##### 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, 2006
 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 o
 o þ




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##### 



PlanetOut Inc.
INDEX
Form 10-Q
For the Quarter ended June 30, 2006
 PAGEPART I  FINANCIAL INFORMATION
    
    
    1Item 1 Unaudited Condensed Consolidated Financial Statements
    
    
    1Unaudited Condensed Consolidated Balance Sheets as of December 31, 2005 and June 30, 2006
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended June
30, 2005 and 2006 and the Six Months Ended June 30, 2005 and 2006
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005
and 2006
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4 Controls and Procedures
    
    
    25PART II  OTHER INFORMATION
    
    
    25Item 1 Legal Proceedings
    
    
    25Item 1A Risk Factors
    
    
    25Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3 Defaults Upon Senior Securities
    
    
    34Item 4 Submission of Matters to a Vote of Security Holders
    
    
    34Item 5 Other Information
    
    
    35Item 6 Exhibits
    
    
    35SIGNATURES
    
    
    36EXHIBIT INDEX
    
    
    37EXHIBIT 12.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



PART I
 FINANCIAL INFORMATION
 PlanetOut Inc.
 
 Item 1. Unaudited Condensed Consolidated Financial Statements
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except per share amounts)
 December 31,
    
    
    June 30,2005
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,461
    
    
    $
    4,877Restricted cash
    
    
    
    
    
    
    4,793Accounts receivable, net
    
    
    6,030
    
    
    
    7,839Inventory
    
    
    1,349
    
    
    
    1,390Prepaid expenses and other current assets
    
    
    2,571
    
    
    
    10,056Total current assets
    
    
    28,411
    
    
    
    28,955Property and equipment, net
    
    
    8,167
    
    
    
    8,449Goodwill
    
    
    28,699
    
    
    
    32,572Intangible assets, net
    
    
    10,909
    
    
    
    12,934Other assets
    
    
    1,152
    
    
    
    1,602Total assets
    
    $
    77,338
    
    
    $
    84,512LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,334
    
    
    $
    1,626Accrued liabilities
    
    
    2,750
    
    
    
    3,316Accrued restructuring
    
    
    
    
    
    
    793Deferred revenue, current portion
    
    
    8,749
    
    
    
    13,303Capital lease obligations, current portion
    
    
    309
    
    
    
    293Notes payable, current portion
    
    
    222
    
    
    
    2,446Deferred rent, current portion
    
    
    286
    
    
    
    345Total current liabilities
    
    
    13,650
    
    
    
    22,122Deferred revenue, less current portion
    
    
    1,771
    
    
    
    2,268Capital lease obligations, less current portion
    
    
    212
    
    
    
    434Notes payable, less current portion
    
    
    7,075
    
    
    
    4,716Deferred rent, less current portion
    
    
    1,578
    
    
    
    1,477Total liabilities
    
    
    24,286
    
    
    
    31,017Minority interest in consolidated subsidiaries
    
    
    
    
    
    
    47Stockholders equity:Common stock: $0.001 par value, 100,000 shares authorized, 17,248 and 17,340 shares
issued and outstanding at December 31, 2005 and June 30, 2006, respectively
    
    
    17
    
    
    
    17Additional paid-in capital
    
    
    88,333
    
    
    
    88,625Note receivable from stockholder
    
    
    (603
    )
    
    
    Accumulated other comprehensive loss
    
    
    (123
    )
    
    
    (136
    )Accumulated deficit
    
    
    (34,572
    )
    
    
    (35,058
    )Total stockholders equity
    
    
    53,052
    
    
    
    53,448Total liabilities and stockholders equity
    
    $
    77,338
    
    
    $
    84,512
  1




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##### Table of Contents



PlanetOut Inc.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share amounts)
 Three months ended June 30,
    
    
    Six months ended June 30,2005
    
    
    2006
    
    
    2005
    
    
    2006Revenue:Advertising services
    
    $
    2,566
    
    
    $
    7,318
    
    
    $
    3,958
    
    
    $
    12,665Subscription services
    
    
    5,172
    
    
    
    6,321
    
    
    
    10,025
    
    
    
    12,591Transaction services
    
    
    332
    
    
    
    2,656
    
    
    
    752
    
    
    
    8,612Total revenue
    
    
    8,070
    
    
    
    16,295
    
    
    
    14,735
    
    
    
    33,868Operating costs and expenses: (*)Cost of revenue
    
    
    2,320
    
    
    
    6,872
    
    
    
    4,445
    
    
    
    16,302Sales and marketing
    
    
    2,532
    
    
    
    4,427
    
    
    
    4,988
    
    
    
    8,371General and administrative
    
    
    1,615
    
    
    
    3,078
    
    
    
    2,863
    
    
    
    6,158Restructuring
    
    
    
    
    
    
    834
    
    
    
    
    
    
    
    834Depreciation and amortization
    
    
    848
    
    
    
    1,300
    
    
    
    1,668
    
    
    
    2,524Total operating costs and expenses
    
    
    7,315
    
    
    
    16,511
    
    
    
    13,964
    
    
    
    34,189Income (loss) from operations
    
    
    755
    
    
    
    (216
    )
    
    
    771
    
    
    
    (321
    )Equity in net loss of unconsolidated affiliate
    
    
    (16
    )
    
    
    
    
    
    
    (25
    )
    
    
    Interest expense
    
    
    (30
    )
    
    
    (201
    )
    
    
    (68
    )
    
    
    (398
    )Other income, net
    
    
    313
    
    
    
    110
    
    
    
    552
    
    
    
    280Income (loss) before income taxes and minority interest
    
    
    1,022
    
    
    
    (307
    )
    
    
    1,230
    
    
    
    (439
    )Provision for income taxes
    
    
    (12
    )
    
    
    
    
    
    
    (41
    )
    
    
    Minority interest in gain of consolidated affiliate
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    (47
    )Net income (loss)
    
    $
    1,010
    
    
    $
    (354
    )
    
    $
    1,189
    
    
    $
    (486
    )Net income (loss) per share:Basic
    
    $
    0.06
    
    
    $
    (0.02
    )
    
    $
    0.07
    
    
    $
    (0.03
    )Diluted
    
    $
    0.06
    
    
    $
    (0.02
    )
    
    $
    0.07
    
    
    $
    (0.03
    )Weighted-average shares used to compute net income (loss) per share:Basic
    
    
    17,092
    
    
    
    17,315
    
    
    
    17,015
    
    
    
    17,288Diluted
    
    
    18,249
    
    
    
    17,315
    
    
    
    18,192
    
    
    
    17,288(*)
Includes stock-based compensation (benefit) as follows
(see Note 2):Cost of revenue
    
    $
    15
    
    
    $
    1
    
    
    $
    27
    
    
    $
    6Sales and marketing
    
    
    18
    
    
    
    1
    
    
    
    25
    
    
    
    2General and administrative
    
    
    109
    
    
    
    (101
    )
    
    
    66
    
    
    
    (22
    )Total stock-based compensation (benefit)
    
    $
    142
    
    
    $
    (99
    )
    
    $
    118
    
    
    $
    (14
    )
  2




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##### Table of Contents



PlanetOut Inc.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Six months ended June 30,2005
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    1,189
    
    
    $
    (486
    )Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    1,668
    
    
    
    2,524Provision for doubtful accounts
    
    
    26
    
    
    
    226Restructuring
    
    
    
    
    
    
    41Stock-based compensation expense (benefit)
    
    
    118
    
    
    
    (14
    )Amortization of deferred rent
    
    
    224
    
    
    
    (40
    )Loss on disposal or write-off of property and equipment
    
    
    (1
    )
    
    
    21Equity in net loss of unconsolidated affiliate
    
    
    25
    
    
    
    Minority interest
    
    
    
    
    
    
    47Changes in operating assets and liabilities, net of acquisition effects and restructuring:Accounts receivable
    
    
    (368
    )
    
    
    (1,774
    )Inventory
    
    
    
    
    
    
    (41
    )Prepaid expenses and other assets
    
    
    289
    
    
    
    (3,216
    )Accounts payable
    
    
    (1,384
    )
    
    
    216Accrued and other liabilities
    
    
    690
    
    
    
    528Accrued restructuring
    
    
    
    
    
    
    793Deferred revenue
    
    
    635
    
    
    
    (1,311
    )Net cash provided by (used in) operating activities
    
    
    3,111
    
    
    
    (2,486
    )Cash flows from investing activities:Acquisitions, net of cash acquired
    
    
    
    
    
    
    (5,403
    )Purchases of property and equipment
    
    
    (2,659
    )
    
    
    (1,554
    )Changes in restricted cash
    
    
    
    
    
    
    (4,793
    )Net cash used in investing activities
    
    
    (2,659
    )
    
    
    (11,750
    )Cash flows from financing activities:Proceeds from exercise of common stock options and warrants
    
    
    431
    
    
    
    306Proceeds from repayment of note receivable from stockholder
    
    
    
    
    
    
    843Principal payments under capital lease obligations and notes payable
    
    
    (774
    )
    
    
    (484
    )Net cash provided by (used in) financing activities
    
    
    (343
    )
    
    
    665Effect of exchange rate on cash and cash equivalents
    
    
    (8
    )
    
    
    (13
    )Net increase (decrease) in cash and cash equivalents
    
    
    101
    
    
    
    (13,584
    )Cash and cash equivalents, beginning of period
    
    
    43,128
    
    
    
    18,461Cash and cash equivalents, end of period
    
    $
    43,229
    
    
    $
    4,877Supplemental disclosure of noncash flow investing and financing activities:Property and equipment and related maintenance acquired under capital leases
    
    $
    34
    
    
    $
    651Unearned stock-based compensation
    
    $
    399
    
    
    $
    
  3




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##### Table of Contents



PlanetOut Inc.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  The Company
 The Advocate, Out, The
Out Traveler HIVPlus
  Note 2  Basis of Presentation and Summary of Significant Accounting Policies
 Unaudited Interim Financial Information
  Principles of Consolidation
  Reclassifications
  Use of Estimates
  4




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##### Table of Contents



Restricted Cash
  Inventory
  Property and Equipment
   Internal Use Software and Website Development Costs
 Accounting for Costs of Computer Software Developed or Obtained for Internal Use Accounting for Web Site Development Costs
 Goodwill
 Goodwill and Other Intangible Assets.
 5




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##### Table of Contents



Revenue Recognition
 Revenue Arrangements with Multiple Deliverables
  Reporting Revenue Gross as a Principal Versus
Net as an Agent,
 Advertising
  6




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##### Table of Contents



Equity Incentive Plans
  Stock-Based Compensation
 Share-Based Payment Accounting for Stock Issued to Employees
  Accounting for Stock-based
Compensation  Transition and Disclosure (as amended)
   7




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##### Table of Contents



Three months ended
    
    
    Six months endedJune 30, 2005
    
    
    June 30, 2005Net income, as reported:
    
    $
    1,010
    
    
    $
    1,189Add: Employee stock-based compensation expense included in
reported net income, net of tax
    
    
    141
    
    
    
    118Less: Total employee stock-based compensation expense
determined under fair value, net of tax
    
    
    (316
    )
    
    
    (401
    )Pro forma net income
    
    $
    835
    
    
    $
    906Net income per shareAs reported  basic
    
    $
    0.06
    
    
    $
    0.07As reported  diluted
    
    $
    0.06
    
    
    $
    0.07Pro forma  basic
    
    $
    0.05
    
    
    $
    0.05Pro forma  diluted
    
    $
    0.05
    
    
    $
    0.05
   Six months ended June 30,2005
    
    2006Expected lives (in years)
    
    5
    
    7Risk free interest rates
    
    3.59 - 4.13%
    
    4.32 - 4.57%Dividend yield
    
    0%
    
    0%Volatility
    
    85%
    
    75%
   8




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##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual Term
    
    
    IntrinsicShares
    
    
    Price
    
    
    (in years)
    
    
    ValueOutstanding at January 1, 2006
    
    
    2,112
    
    
    $
    5.03Granted
    
    
    48
    
    
    
    9.08Exercised
    
    
    (79
    )
    
    
    3.85Cancelled
    
    
    (73
    )
    
    
    7.08Outstanding at June 30, 2006
    
    
    2,008
    
    
    
    5.10
    
    
    
    3.95
    
    
    $
    3,824Vested and expected to vest at June 30, 2006
    
    
    1,997
    
    
    
    5.07
    
    
    
    3.92
    
    
    $
    3,749Options exercisable at June 30, 2006
    
    
    1,939
    
    
    
    5.00
    
    
    
    3.77
    
    
    $
    3,874
  Restricted Stock Grants
 th
   Weighted AverageGrant-DateShares
    
    Fair ValueUnvested at January 1, 2006
    
    
    
    
    
    $
    Granted
    
    
    13
    
    
    
    6.98Unvested at June 30, 2006
    
    
    13
    
    
    
    6.98
 9




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##### Table of Contents



Net Income (Loss) Per Share
   Three months ended June 30,
    
    
    Six months ended June 30,2005
    
    
    2006
    
    
    2005
    
    
    2006Numerator:Net income (loss)
    
    $
    1,010
    
    
    $
    (342
    )
    
    $
    1,189
    
    
    $
    (474
    )Denominator:Weighted-average shares
    
    
    17,092
    
    
    
    17,315
    
    
    
    17,015
    
    
    
    17,288Effect of dilutive securities:Dilutive common stock equivalents
    
    
    1,157
    
    
    
    
    
    
    
    1,177
    
    
    
    Dilutive potential common shares
    
    
    1,157
    
    
    
    
    
    
    
    1,177
    
    
    
    18,249
    
    
    
    17,315
    
    
    
    18,192
    
    
    
    17,288Net income (loss) per share:Basic
    
    $
    0.06
    
    
    $
    (0.02
    )
    
    $
    0.07
    
    
    $
    (0.03
    )Diluted
    
    $
    0.06
    
    
    $
    (0.02
    )
    
    $
    0.07
    
    
    $
    (0.03
    )
  Six months ended June 30,2005
    
    2006Common stock options and warrants
    
    
    741
    
    
    
    2,008Common stock subject to repurchase
    
    
    2
    
    
    
    743
    
    
    
    2,008
 Segment Reporting
 Disclosures About
Segments of an Enterprise and Related Information,
 Event Marketing
 Revenue Recognition
 10




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##### Table of Contents



Reporting Revenue Gross
as a Principal versus Net as an Agent, Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred
  Variable Interest Entities
 Consolidation of Variable Interest Entities, primary
beneficiary
  Recent Accounting Pronouncements
 Accounting Changes and Error
Corrections, Accounting Changes, Reporting Accounting Changes in Interim Financial Statements,
 Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement 109 Accounting for Income Taxes.
 Note 3  Business Combinations, Goodwill and Intangible Assets
 RSVP Productions Inc. Acquisition
  11




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##### Table of Contents



Cash
    
    $
    1,289Other current assets
    
    
    4,987Fixed assets, net
    
    
    116Definite lived intangible assets:Customer relationships
    
    
    1,810Indefinite lived intangible assets:Tradenames
    
    
    940Goodwill
    
    
    3,982Accounts payable and other current liabilities
    
    
    (60
    )Deferred revenue
    
    
    (6,395
    )Total preliminary purchase price
    
    $
    6,669
  Three months ended June 30,
    
    
    Six months ended June 30,2005
    
    
    2006
    
    
    2005
    
    
    2006(Unaudited)
    
    
    (Unaudited)Revenue
    
    $
    8,549
    
    
    $
    16,295
    
    
    $
    18,917
    
    
    $
    35,583Net income (loss)
    
    $
    368
    
    
    $
    (354
    )
    
    $
    690
    
    
    $
    (986
    )Basic income (loss) per share
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    0.04
    
    
    $
    (0.06
    )
 Goodwill
  December 31,
    
    
    Goodwill
    
    
    
    
    
    
    June 30,Acquisition
    
    2005
    
    
    Acquired
    
    
    Adjustments
    
    
    2006Acquisitions prior to December 31, 2004
    
    $
    3,403
    
    
    $
    
    
    
    $
    
    
    
    $
    3,403LPI
    
    
    25,296
    
    
    
    
    
    
    
    (109
    )
    
    
    25,187RSVP
    
    
    
    
    
    
    3,982
    
    
    
    
    
    
    
    3,982$
    28,699
    
    
    $
    3,982
    
    
    $
    (109
    )
    
    $
    32,572
   Intangible Assets
  12




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##### Table of Contents



December 31, 2005
    
    
    June 30, 2006Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(In thousands)
    
    
    (In thousands)Intangible assets:Customer lists and user bases
    
    $
    8,678
    
    
    $
    3,469
    
    
    $
    5,209
    
    
    $
    10,488
    
    
    $
    4,194
    
    
    $
    6,294Tradenames
    
    
    8,040
    
    
    
    2,340
    
    
    
    5,700
    
    
    
    8,980
    
    
    
    2,340
    
    
    
    6,640Other intangible assets
    
    
    726
    
    
    
    726
    
    
    
    
    
    
    
    726
    
    
    
    726
    
    
    
    $
    17,444
    
    
    $
    6,535
    
    
    $
    10,909
    
    
    $
    20,194
    
    
    $
    7,260
    
    
    $
    12,934
   Fiscal Years:2006 (remaining six months)
    
    $
    8022007
    
    
    1,4232008
    
    
    1,3962009
    
    
    1,2572010
    
    
    1,093Thereafter
    
    
    323$
    6,294
 Note 4  Other Balance Sheet Components
 December 31,
    
    
    June 30,2005
    
    
    2006(In thousands)Accounts receivable:Trade accounts receivable
    
    $
    7,033
    
    
    $
    9,464Less: Allowance for doubtful accounts
    
    
    (259
    )
    
    
    (441
    )Less: Provision for returns
    
    
    (744
    )
    
    
    (1,184
    )$
    6,030
    
    
    $
    7,839
   13




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##### Table of Contents



December 31,
    
    
    June 30,2005
    
    
    2006(In thousands)Inventory:Materials for future publications
    
    $
    415
    
    
    $
    347Finished goods available for sale
    
    
    1,019
    
    
    
    1,1391,434
    
    
    
    1,486Less: reserve for obsolete inventory
    
    
    (85
    )
    
    
    (96
    )$
    1,349
    
    
    $
    1,390
  December 31,
    
    
    June 30,2005
    
    
    2006(In thousands)Prepaid expenses and other current assets:Prepaid expenses and other current assets
    
    $
    2,328
    
    
    $
    4,349Deposits on leased voyages
    
    
    
    
    
    
    5,707Receivable from landlord for tenant improvement allowance, current portion (Note 2)
    
    
    243
    
    
    
    $
    2,571
    
    
    $
    10,056
 December 31,
    
    
    June 30,2005
    
    
    2006(In thousands)Property and equipment:Computer and network equipment
    
    $
    7,879
    
    
    $
    8,878Furniture and fixtures
    
    
    1,396
    
    
    
    1,568Computer software
    
    
    2,523
    
    
    
    2,625Leasehold improvements
    
    
    1,555
    
    
    
    1,537Capitalized software and website development costs
    
    
    4,783
    
    
    
    5,52118,136
    
    
    
    20,129Less: Accumulated depreciation and amortization
    
    
    (9,969
    )
    
    
    (11,680
    )$
    8,167
    
    
    $
    8,449
  December 31,
    
    
    June 30,2005
    
    
    2006(In thousands)Other assets:Other assets
    
    $
    921
    
    
    $
    926Deposits on leased voyages
    
    
    
    
    
    
    676Interest on note receivable from stockholder (Note 5)
    
    
    231
    
    
    
    $
    1,152
    
    
    $
    1,602
 14




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##### Table of Contents



December 31,
    
    
    June 30,2005
    
    
    2006(In thousands)Accrued liabilities:Accrued payroll and related liabilities
    
    $
    989
    
    
    $
    1,302Other accrued liabilities
    
    
    1,761
    
    
    
    2,014$
    2,750
    
    
    $
    3,316
 Note 5  Related Party Transaction
  Note 6  Notes Payable
     Note 7 Commitments and Contingencies
 Deposit Commitments
  Contingencies
  15




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##### Table of Contents




 Note 8  Restructuring
   AccruedInitial
    
    
    
    
    
    
    
    
    
    
    RestructuringRestructuring
    
    
    Cash
    
    
    
    
    
    
    As ofCharges
    
    
    Payments
    
    
    Write-offs
    
    
    June 30, 2006(In thousands)Termination benefits
    
    $
    631
    
    
    $
    
    
    
    $
    
    
    
    $
    631Cost of closing redundant facilities
    
    
    203
    
    
    
    
    
    
    
    (41
    )
    
    
    162Total
    
    $
    834
    
    
    $
    
    
    
    $
    (41
    )
    
    $
    793
 Note 9  Subsequent Events
    16




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##### Table of Contents



Item 2. Managements Discussion and Analysis of 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 for the year ended December 31, 2005.
 Overview
 The Advocate Out
 Out The Advocate Out The Advocate,
     Results of Operations
  17




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##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2005
    
    
    2006
    
    
    2005
    
    
    2006(As a percentage of total revenue; unaudited)Consolidated statements of operations data:Revenue:Advertising services
    
    
    31.8
    %
    
    
    44.9
    %
    
    
    26.9
    %
    
    
    37.4
    %Subscription services
    
    
    64.1
    
    
    
    38.8
    
    
    
    68.0
    
    
    
    37.2Transaction services
    
    
    4.1
    
    
    
    16.3
    
    
    
    5.1
    
    
    
    25.4Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating costs and expenses:Cost of revenue
    
    
    28.7
    
    
    
    42.2
    
    
    
    30.2
    
    
    
    48.1Sales and marketing
    
    
    31.4
    
    
    
    27.2
    
    
    
    33.9
    
    
    
    24.7General and administrative
    
    
    20.0
    
    
    
    18.8
    
    
    
    19.4
    
    
    
    18.2Restructuring
    
    
    
    
    
    
    5.1
    
    
    
    
    
    
    
    2.5Depreciation and amortization
    
    
    10.5
    
    
    
    8.0
    
    
    
    11.3
    
    
    
    7.4Total operating costs and expenses
    
    
    90.6
    
    
    
    101.3
    
    
    
    94.8
    
    
    
    100.9Income (loss) from operations
    
    
    9.4
    
    
    
    (1.3
    )
    
    
    5.2
    
    
    
    (0.9
    )Equity in net loss of unconsolidated affiliate
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )
    
    
    Interest expense
    
    
    (0.4
    )
    
    
    (1.2
    )
    
    
    (0.5
    )
    
    
    (1.2
    )Other income, net
    
    
    3.9
    
    
    
    0.6
    
    
    
    3.9
    
    
    
    0.8Income (loss) before income taxes and minority interest
    
    
    12.7
    
    
    
    (1.9
    )
    
    
    8.4
    
    
    
    (1.3
    )Provision for income taxes
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.3
    )
    
    
    Minority interest in gain of consolidated affiliate
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.1
    )Net income (loss)
    
    
    12.5
    %
    
    
    (2.2
    )%
    
    
    8.1
    %
    
    
    (1.4
    )%
 Summary
   gratis
 18




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##### Table of Contents



Revenue
 Advertising Services.
  Subscription Services. gratis
 gratis
 Transaction Services. The Dinah,
  19




---



##### Table of Contents



Operating Costs and Expenses
 Cost of Revenue.
  Sales and Marketing.
  General and Administrative.
  Restructuring.
 20




---



##### Table of Contents



Depreciation and Amortization.
  Other Income and Expenses
 Equity in Net Loss of Unconsolidated Affiliate.
 Interest Expense.
 Other Income, Net.
 Liquidity and Capital Resources
    21




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##### Table of Contents



Off-balance Sheet Liabilities
  Other Contractual Commitments
  Payments Due by PeriodRemainder ofTotal
    
    
    2006
    
    
    2007-2008
    
    
    2009-2010
    
    
    2011 & After(In thousands)Contractual obligations:Capital lease obligations
    
    $
    852
    
    
    $
    203
    
    
    $
    527
    
    
    $
    120
    
    
    $
    2Operating leases
    
    
    15,193
    
    
    
    1,354
    
    
    
    5,285
    
    
    
    5,277
    
    
    
    3,277Deposit commitments
    
    
    14,009
    
    
    
    4,633
    
    
    
    9,376
    
    
    
    
    
    
    
    Notes payable
    
    
    7,931
    
    
    
    399
    
    
    
    7,532
    
    
    
    
    
    
    
    Other
    
    
    534
    
    
    
    261
    
    
    
    204
    
    
    
    69
    
    
    
    Total contractual obligations
    
    $
    38,519
    
    
    $
    6,850
    
    
    $
    22,924
    
    
    $
    5,466
    
    
    $
    3,279
 Capital Lease Obligations.
 22




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##### Table of Contents



Operating Leases.
 Deposit Commitments.
 Notes payable.
   Other.
 Critical Accounting Policies
    Stock-based compensation. Share-Based Payment Accounting for Stock Issued to
Employees
   23




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##### Table of Contents



Seasonality and Inflation
   Recent Accounting Pronouncements
 Accounting Changes and Error
Corrections, Accounting Changes, Reporting Accounting Changes in Interim Financial Statements,
 Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement 109 Accounting for Income
Taxes.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
    24




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 
 
 Item 1A. 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.
   25




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Our limited operating history makes it difficult to evaluate our business.
  We expect our operating results to fluctuate, which may lead to volatility in our stock price.
  If we fail to manage our growth, our business will suffer.
  If we are unable to successfully expand our international operations, our business will suffer.
   26




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##### Table of Contents



Recent and potential future acquisitions could result in operating difficulties and unanticipated
liabilities.
  
    
    the difficulty of integrating the acquired assets and personnel of the acquired businesses into our operations;
    
    the potential absorption of significant management attention and significant financial resources for the ongoing
development of our business;
    
    the potential impairment of relationships with and difficulty in attracting and retaining employees of the
acquired companies or our employees as a result of the integration of acquired businesses;
    
    the difficulty of integrating the acquired companys accounting, human resources and other administrative systems;
    
    the potential impairment of relationships with subscribers, customers and partners of the acquired companies or
our subscribers, customers and partners as a result of the integration of acquired businesses;
    
    the difficulty in attracting and retaining qualified management to lead the combined businesses;
    
    the potential difficulties associated with entering new lines of business with which we have little experience,
such as some of the businesses we have acquired from LPI and RSVP;
    
    the difficulty of complying with additional regulatory requirements that may become applicable to us as the
result of an acquisition, such as various regulations that may become applicable to us as a result of our
acquisition of LPI, including the acquisition of a related entity that produces some content and other materials
intended for mature audiences; and
    
    the impact of known or unknown liabilities associated with
the acquired businesses. For example, in our RSVP business, should
some of the third parties with whom we contract in connection with
arranging our travel itineraries fail to perform their obligations
for any reason, we may be forced to cancel or reschedule planned
trips, lose deposits we have made to vendors, refund customer
deposits, reimburse other costs to our customers and lose customers
for those and other travel itineraries as a result.
  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.
  27




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##### Table of Contents



If advertisers do not find the LGBT market to be economically profitable, our business will be
harmed.
  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.
   28




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##### Table of Contents



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.
  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;
 29




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##### Table of Contents




    
    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 wish to 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 email message to an address on that
states registry if the email 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;
    
    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 and through some
of the businesses we acquired from LPI 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, in June 2005, the United States
Department of Justice (the DOJ) adopted regulations
purporting to implement the Child Protection and Obscenity
Act of 1988, as amended (the CPO 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 forms of photo
identification as proof of a performers age. Failure to
properly obtain, maintain or make these 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 CPO Act because we
allow our members to display photographic images on our
websites as part of member profiles. In addition, we may be
deemed a primary producer under the CPO Act because a
portion of one of the businesses we acquired in the LPI
acquisition is involved in production of adult
content. Enforcement of these regulations as to secondary
producers has been stayed pending resolution of a legal
challenge on the grounds that the regulations exceed the
DOJs statutory authority to regulate secondary producers,
among other grounds. In July 2006, the Adam Walsh Child
Protection and Safety Act of 2006 (the Walsh Act) became
law, amending the CPO Act by expanding the definition of
the adult materials covered by the CPO Act and by requiring secondary producers to maintain and make
available specified records under the CPO Act. The Walsh
Act may result in the stay on enforcement of the CPO Act
being lifted. If that occurs, and there are no legal
challenges to the Walsh Act or these challenges are
unsuccessful, we will be subject to significant and
burdensome recordkeeping compliance requirements and we
will have to evaluate and implement additional registration
and recordkeeping processes and procedures, each of which
would result in additional expenses to us. If our members
and subscribers feel these additional restrictions or
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. Alternatively, if we determine that the
recordkeeping and compliance requirements would be too
burdensome, we may be forced to limit the type of content
that we allow our members to post to their profiles, which
will result in a loss of features that we believe our
members and subscribers find attractive, and in turn could
result in a decline in our subscribers growth.
  30




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##### Table of Contents



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.
  Adult content in our media properties may be the target of negative publicity campaigns or subject
us to restrictive or costly regulatory compliance.
  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.
   31




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##### Table of Contents



We are exposed to pricing and production capacity risks associated with our magazine publishing
business, which could result in lower revenues and profit margins.
 The Advocate, Out, The Out Traveler HIVPlus,
 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.
  In the event of an earthquake, other natural or man-made disaster, or power loss, our operations
could be interrupted or adversely affected, resulting in lower revenue.
  Recent and proposed regulations related to equity compensation could adversely affect our ability
to attract and retain key personnel.
  32




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##### Table of Contents



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 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  33




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##### Table of Contents



Repurchases of Equity Securities.
 (c) Total Number
    
    
    (d) Maximum Number(a) Total
    
    
    
    
    
    
    of
    
    
    or ApproximateNumber of
    
    
    (b) Average
    
    
    Shares Purchased
    
    
    Dollar Value) ofShares
    
    
    Price Paid
    
    
    as Part of Publicly
    
    
    Shares that MayPurchased
    
    
    per
    
    
    Announced
    
    
    Yet Be Purchased UnderPeriod
    
    (1)
    
    
    Share
    
    
    Plans or Programs
    
    
    the Plans or ProgramsApril 1, 2006  April 30, 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    May 1, 2006  May 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1, 2006  June 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
 
 (1)
    
    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
    
    WithheldH. William Jesse, Jr.
    
    
    13,390,253
    
    
    
    27,875Karen Magee
    
    
    13,400,627
    
    
    
    17,501
   Number of VotesBrokerFor
    
    Against
    
    Abstain
    
    Non-VotesRatification of appointment of auditors
    
    
    13,373,691
    
    
    
    14,323
    
    
    
    30,114
    
    
    
    11,654,825
 34




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##### Table of Contents



Item 5. Other Information.
  
 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).4.2
    
    Form of Senior Debt Indenture (filed as Exhibit 4.5 to our Registration Statement
on Form S-3, File No. 333-133536, filed on April 25, 2006 and incorporated
herein by reference).4.3
    
    Form of Subordinated Debt Indenture (filed as Exhibit 4.6 to our Registration
Statement on Form S-3, File No. 333-133536, filed on April 25, 2006 and
incorporated herein by reference).10.26
    
    Employment Agreement dated as of June 20, 2006 by and between Karen Magee and
PlanetOut Inc. (filed as Exhibit 99.1 to our Current Report on Form 8-K, File No.
000-50879, filed on June 23, 2006 and incorporated herein by reference).12.1
    
    Computation of Ratio of Earnings to Fixed Charges.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.
 35




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##### Table of Contents



SIGNATURES
  PLANETOUT INC.Date: August 9, 2006By:
    
    /s/ DANIEL J. MILLERDaniel J. MillerSenior Vice President, Chief Financial
Officer and Treasurer(Principal Financial and Accounting
Officer)
 36




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##### Table of Contents



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).4.2
    
    Form of Senior Debt Indenture (filed as Exhibit 4.5 to our Registration Statement
on Form S-3, File No. 333-133536, filed on April 25, 2006 and incorporated
herein by reference).4.3
    
    Form of Subordinated Debt Indenture (filed as Exhibit 4.6 to our Registration
Statement on Form S-3, File No. 333-133536, filed on April 25, 2006 and
incorporated herein by reference).10.26
    
    Employment Agreement, dated as of June 20, 2006 by and between Karen Magee and
PlanetOut Inc. (filed as Exhibit 99.1 to our Current Report on Form 8-K, File No.
000-50879, filed on June 23, 2006 and incorporated herein by reference).12.1
    
    Computation of Ratio of Earnings to Fixed Charges.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.
 37