlanetOut Inc.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Six months ended June 30,2004
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    (416
    )
    
    $
    1,189Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    1,029
    
    
    
    1,668Amortization of unearned stock-based compensation, net of cancellation
    
    
    1,137
    
    
    
    118Amortization of deferrred rent
    
    
    
    
    
    
    224Issuance of stock options and shares in exchange for services
    
    
    51
    
    
    
    Amortization of debt issuance costs
    
    
    16
    
    
    
    Loss (gain) on disposal of assets
    
    
    44
    
    
    
    (1
    )Equity in net loss of unconsolidated affiliate
    
    
    33
    
    
    
    25Changes in operating assets and liabilities:Accounts receivable
    
    
    (180
    )
    
    
    (342
    )Prepaid expenses and other assets
    
    
    (187
    )
    
    
    289Accounts payable
    
    
    572
    
    
    
    (1,384
    )Accrued and other liabilities
    
    
    (1,575
    )
    
    
    690Deferred revenue
    
    
    325
    
    
    
    635Net cash provided by operating activities
    
    
    849
    
    
    
    3,111Cash flows from investing activities:Purchases of property and equipment
    
    
    (697
    )
    
    
    (2,659
    )Net cash used in investing activities
    
    
    (697
    )
    
    
    (2,659
    )Cash flows from financing activities:Proceeds from exercise of common stock and preferred stock options and warrants
    
    
    30
    
    
    
    431Repurchase of redeemable convertible preferred stock
    
    
    (16
    )
    
    
    Principal payments under capital lease obligations and notes payable
    
    
    (621
    )
    
    
    (774
    )Deferred costs associated with initial public offering
    
    
    (419
    )
    
    
    Proceeds from senor subordinated promissory note, net of issuance costs
    
    
    4,909
    
    
    
    Net cash provided by (used in) financing activities
    
    
    3,883
    
    
    
    (343
    )Effect of exchange rate on cash and cash equivalents
    
    
    (15
    )
    
    
    (8
    )Net increase in cash and cash equivalents
    
    
    4,020
    
    
    
    101Cash and cash equivalents, beginning of period
    
    
    2,282
    
    
    
    43,128Cash and cash equivalents, end of period
    
    $
    6,302
    
    
    $
    43,229Supplemental disclosure of noncash flow investing and financing activities:Property and equipment and related maintenance acquired under capital leases
    
    $
    1,013
    
    
    $
    34Accretion on redeemable convertible preferred stock
    
    $
    875
    
    
    $
    Unearned stock-based compensation
    
    $
    3,631
    
    
    $
    399
  Page 5




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PlanetOut Inc.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  The Company
   Note 2  Basis of Presentation and Summary of Significant Accounting Policies
 Unaudited Interim Financial Information
   Use of Estimates
  Property and Equipment
   Page 6




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Internal Use Software and Website Development Costs
  Stock-based Compensation
     Three months ended June 30,
    
    Six months ended June 30,2004
    
    2005
    
    2004
    
    2005(unaudited)

    
    (unaudited)Net earnings (loss) attributable to common stockholders, as reported:
    
    $
    (649
    )
    
    $
    1,010
    
    
    $
    (1,291
    )
    
    $
    1,189Add: Employee stock-based compensation expense included in
reported net income (loss), net of tax
    
    
    686
    
    
    
    141
    
    
    
    1,137
    
    
    
    118Less: Total employee stock-based compensation expense
determined under fair value, net of tax
    
    
    (897
    )
    
    
    (316
    )
    
    
    (1,358
    )
    
    
    (401
    )Pro forma net earnings (loss) attributable to common stockholders
    
    $
    (860
    )
    
    $
    835
    
    
    $
    (1,512
    )
    
    $
    906Net earnings (loss) per share attributable to common stockholders:As reported  basic
    
    $
    (0.37
    )
    
    $
    0.06
    
    
    $
    (0.74
    )
    
    $
    0.07As reported  diluted
    
    $
    (0.37
    )
    
    $
    0.06
    
    
    $
    (0.74
    )
    
    $
    0.07Pro forma  basic
    
    $
    (0.49
    )
    
    $
    0.05
    
    
    $
    (0.86
    )
    
    $
    0.05Pro forma  diluted
    
    $
    (0.49
    )
    
    $
    0.05
    
    
    $
    (0.86
    )
    
    $
    0.05
 Page 7




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Six months endedJune 30,2004
    
    2005Preferred stock options:Expected lives (in years)
    
    2.5
    
    Risk free interest rates
    
    2.77 - 4.05%
    
    Dividend yield
    
    10%
    
    Volatility
    
    0%
    
    Common stock options:Expected lives (in years)
    
    5.0
    
    5.0Risk free interest rates
    
    2.77 - 4.05%
    
    3.59 - 4.13%Dividend yield
    
    0%
    
    0%Volatility
    
    0%
    
    85%
 Net Income (Loss) Per Share
    Three months ended June 30,
    
    Six months ended June 30,2004
    
    2005
    
    2004
    
    2005(unaudited)

    
    (unaudited)Numerator:Net income (loss)
    
    $
    (212
    )
    
    $
    1,010
    
    
    $
    (416
    )
    
    $
    1,189Accretion on redeemable convertible preferred stock
    
    
    (437
    )
    
    
    
    
    
    
    (875
    )
    
    
    Net earnings (loss) attributable to common stockholders
    
    $
    (649
    )
    
    $
    1,010
    
    
    $
    (1,291
    )
    
    $
    1,189Denominator:Weighted-average shares used to compute basic EPS
    
    
    1,773
    
    
    
    17,092
    
    
    
    1,749
    
    
    
    17,015Effect of dilutive securities:Dilutive common stock equivalents
    
    
    
    
    
    
    1,157
    
    
    
    
    
    
    
    1,177Dilutive potential common shares
    
    
    
    
    
    
    1,157
    
    
    
    
    
    
    
    1,177Weighted-average shares used to compute diluted EPS
    
    
    1,773
    
    
    
    18,249
    
    
    
    1,749
    
    
    
    18,192Net earnings per share:Basic
    
    $
    (0.37
    )
    
    $
    0.06
    
    
    $
    (0.74
    )
    
    $
    0.07Diluted
    
    $
    (0.37
    )
    
    $
    0.06
    
    
    $
    (0.74
    )
    
    $
    0.07
 Page 8




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##### Table of Contents



Six months ended June 30,2004
    
    2005(unaudited)Redeemable convertible preferred stock
    
    
    9,273
    
    
    
    Redeemable convertible preferred stock options and warrants
    
    
    3,539
    
    
    
    Common stock options and warrants
    
    
    2,318
    
    
    
    741Commmon stock subject to repurchase
    
    
    2
    
    
    
    215,132
    
    
    
    743
 Recent Accounting Pronouncements
   Page 9




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Note 3  Other Balance Sheet Components
 December 31,
    
    June 30,2004
    
    2005(unaudited)Property and equipment (in thousands):Computer and network equipment
    
    $
    7,130
    
    
    $
    7,608Furniture and fixtures
    
    
    918
    
    
    
    1,139Computer software
    
    
    1,683
    
    
    
    2,301Leasehold improvements
    
    
    1,191
    
    
    
    1,372Capitalized software and website development costs
    
    
    2,919
    
    
    
    4,10913,841
    
    
    
    16,529Less: Accumulated depreciation and amortization
    
    
    (6,830
    )
    
    
    (8,492
    )$
    7,011
    
    
    $
    8,037
  December 31,
    
    June 30,2004
    
    2005(unaudited)Prepaid expenses and other current assets (in thousands):Prepaid expenses and other current assets
    
    $
    1,262
    
    
    $
    1,735Receivable from landlord for tenant improvement allowance, current portion
(Note 2)
    
    
    947
    
    
    
    414$
    2,209
    
    
    $
    2,149
 December 31,
    
    June 30,2004
    
    2005(unaudited)Other assets (in thousands):Other assets
    
    $
    838
    
    
    $
    891Receivable from landlord for
tenant improvement allowance, less
current portion (Note 2)
    
    
    308
    
    
    
    Interest on note receivable from stockholder
    
    
    179
    
    
    
    205$
    1,325
    
    
    $
    1,096
 December 31,
    
    June 30,2004
    
    2005(unaudited)Accrued liabilities (in thousands):Accrued payroll and related liabilities
    
    $
    493
    
    
    $
    484Other accrued liabilities
    
    
    976
    
    
    
    1,675$
    1,469
    
    
    $
    2,159
 Note 4  Related Party Transactions
 Note Receivable
  Page 10




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Advertising Agreement
  Note 5 Contingencies
 Contingencies
   Page 11




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Item 2. Managements Discussion and Analysis on Financial Condition and Results of Operations
 The following discussion should be read in conjunction with the financial statements and
related notes which appear elsewhere in this document. This discussion contains forward-looking
statements that involve risks and uncertainties. In some cases, you can identify forward-looking
statements by terminology including would, could, may, will, should, expect, intend,
plan, anticipate, believe, estimate, predict, potential or continue, the negative of
these terms or other comparable terminology. These statements are only predictions. Forward-looking
statements include statements about our business strategy, future operating performance and
prospects. You should not place undue reliance on these forward-looking statements. Our actual
results could differ materially from those anticipated in these forward-looking statements as a
result of various factors, including those discussed below and elsewhere in this document and in
our Form 10-K filed March 31, 2005.
 Overview
   Results of Operations
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2005
    
    2004
    
    2005(As a percentage of total revenue; unaudited)Consolidated statement of operations data:Revenue:Subscription services
    
    
    66.3
    %
    
    
    64.1
    %
    
    
    67.9
    %
    
    
    68.0
    %Advertising services
    
    
    28.0
    
    
    
    31.8
    
    
    
    24.3
    
    
    
    26.9Transaction services
    
    
    5.7
    
    
    
    4.1
    
    
    
    7.8
    
    
    
    5.1Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating costs and expenses:Cost of revenue
    
    
    33.0
    
    
    
    28.7
    
    
    
    36.0
    
    
    
    30.2Sales and marketing
    
    
    37.9
    
    
    
    31.4
    
    
    
    34.5
    
    
    
    33.9General and administrative
    
    
    21.3
    
    
    
    20.0
    
    
    
    22.5
    
    
    
    19.4Depreciation and amortization
    
    
    9.1
    
    
    
    10.5
    
    
    
    8.9
    
    
    
    11.3Total costs and expenses
    
    
    101.3
    
    
    
    90.6
    
    
    
    101.9
    
    
    
    94.8Income (loss) from operations
    
    
    (1.3
    )
    
    
    9.4
    
    
    
    (1.9
    )
    
    
    5.2Other income (expense), net
    
    
    (2.1
    )
    
    
    3.3
    
    
    
    (1.7
    )
    
    
    3.2Income (loss) before income taxes
    
    
    (3.4
    )
    
    
    12.7
    
    
    
    (3.6
    )
    
    
    8.4Provision for income taxes
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.3
    )Net income (loss)
    
    
    (3.5
    )%
    
    
    12.5
    %
    
    
    (3.6
    )%
    
    
    8.1
    %
   Subscription Services.
 Page 12




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Gay.com Premium Membership  Services
 Yearly
    
    Quarterly
    
    Monthly
    
    TrialsJanuary 2003 to March 2003
    
    $
    89.95
    
    
    $
    39.95
    
    
    $
    16.95
    
    
    $7.95 7-day trialMarch 2003 to May 2004
    
    $
    79.95
    
    
    $
    39.95
    
    
    $
    16.95
    
    
    $6.95 7-day trial March 2003 to April 2004$9.95 7-day trial April 2004 to May 2004May 2004 to October 2004
    
    $
    79.95
    
    
    $
    39.95
    
    
    $
    17.95
    
    
    $9.95 7-day trialOctober 2004 to present
    
    $
    89.95
    
    
    $
    42.95
    
    
    $
    19.95
    
    
    $9.95 7-day trial
 Yearly
    
    Quarterly
    
    Monthly
    
    TrialsPlanetOut Premium Membership
    
    $
    69.95
    
    
    $
    29.95
    
    
    $
    12.95
    
    
    $4.95 3-day trial December 2002 to presentServices
 Page 13




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Premium Membership Service Operating Metrics
 2003
    
    2003
    
    2004
    
    20051Q
    
    2Q
    
    3Q
    
    4Q
    
    FY
    
    1Q
    
    2Q
    
    3Q
    
    4Q
    
    FY
    
    1Q
    
    2QTotal Subscribers
    
    
    88,776
    
    
    
    88,103
    
    
    
    91,886
    
    
    
    98,445
    
    
    
    98,445
    
    
    
    105,179
    
    
    
    110,598
    
    
    
    118,392
    
    
    
    127,527
    
    
    
    127,527
    
    
    
    137,500
    
    
    
    145,114Gross Additions
    
    
    39,053
    
    
    
    34,305
    
    
    
    37,167
    
    
    
    40,721
    
    
    
    151,246
    
    
    
    42,635
    
    
    
    37,582
    
    
    
    41,082
    
    
    
    44,219
    
    
    
    165,518
    
    
    
    44,245
    
    
    
    41,370Total Churn
    
    
    30,641
    
    
    
    34,978
    
    
    
    33,384
    
    
    
    34,162
    
    
    
    133,165
    
    
    
    35,901
    
    
    
    32,163
    
    
    
    33,288
    
    
    
    35,084
    
    
    
    136,436
    
    
    
    34,272
    
    
    
    33,756Churn Rate
    
    
    12.1
    %
    
    
    13.2
    %
    
    
    12.4
    %
    
    
    12.0
    %
    
    
    12.4
    %
    
    
    11.8
    %
    
    
    9.9
    %
    
    
    9.7
    %
    
    
    9.5
    %
    
    
    10.1
    %
    
    
    8.6
    %
    
    
    8.0
    %Net Additions
    
    
    8,412
    
    
    
    (673
    )
    
    
    3,783
    
    
    
    6,559
    
    
    
    18,081
    
    
    
    6,734
    
    
    
    5,419
    
    
    
    7,794
    
    
    
    9,135
    
    
    
    29,082
    
    
    
    9,973
    
    
    
    7,614Average Lifetime (months)
    
    
    8.3
    
    
    
    7.6
    
    
    
    8.1
    
    
    
    8.4
    
    
    
    8.1
    
    
    
    8.5
    
    
    
    10.1
    
    
    
    10.3
    
    
    
    10.5
    
    
    
    9.9
    
    
    
    11.6
    
    
    
    12.6
  
    
    Total Subscribers: members with an active, paid subscription plan, excluding paid trial
subscribers, at the end of the period.
    
    Gross Additions: members who initiate a subscription during the period, excluding paid
trial subscriptions. Gross Additions during a period equals Net Additions plus Total Churn
during that period.
    
    Total Churn: total subscription cancellations during the period, including cancellations of
paid promotional subscriptions, but excluding cancellations of paid 3- and 7-day trial
subscriptions and free promotional subscriptions. Subscription cancellations include
subscriptions cancelled due to failed credit cards.
    
    Churn Rate: Total Churn divided by the average of the Total Paid Subscribers measured at
the beginning and end of the period, divided by the number of months in the period.
    
    Net Additions: Total Paid Subscribers at the end of the period minus the Total Paid
Subscribers at the beginning of the period.
    
    Average Lifetime: Average length of a subscription. Average lifetime equals one hundred
percent divided by churn rate for the period.
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Advertising Services.
    Transaction Services.
 Cost of Revenue.
  Sales and Marketing.
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
    
    payroll and related benefits for employees involved in sales, client service, customer
service, corporate marketing and other support functions;
    
    product and service marketing and promotions;
    
    general corporate marketing and promotions; and
    
    allocated occupancy costs.
 General and Administrative.
 Occupancy Costs.
 Stock-based Compensation and Related Charges.
   Comparison of the Three and Six Months Ended June 30, 2005 and June 30, 2004
 Revenue
  Subscription Services.
 
    
    new features including the offer of subscriptions to popular magazines with premium
memberships beginning in May 2004, and the expansion and launch of online features such as
expanded messenger services, expanded ad searchable whos online features, and the addition
of Hot and Buddy lists, among others;
    
    the launch of automated credit card updating;
    
    a price increase for our Gay.com membership services in October 2004;
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
    
    the migration of approximately 1,400 of our Out&About newsletter subscribers to our
premium membership services in December 2004;
    
    an increase in marketing and promotional activities including targeted price discounts
on select subscription plan offerings;
    
    the effect of periods during the fourth quarter of 2004 and the first quarter of 2005,
during which our transaction processing system was not available or did not perform as
expected, in part as a result of adding new transaction processing capabilities, subsequent
to which we have implemented technology upgrades to help address these issues;
    
    delays in new feature rollout for our subscription services, which limited subscriber
and revenue growth; and
    
    a reduction in subscribers and revenue from our PlanetOut.com premium membership
service, as we have concentrated more of our marketing and development activities on our
Gay.com premium membership service.
  Advertising Services.
 
    
    the improvement in the advertising market generally and in the online advertising
market specifically;
    
    the development of new customized sponsorship programs and integrated editorial
programming which increased our CPM rate;
    
    the increasing interest of advertisers in targeting the LGBT community; and
    
    the expansion of our Gay.com local service listings during the first six months of 2005.
  Transaction Services.
 Operating Costs and Expenses
  Cost of Revenue.
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Sales and Marketing.
 General and Administrative.
 Depreciation and Amortization.
 Other income and expense.
 Liquidity and Capital Resources
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Off-balance Sheet Liabilities
  Other Contractual Commitments
  Payments Due by PeriodRemainder ofTotal
    
    2005
    
    2006-2007
    
    2008-2009
    
    2010 & After(In thousands)Contractual obligations:Capital lease obligations
    
    $
    960
    
    
    $
    364
    
    
    $
    479
    
    
    $
    116
    
    
    $
    1Operating leases
    
    
    11,140
    
    
    
    813
    
    
    
    3,578
    
    
    
    3,542
    
    
    
    3,207Purchase obligations
    
    
    475
    
    
    
    333
    
    
    
    142
    
    
    
    
    
    
    
    Total contractual obligations:
    
    $
    12,575
    
    
    $
    1,510
    
    
    $
    4,199
    
    
    $
    3,658
    
    
    $
    3,208
 Capital Lease Obligations.
 Operating Leases.
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Purchase Obligations.
  Critical Accounting Policies
    Capitalized Website Development Costs.
  Seasonality and Inflation
   Recent Accounting Pronouncements
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Risk Factors
 We have a history of significant losses. If we do not sustain profitability, our financial
condition and stock price could suffer.
  If our efforts to attract and retain subscribers are not successful, our revenue will
decrease.
   Our limited operating history makes it difficult to evaluate our business.
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We expect our operating results to fluctuate, which may lead to volatility in our stock price.
  If we fail to manage our growth, including through acquisitions and our planned international
expansion, our business will suffer.
    If we do not continue to attract and retain qualified personnel, we may not be able to expand our
business.
  Our success depends, in part, upon the growth of Internet advertising and upon our ability to
accurately predict the cost of customized campaigns.
   If advertisers do not find the LGBT market to be economically profitable, our business will be
harmed.
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Any significant disruption in service on our websites or in our computer and communications
hardware and software systems could harm our business.
  If we are unable to compete effectively, we may lose market share and our revenue may decline.
   If we are unable to protect our domain names, our reputation and brand could be harmed if third
parties gain rights to, or use, these domain names in a manner that would confuse or impair our
ability to attract and retain customers.
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If we fail to adequately protect our trademarks and other proprietary rights, or if we get
involved in intellectual property litigation, our revenue may decline and our expenses may
increase.
   Existing or future government regulation in the United States and other countries could limit our
growth and result in loss of revenue.
  
    
    conduct background checks on our members prior to allowing them to interact with other
members on our websites or, alternatively, provide notice on our websites that we have not
conducted background checks on our members, which may result in our members canceling their
membership or failing to subscribe or renew their subscription, resulting in reduced
revenue;
    
    provide advance notice of any changes to our privacy policies or to our policies on
sharing non-public information with third parties, and if our members or subscribers
disagree with these policies or changes, they may cancel their membership or subscription,
which will reduce our revenue;
    
    with limited exceptions, give consumers the right to prevent sharing of their non-public
personal information with unaffiliated third parties, and if a significant portion of our
members choose to request that we dont share their information, our advertising revenue
that we receive from renting our mailing list to unaffiliated third parties may decline;
    
    provide notice to residents in some states if their personal information was, or is
reasonably believed to have been, obtained by an unauthorized person such as a computer
hacker, which may result in our members or subscribers deciding to cancel their membership
or subscription, reducing our membership base and subscription revenue;
    
    comply with current or future anti-spam legislation by limiting or modifying some of our
marketing and advertising efforts, such as email campaigns, which may result in a reduction
in our advertising revenue; for instance, two states recently passed legislation creating a
do not contact registry for minors that would make it a criminal violation to send an
e-mail message to an address on that states registry if the e-mail message contained an
advertisement for or even a link to a website that offered products or services that minors
are prohibited from accessing;
    
    comply with the European Union privacy directive and other international regulatory
requirements by modifying the ways in which we collect and share our users personal
information; if these modifications render our services less attractive to our members or
subscribers, for example by limiting the amount or type of personal information our members
or subscribers could post to their profiles, they may cancel their memberships or
subscriptions, resulting in reduced revenue;
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
    
    qualify to do business in various states and countries, in addition to jurisdictions
where we are currently qualified, because our websites are accessible over the Internet in
multiple states and countries, which if we fail to so qualify, may prevent us from enforcing
our contracts in these states or countries and may limit our ability to grow our business;
    
    limit our domestic or international expansion because some jurisdictions may limit or
prevent access to our services as a result of the availability of some content intended for
mature viewing on some of our websites, which may render our services less attractive to our
members or subscribers and result in a decline in our revenue; and
    
    limit or prevent access, from some jurisdictions, to some or all of the member-generated
content available through our websites, which may render our services less attractive to our
members or subscribers and result in a decline in our revenue. For example, the United
States Department of Justice (the DOJ) recently adopted regulations purporting to
implement the Child Protection and Obscenity Act of 1988, as amended (the Act), by
requiring primary and secondary producers, as defined in the regulations, of certain adult
materials to obtain, maintain and make available for inspection specified records, such as a
performers name, address and certain specified forms of photo identification as proof of a
performers age. Failure to properly obtain, maintain or make such records available for
inspection upon request of the DOJ could lead to an imposition of penalties, fines or
imprisonment. We could be deemed a secondary producer under the Act because we allow our
members to display photographic images on our websites as part of member profiles.
Enforcement of these regulations has been stayed pending resolution of a legal challenge to
their constitutionality on the grounds that the regulations exceed the DOJs statutory
authority and violate First Amendment and privacy rights, among others. If the legal
challenge is unsuccessful, we will be subject to significant and burdensome recordkeeping
compliance requirements and/or we will have to evaluate and implement additional
registration and recordkeeping processes and procedures, each of which would result in
additional expenses to us. Further, if our members and subscribers feel these additional
registration and recordkeeping processes and procedures are too burdensome, this may result
in an adverse impact on our subscriber growth and churn which, in turn, will have an adverse
effect on our financial condition and results of operations.
  The risks of transmitting confidential information online, including credit card information,
may discourage customers from subscribing to our services or purchasing goods from us.
  If we are unable to provide satisfactory customer service, we could lose subscribers.
  We may be the target of negative publicity campaigns or other actions by advocacy groups that
could disrupt our operations because we serve the LGBT community.
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If one or more states or countries successfully assert that we should collect sales or other
taxes on the use of the Internet or the online sales of goods and services, our expenses will
increase, resulting in lower margins.
    We may need additional capital and may not be able to raise additional funds on favorable terms or
at all, which could increase our costs, limit our ability to grow and dilute the ownership
interests of existing stockholders.
  Our executive offices and our data center are located in the San Francisco Bay area. In the event
of an earthquake, other natural or man-made disaster, or power loss, our operations could be
interrupted, resulting in lower revenue.
  Recent and proposed regulations related to equity compensation could adversely affect our ability
to attract and retain key personnel.
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In the event we are unable to satisfy regulatory requirements relating to internal control over
financial reporting, or if these internal controls are not effective, our business and our stock
price could suffer.
  Our stock price may be volatile and you may lose all or a part of your investment.
   Provisions in our charter documents and under Delaware law could discourage a takeover that
stockholders may consider favorable.
  
    
    authorize our board of directors, without stockholder approval, to issue up to 5,000,000
shares of undesignated preferred stock;
    
    provide for a classified board of directors;
    
    prohibit our stockholders from acting by written consent;
    
    establish advance notice requirements for proposing matters to be approved by stockholders at stockholder meetings; and
    
    prohibit stockholders from calling a special meeting of stockholders.
  
 Item 3. Qualitative and Quantitative Disclosures About Market Risk
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Item 4. Controls and Procedures
    
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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Issuer Purchases of Equity Securities.
 (c) Total Number of
    
    (d) Maximum Number(a) Total
    
    
    
    
    
    Shares Purchased as
    
    or Approximate DollarNumber of
    
    (b) Average
    
    Part of Publicly
    
    Value) of Shares that MayShares
    
    Price Paid per
    
    Announced Plans or
    
    Yet Be Purchased Under thePeriod
    
    Purchased (1)
    
    Share
    
    Programs
    
    Plans or ProgramsApril 1,
2005  April 30, 2005
    
    
    311
    
    
    $
    0.43
    
    
    
    
    
    
    
    May 1,
2005  May 31, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    June 1,
2005  June 30, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Total
    
    
    311
    
    
    $
    0.43
    
    
    
    
    
    
    
    
 
 (1)
    
    All of the repurchases were pursuant to contractual rights of PlanetOut to repurchase shares of
its capital stock from employees in connection with the termination of employment. PlanetOut does
not have any publicly announced plans or programs to repurchase shares of its common stock. 
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
   Number of VotesNominee
    
    For
    
    WithheldRobert W. King
    
    
    12,691,018
    
    
    
    9,093Allen Morgan
    
    
    11,598,304
    
    
    
    1,101,807
   Number of VotesFor
    
    Against
    
    AbstainRatification of appointment of auditors
    
    
    11,546,085
    
    
    
    158,481
    
    
    
    995,545
 
 Item 5. Other Information.
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Item 6. Exhibits
 (a) Exhibits
 ExhibitNumber
    
    Description of Documents3.1
    
    Amended and Restated Certificate of Incorporation, as currently in effect (filed
as Exhibit 3.3 to our Registration Statement on Form S-1, File No. 333-114988,
initially filed on April 29, 2004, declared effective on October 13, 2004, and
incorporated herein by reference).3.2
    
    Amended and Restated Bylaws, as currently in effect (filed as Exhibit 3.4 to our
Registration Statement on Form S-1, File No. 333-114988, initially filed on April
29, 2004, declared effective on October 13, 2004, and incorporated herein by
reference).4.1
    
    Specimen of Common Stock Certificate (filed as Exhibit 4.1 to our Registration
Statement on Form S-1, File No. 333-114988, initially filed on April 29, 2004,
declared effective on October 13, 2004, and incorporated herein by reference).10.25
    
    Employment Agreement dated as of June 30, 2005 by and between Peter Kretzman and
PlanetOut Inc. (filed as Exhibit 99.1 to our Current Report on Form 8-K, File No.
000-50879, filed on July 7, 2005, and incorporated herein by reference).31.1
    
    Certificate of Chief Executive Officer pursuant to the Securities Exchange Act
Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of Chief Financial Officer pursuant to the Securities Exchange Act
Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of Chief Executive Officer pursuant to Section 18 U.S.C section 1350.32.2
    
    Certificate of Chief Financial Officer pursuant to Section 18 U.S.C. section 1350.
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SIGNATURES
  PLANETOUT INC.Date: August 11, 2005By:
    
    /s/ Jeffrey T. SoukupJeffrey T. SoukupChief Financial Officer(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
 ExhibitNumber
    
    Description of Documents3.1
    
    Amended and Restated Certificate of Incorporation, as currently in effect (filed
as Exhibit 3.3 to our Registration Statement on Form S-1, File No. 333-114988,
initially filed on April 29, 2004, declared effective on October 13, 2004, and
incorporated herein by reference).3.2
    
    Amended and Restated Bylaws, as currently in effect (filed as Exhibit 3.4 to our
Registration Statement on Form S-1, File No. 333-114988, initially filed on April
29, 2004, declared effective on October 13, 2004, and incorporated herein by
reference).4.1
    
    Specimen of Common Stock Certificate (filed as Exhibit 4.1 to our Registration
Statement on Form S-1, File No. 333-114988, initially filed on April 29, 2004,
declared effective on October 13, 2004, and incorporated herein by reference).10.25
    
    Employment Agreement dated as of June 30, 2005 by and between Peter Kretzman and
PlanetOut Inc. (filed as Exhibit 99.1 to our Current Report on Form 8-K, File No.
000-50879, filed on July 7, 2005, and incorporated herein by reference).31.1
    
    Certificate of Chief Executive Officer pursuant to the Securities Exchange Act
Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2

    
    Certificate of Chief Financial Officer pursuant to the Securities Exchange Act
Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of Chief Executive Officer pursuant to Section 18 U.S.C section 1350.32.2
    
    Certificate of Chief Financial Officer pursuant to Section 18 U.S.C. section 1350.
 Page 33