##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |  |                                                                                              
|---------- |  | ---------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                              
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934     
|          
|           |  | For the fiscal year ended December 31, 2004.                                                 
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934.

Commission File Number: 000-50879


PLANETOUT INC.


(Exact name of registrant as specified in its charter)


|                                                                                  |  |                                         
|--------------------------------------------------------------------------------- |  | ----------------------------------------
|DELAWARE                                                                          |  | 94-3391368                              
|(State or other jurisdiction of
    Incorporation or organization)                |  | (I.R.S. Employer
    Identification No.)
|                                                                                 
|1355 Sansome Street,
    San Francisco CA(Address of principal executive offices) |  | 94111(Zip Code)                         

(415) 834-6500


(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock $0.001 par value


þ o


o


o þ




DOCUMENTS INCORPORATED BY REFERENCE












---










PlanetOut Inc.


Form 10-K


For The Fiscal Year Ended December 31, 2004


Table of Contents


|             |  |                                                                                                                      |  |      |    |  |  | 
|------------ |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- |  |  | 
|             |  |                                                                                                                      |  | Page |   
|             |  |                                                                                                                      |  |      |   
|Part I      
|Item 1.      |  | Business                                                                                                             |  |      | 2  | 
|Item 2.      |  | Properties                                                                                                           |  |      | 12 | 
|Item 3.      |  | Legal Proceedings                                                                                                    |  |      | 12 | 
|Item 4.      |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 13 | 
|Part II     
|Item 5.      |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 13 | 
|Item 6.      |  | Selected Financial Data                                                                                              |  |      | 15 | 
|Item 7.      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 16 | 
|Item 7A.     |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |  |      | 36 | 
|Item 8.      |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 38 | 
|Item 9.      |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosures                            |  |      | 67 | 
|Item 9A.     |  | Control and Procedures                                                                                               |  |      | 67 | 
|Item 9B      |  | Other Information                                                                                                    |  |      | 67 | 
|Part III    
|Item 10.     |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 67 | 
|Item 11.     |  | Executive Compensation                                                                                               |  |      | 67 | 
|Item 12.     |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 67 | 
|Item 13.     |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 68 | 
|Item 14.     |  | Principal Accounting Fees and Services                                                                               |  |      | 68 | 
|Part IV     
|Item 15.     |  | Exhibits and Financial Statements
    Schedules                                                                      |  |      | 68 | 
|Signatures   |  |                                                                                                                      |  |     
|EXHIBIT 21.1
|EXHIBIT 23.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1
|EXHIBIT 32.2



Special Note Regarding Forward-Looking Statements




1



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PART I







|        |         
|------- | --------
|Item 1. | Business

Company Overview


$








Industry Background




2



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| |                        
| | -----------------------
| | Online Content Spending







| |                   
| | ------------------
| | Online Advertising





| |                                     
| | ------------------------------------
| | LGBT Demographics and Media Coverage







3



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Competitive Strengths




Critical Mass of Active Members.


Compelling Features.


Diversified Revenue Streams.


Scalable Business Model.


Strong Community Affinity.


Growth Strategy




Growing Traffic and Membership.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increased Marketing. While our membership and subscriber
    bases have grown historically without significant product
    marketing investments, we plan to expand our multi-channel
    marketing programs to help drive traffic, member and subscriber
    growth. We plan to market directly to consumers through online
    banner advertisements, keyword buys and affiliate programs, as
    well as through traditional means, such as print advertising in
    gay and lesbian newspapers and magazines and outdoor advertising

4



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | in gay- and lesbian-identified neighborhoods. For example, in
    the fourth quarter of 2004, we launched a print and outdoor
    marketing campaign, titled Play for Keeps, aimed at
    branding the company and increasing membership and
    subscriptions. We also held the first annual Mr. Gay.com
    contest, which attracted contestants from our global
    subscription base. We expect these marketing efforts to
    highlight our large, critical mass of members, which we believe
    will appeal to potential members and subscribers looking for
    friendships, dating and long-term relationships. We also plan to
    increase our visibility through sponsorship of, and
    participation at, community events, such as the annual LGBT
    Pride celebration events.
|
| |  | Compelling New Features. We plan to add new features and
    services such as member-generated groups, access to
    member-generated audio and video content and the availability to
    reply to both Gay.com and PlanetOut.com profiles from a single
    account. In the fourth quarter, we launched Whos
    Online search functionality, as well as Buddy Lists, Hot
    Lists and Who Thinks Im Hot lists. By
    enhancing the functionality of our offerings, we believe that we
    can enhance the value of our services, attract new subscribers
    and increase our revenue.                                                                                                                                                                                                
|
| |  | International Expansion. With international sales
    accounting for approximately 4% of our total revenue in 2004, we
    believe that international expansion presents a significant
    growth opportunity. We plan to expand the number of languages in
    which we offer our services, the number of localized versions of
    our Gay.com website and the marketing of our services in Europe,
    Asia, Australia and South America. In addition, we plan to roll
    out multi-currency payment options that we believe will
    contribute to growth in our international subscriber base.                                                                                                                                                                                            

Retaining Subscribers.


Capitalizing on Growth of Internet Advertising and Increased
Acceptance of the LGBT Market.


Leveraging Leadership and Financial Resources into Other LGBT
Opportunities.


5



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Instinct Mens Fitness,


Premium Membership Services




Instinct Mens Fitness










6



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Advertising Services






| |                                     
| | ------------------------------------
| | Our Value Proposition to Advertisers





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Focused Online Advertising. We believe that we deliver
    access to the largest network of gay and lesbian people in the
    world. Our online advertising programs allow advertisers the
    potential to reach our entire user base with run-of-site
    advertisements, or to target only those users who share certain
    common attributes such as age, gender or geographic location. By
    dividing our content offerings into topic sections within
    channels, we provide our advertisers with the ability to target
    their marketing efforts further, by sponsoring topic sections or
    running individual advertisements in channels specifically
    relevant to their particular products and services or brand
    strategy.
|
| |  | Brand Awareness Through Sponsorship. Sponsorships are
    advertising relationships in which an advertiser has the right
    to be associated with, or place advertisements on, a particular
    topic area on our websites or in connection with an event. We
    offer sponsorship opportunities to our advertisers in many
    forms, including exclusive or non-exclusive rights to place
    branded content on specific channels on our websites,
    sponsorship of email newsletters, sweepstakes and other contests
    and high profile promotions that are typically focused on
    particular offline events, such as LGBT Pride celebrations.                                                                                          
|
| |  | Targeted Mail Campaigns. Advertisers can also elect to
    sponsor a member special email consisting entirely
    of an advertisement for their product or service. Member special
    emails are sent periodically to our members who have requested
    to receive materials by email. As of December 31, 2004,
    approximately 1.9 million of our members had elected to
    receive information from us by email. We also provide
    advertisers with the opportunity to advertise via direct mail to
    over 400,000 of our members who have elected to receive
    materials by mail.                                                                                                                                                   
|
| |  | Research and Analysis. We engage third parties to conduct
    independent research on user panels assembled from our
    membership base regarding the effectiveness of specific
    campaigns as well as other matters of interest to our
    advertisers. Campaign studies examine the effect the campaign
    had on brand awareness, brand attributes, message association,
    brand favorability, purchase intent and advertisement recall and
    can include an analysis of the research and recommendations for
    future advertising                                                                                                                                                                                                     

7



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| |  |                                                                                                                                                                                  
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | campaigns. In addition to benefiting the advertiser, this type
    of research helps educate us on how to more effectively position
    and manage campaigns for our advertisers.









|                              |  |                 |    |  
|----------------------------- |  | --------------- | -- | -
|                              |  | Percentage of   |   
|                              |  | Global          |   
|                              |  | Advertising     |   
|Category                      |  | Revenue in 2004 |   
|                              |  |                 |   
|Travel                        |  |                 | 16 | %
|Healthcare & Pharmaceutical   |  |                 | 16 | %
|Automotive                    |  |                 | 15 | %
|Telecommunications & Internet |  |                 | 13 | %
|Consumer Packaged Goods       |  |                 | 10 | %
|Entertainment                 |  |                 | 10 | %

Transaction Services








Product Development and Technology




8



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International Operations






9



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Competition






Intellectual Property




10



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Employees




Executive Officers




|                   |  |     |    |  |          |                                                                               
|------------------ |  | --- | -- |  | -------- | ------------------------------------------------------------------------------
|Name               |  | Age |    |  | Position
|                   |  |     |    |  |         
|Executive officers |  |     |    |  |          |                                                                               
|Lowell R. Selvin   |  |     | 45 |  |          | Chairman of the Board and Chief Executive Officer                             
|Mark D. Elderkin   |  |     | 41 |  |          | President                                                                     
|Jeffrey T. Soukup  |  |     | 39 |  |          | Executive Vice President, Chief Financial Officer, Treasurer and
    Secretary
|Donna L. Gibbs     |  |     | 44 |  |          | Senior Vice President, Marketing and Communications                           

Lowell R. Selvin


Mark D. Elderkin


Jeffrey T. Soukup


11



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Donna L. Gibbs


Available Information


http://www.planetoutinc.com







|        |           
|------- | ----------
|Item 2. | Properties










|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



12



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







|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Market Information




|               |  |      |       |  |     |   |      | 
|-------------- |  | ---- | ----- |  | --- | - | ---- | 
|2004           |  | High |       |  | Low |  
|               |  |      |       |  |     |  
|Fourth Quarter |  | $    | 14.26 |  |     | $ | 8.45 | 









Unregistered Sales of Equity Securities and Use of
Proceeds




13



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Repurchases of Equity Securities


|                                     |  |                     |       |  |                   |                     |      |                    |                       |  |                     |  |  |  |   | 
|------------------------------------ |  | ------------------- | ----- |  | ----------------- | ------------------- | ---- | ------------------ | --------------------- |  | ------------------- |  |  |  | - | 
|                                     |  |                     |       |  |                   |                     |      | (d) Maximum        |                      
|                                     |  |                     |       |  |                   |                     |      | Number (or         |                      
|                                     |  |                     |       |  |                   | (c) Total Number of |      |                    | Approximated Dollar   | 
|                                     |  |                     |       |  |                   | Shares Purchased as |      |                    | Value) of Shares that | 
|                                     |  |                     |       |  |                   | Part of Publicly    |      |                    | May Yet Be            | 
|                                     |  | (a) Total Number of |       |  | (b) Average Price |                     |      | Announced Plans or |                       |  | Purchased Under the | 
|Period                               |  | Shares Purchased(1) |       |  | Paid per Share    |                     |      | Programs           |                       |  | Plan or Program     | 
|                                     |  |                     |       |  |                   |                     |      |                    |                       |  |                     | 
|October 1, 2004 - October 31, 2004   |  |                     | 1,864 |  |                   | $                   | 0.43 |                    |                       |  |                    |  |  |  |  | 
|November 1, 2004 - November 30, 2004 |  |                     | 1,312 |  |                   |                     | 0.43 |                    |                       |  |                    |  |  |  |  | 
|December 1, 2004 - December 31, 2004 |  |                     | 656   |  |                   |                     | 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. All share and per
    share amounts have been adjusted to reflect our reverse stock
    split in July 2004 and the conversion of all preferred stock at
    the time of our initial public offering in October 2004.

14



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ------- | - | ------- | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                                                                               |  | Years Ended December 31,                 |        
|                                                                                                                                                               |  |                                          |        
|                                                                                                                                                               |  | 2000                                     |         |   | 2001(1) |   |         | 2002 |  |   | 2003   |   |  | 2004 |       
|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |       
|                                                                                                                                                               |  | (In thousands, except per share amounts) |        
|Consolidated statement of operations data:                                                                                                                     |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Revenue:                                                                                                                                                       |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Subscription services                                                                                                                                          |  | $                                        | 835     |   |         | $ | 2,459   |      |  | $ | 8,030  |   |  | $    | 12,727 |   |  | $ | 16,775 |  
|Advertising services                                                                                                                                           |  |                                          | 4,456   |   |         |   | 3,602   |      |  |   | 4,227  |   |  |      | 4,626  |   |  |   | 6,541  |  
|Transaction services                                                                                                                                           |  |                                          | 2       |   |         |   | 1,148   |      |  |   | 1,700  |   |  |      | 1,746  |   |  |   | 1,646  |  
|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |       
|Total revenue                                                                                                                                                  |  |                                          | 5,293   |   |         |   | 7,209   |      |  |   | 13,957 |   |  |      | 19,099 |   |  |   | 24,962 |  
|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |       
|Operating costs and expenses:                                                                                                                                  |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Cost of revenue (inclusive of stock-based compensation expense
    of $661, $255, $502 and $565 in 2001, 2002, 2003 and 2004,
    respectively)                |  |                                          | 6,230   |   |         |   | 7,695   |      |  |   | 6,311  |   |  |      | 6,696  |   |  |   | 8,068  |  
|Sales and marketing (inclusive of stock-based compensation
    expense of $66, $117, $419 and $556 in 2001, 2002, 2003 and
    2004, respectively)             |  |                                          | 5,756   |   |         |   | 6,249   |      |  |   | 5,739  |   |  |      | 6,554  |   |  |   | 8,806  |  
|General and administrative (inclusive of stock-based
    compensation expense of $32, $369, $676 and $1,013 in 2001,
    2002, 2003 and 2004, respectively)(2) |  |                                          | 5,974   |   |         |   | 3,429   |      |  |   | 7,099  |   |  |      | 4,242  |   |  |   | 5,182  |  
|Depreciation and amortization                                                                                                                                  |  |                                          | 2,095   |   |         |   | 5,480   |      |  |   | 2,615  |   |  |      | 2,030  |   |  |   | 2,457  |  
|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |       
|Total costs and expenses                                                                                                                                       |  |                                          | 20,055  |   |         |   | 22,853  |      |  |   | 21,764 |   |  |      | 19,522 |   |  |   | 24,513 |  
|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |       
|Income (loss) from operations                                                                                                                                  |  |                                          | (14,762 | ) |         |   | (15,644 | )    |  |   | (7,807 | ) |  |      | (423   | ) |  |   | 449    |  
|Equity in net loss of unconsolidated affiliate(3)                                                                                                              |  |                                          | (87     | ) |         |   | (356    | )    |  |   | (22    | ) |  |      | (59    | ) |  |   | (94    | )
|Interest expense                                                                                                                                               |  |                                          | (165    | ) |         |   | (502    | )    |  |   | (112   | ) |  |      | (193   | ) |  |   | (1,077 | )
|Other income, net                                                                                                                                              |  |                                          | 385     |   |         |   | 51      |      |  |   | 96     |   |  |      | 72     |   |  |   | 210    |  
|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |       
|Loss before income taxes                                                                                                                                       |  |                                          | (14,629 | ) |         |   | (16,451 | )    |  |   | (7,845 | ) |  |      | (603   | ) |  |   | (512   | )
|Provision for income taxes                                                                                                                                     |  |                                          |        |   |         |   | (9      | )    |  |   | (9     | ) |  |      | (149   | ) |  |   | (25    | )
|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |       
|Net loss                                                                                                                                                       |  |                                          | (14,629 | ) |         |   | (16,460 | )    |  |   | (7,854 | ) |  |      | (752   | ) |  |   | (537   | )
|Accretion on redeemable convertible preferred stock                                                                                                            |  |                                          |        |   |         |   | (940    | )    |  |   | (1,709 | ) |  |      | (1,729 | ) |  |   | (1,402 | )
|Net gain on exchange of preferred stock and warrants in
    connection with recapitalization                                                                   |  |                                          |        |   |         |   | 10,392  |      |  |   |       |   |  |      |       |   |  |   |       |  
|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |       
|Net loss attributable to common stockholders                                                                                                                   |  | $                                        | (14,629 | ) |         | $ | (7,008  | )    |  | $ | (9,563 | ) |  | $    | (2,481 | ) |  | $ | (1,939 | )
|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |       
|Net loss per share attributable to common
    stockholders  basic and diluted                                                                                 |  | $                                        | (170.10 | ) |         | $ | (6.27   | )    |  | $ | (6.17  | ) |  | $    | (1.53  | ) |  | $ | (0.40  | )
|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |       
|Weighted average shares used in per share
    calculations  basic and diluted                                                                                 |  |                                          | 86      |   |         |   | 1,118   |      |  |   | 1,551  |   |  |      | 1,624  |   |  |   | 4,837  |  
|                                                                                                                                                               |  |                                          |         |   |         |   |         |      |  |   |        |   |  |      |       

15



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|                                       |  |                    |         |   |         |   |         |      |  |   |         |   |  |      |         |   |  |   |        | 
|-------------------------------------- |  | ------------------ | ------- | - | ------- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------ | 
|                                       |  | As of December 31, |        
|                                       |  |                    |        
|                                       |  | 2000               |         |   | 2001(1) |   |         | 2002 |  |   | 2003    |   |  | 2004 |        
|                                       |  |                    |         |   |         |   |         |      |  |   |         |   |  |      |        
|                                       |  | (In thousands)     |        
|Consolidated balance sheet data:       |  |                    |         |   |         |   |         |      |  |   |         |   |  |      |         |   |  |   |        | 
|Cash and cash equivalents              |  | $                  | 2,389   |   |         | $ | 763     |      |  | $ | 2,082   |   |  | $    | 2,282   |   |  | $ | 43,128 | 
|Working capital (deficit)              |  |                    | 986     |   |         |   | (1,082  | )    |  |   | (1,751  | ) |  |      | (2,804  | ) |  |   | 39,209 | 
|Total assets                           |  |                    | 10,656  |   |         |   | 11,170  |      |  |   | 9,974   |   |  |      | 10,929  |   |  |   | 59,208 | 
|Long-term liabilities                  |  |                    | 266     |   |         |   | 343     |      |  |   | 1,856   |   |  |      | 545     |   |  |   | 2,241  | 
|Redeemable convertible preferred stock |  |                    | 33,560  |   |         |   | 33,069  |      |  |   | 38,034  |   |  |      | 41,413  |   |  |   |       | 
|Stockholders equity (deficit)         |  | $                  | (26,179 | ) |         | $ | (25,656 | )    |  | $ | (35,142 | ) |  | $    | (37,717 | ) |  | $ | 48,764 | 






|    |                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------
|(1) | The acquisition of PlanetOut Corporation was completed in April
    2001.                                             
|   
|(2) | Includes a $2,750,000 lease settlement expense in 2002 as
    further described in Note 8 to the financial statements.
|   
|(3) | Represents a minority interest in Gay.it S.p.A., as further
    described in Note 3 to the financial statements.      






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | 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, or similar 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.


Overview








| |                             
| | ----------------------------
| | Critical Accounting Policies





16



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Revenue Recognition.


Valuation Allowances.




Goodwill and Other Long-lived Assets.




Capitalized Website Development Costs.


17



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| |                      
| | ---------------------
| | Results of Operations



|                                           |                               |                   |      |       |      |  |      |       |  
|------------------------------------------ | ----------------------------- | ----------------- | ---- | ----- | ---- |  | ---- | ----- | -
|                                           |                               | Years Ended       |     
|                                           |                               | December 31       |     
|                                           |                               |                   |     
|                                           |                               | 2003              |      |       | 2004 | 
|                                           |                               |                   |      |       |      | 
|                                           |                               | (As a percentage  |     
|                                           |                               | of total revenue) |     
|Consolidated statement of operations data: |                               |                   |      |       |      |  |      |      
|Revenue:                                   |                               |                   |      |       |      |  |      |      
|                                           | Subscription services         |                   |      | 66.6  | %    |  |      | 67.2  | %
|                                           | Advertising services          |                   |      | 24.2  |      |  |      | 26.2  |  
|                                           | Transaction services          |                   |      | 9.2   |      |  |      | 6.6   |  
|                                           |                               |                   |      |       |      | 
|                                           | Total revenue                 |                   |      | 100.0 |      |  |      | 100.0 |  
|                                           |                               |                   |      |       |      | 
|Operating costs and expenses:              |                               |                   |      |       |      |  |      |      
|                                           | Cost of revenue               |                   |      | 35.1  |      |  |      | 32.3  |  
|                                           | Sales and marketing           |                   |      | 34.3  |      |  |      | 35.3  |  
|                                           | General and administrative    |                   |      | 22.2  |      |  |      | 20.8  |  
|                                           | Depreciation and amortization |                   |      | 10.6  |      |  |      | 9.8   |  
|                                           |                               |                   |      |       |      | 
|                                           | Total costs and expenses      |                   |      | 102.2 |      |  |      | 98.2  |  
|                                           |                               |                   |      |       |      | 
|Income (loss) from operations              |                               |                   | (2.2 | )     |      |  | 1.8  |      
|Other income (expense), net                |                               |                   | (0.9 | )     |      |  | (3.8 | )    
|                                           |                               |                   |      |       |      | 
|Loss before income taxes                   |                               |                   | (3.1 | )     |      |  | (2.1 | )    
|Provision for income taxes                 |                               |                   | (0.8 | )     |      |  | (0.1 | )    
|                                           |                               |                   |      |       |      | 
|Net loss                                   |                               |                   | (3.9 | )     |      |  | (2.2 | )    
|                                           |                               |                   |      |       |      | 





Subscription Services.




|                                      |  |        |       |  |           |   |       |         |  |   |        |  |  |                                            |  | 
|------------------------------------- |  | ------ | ----- |  | --------- | - | ----- | ------- |  | - | ------ |  |  | ------------------------------------------ |  | 
|                                      |  | Yearly |       |  | Quarterly |   |       | Monthly |  |   | Trials | 
|                                      |  |        |       |  |           |   |       |         |  |   |        | 
|PlanetOut Premium Membership Services |  | $      | 69.95 |  |           | $ | 29.95 |         |  | $ | 12.95  |  |  | $4.95 3-day trial December 2002 to present

18



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##### Table of Contents





| |                                    
| | -----------------------------------
| | Gay.com Premium Membership Services

|                           |  |        |       |  |           |   |       |         |  |   |        |  |  |                                           
|-------------------------- |  | ------ | ----- |  | --------- | - | ----- | ------- |  | - | ------ |  |  | ------------------------------------------
|                           |  | Yearly |       |  | Quarterly |   |       | Monthly |  |   | Trials
|                           |  |        |       |  |           |   |       |         |  |   |       
|January 2003 to March 2003 |  | $      | 89.95 |  |           | $ | 39.95 |         |  | $ | 16.95  |  |  | $7.95 7-day trial                         
|March 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 2004  
|May 2004 to October 2004   |  | $      | 79.95 |  |           | $ | 39.95 |         |  | $ | 17.95  |  |  | $9.95 7-day trial                         
|October 2004 to present    |  | $      | 89.95 |  |           | $ | 42.95 |         |  | $ | 19.95  |  |  | $9.95 7-day trial                         



Premium Membership Service Operating Metrics (including free
trial promotions)


|                                  |  |      |        |   |      |  |        |    |  |  |        |   |  |    |        |   |    |  |         |    |  |  |         |   |  |    |         |   |    |  |         |   |  |  |         |   |  |  |         |  
|--------------------------------- |  | ---- | ------ | - | ---- |  | ------ | -- |  |  | ------ | - |  | -- | ------ | - | -- |  | ------- | -- |  |  | ------- | - |  | -- | ------- | - | -- |  | ------- | - |  |  | ------- | - |  |  | ------- | -
|                                  |  | 2003 |        |   | 2004 | 
|                                  |  |      |        |   |      | 
|                                  |  | 1Q   |        |   | 2Q   |  |        | 3Q |  |  | 4Q     |   |  | FY |        |   | 1Q |  |         | 2Q |  |  | 3Q      |   |  | 4Q |         |   | FY | 
|                                  |  |      |        |   |      |  |        |    |  |  |        |   |  |    |        |   |    |  |         |    |  |  |         |   |  |    |         |   |    | 
|Total Subscribers                 |  |      | 88,776 |   |      |  | 88,103 |    |  |  | 91,886 |   |  |    | 98,445 |   |    |  | 98,445  |    |  |  | 105,179 |   |  |    | 110,598 |   |    |  | 118,392 |   |  |  | 127,527 |   |  |  | 127,527 |  
|Gross Additions                   |  |      | 39,053 |   |      |  | 34,305 |    |  |  | 37,167 |   |  |    | 40,721 |   |    |  | 151,246 |    |  |  | 43,064  |   |  |    | 38,272  |   |    |  | 43,239  |   |  |  | 48,015  |   |  |  | 172,590 |  
|Churn (Including Free Promotions) |  |      | 30,641 |   |      |  | 34,978 |    |  |  | 33,384 |   |  |    | 34,162 |   |    |  | 133,165 |    |  |  | 36,330  |   |  |    | 32,853  |   |    |  | 35,445  |   |  |  | 38,880  |   |  |  | 143,508 |  
|Churn %                           |  |      | 12.1   | % |      |  | 13.2   | %  |  |  | 12.4   | % |  |    | 12.0   | % |    |  | 12.4    | %  |  |  | 11.9    | % |  |    | 10.2    | % |    |  | 10.3    | % |  |  | 10.5    | % |  |  | 10.6    | %
|Net Additions                     |  |      | 8,412  |   |      |  | (673   | )  |  |  | 3,783  |   |  |    | 6,559  |   |    |  | 18,081  |    |  |  | 6,734   |   |  |    | 5,419   |   |    |  | 7,794   |   |  |  | 9,135   |   |  |  | 29,082  |  





| |   |                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total Subscribers: members with a 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 promotional subscriptions,
    but excluding cancellations of paid 3- and 7-day trial
    subscriptions. Subscription cancellations include subscriptions
    cancelled due to failed credit cards.
|
| |  | Churn Rate: Total Churn divided by the average of the
    Total Subscribers measured at the beginning and end of the
    period, divided by the number of months in the period.                                                                                                                    
|
| |  | Net Additions: Total Subscribers at the end of the period
    minus the Total Subscribers at the beginning of the period.                                                                                                                                                                          







19



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Premium Membership Service Operating Metrics (excluding free
trial promotions)


|                                  |  |      |        |   |      |  |        |    |  |  |        |   |  |    |        |   |    |  |         |    |  |  |         |   |  |    |         |   |    |  |         |   |  |  |         |   |  |  |         |  
|--------------------------------- |  | ---- | ------ | - | ---- |  | ------ | -- |  |  | ------ | - |  | -- | ------ | - | -- |  | ------- | -- |  |  | ------- | - |  | -- | ------- | - | -- |  | ------- | - |  |  | ------- | - |  |  | ------- | -
|                                  |  | 2003 |        |   | 2004 | 
|                                  |  |      |        |   |      | 
|                                  |  | 1Q   |        |   | 2Q   |  |        | 3Q |  |  | 4Q     |   |  | FY |        |   | 1Q |  |         | 2Q |  |  | 3Q      |   |  | 4Q |         |   | FY | 
|                                  |  |      |        |   |      |  |        |    |  |  |        |   |  |    |        |   |    |  |         |    |  |  |         |   |  |    |         |   |    | 
|Total Subscribers                 |  |      | 88,776 |   |      |  | 88,103 |    |  |  | 91,886 |   |  |    | 98,445 |   |    |  | 98,445  |    |  |  | 105,179 |   |  |    | 110,598 |   |    |  | 118,392 |   |  |  | 127,527 |   |  |  | 127,527 |  
|Gross Additions                   |  |      | 39,053 |   |      |  | 34,305 |    |  |  | 37,167 |   |  |    | 40,721 |   |    |  | 151,246 |    |  |  | 42,635  |   |  |    | 37,582  |   |    |  | 41,082  |   |  |  | 44,219  |   |  |  | 165,518 |  
|Churn (Excluding Free Promotions) |  |      | 30,641 |   |      |  | 34,978 |    |  |  | 33,384 |   |  |    | 34,162 |   |    |  | 133,165 |    |  |  | 35,901  |   |  |    | 32,163  |   |    |  | 33,288  |   |  |  | 35,084  |   |  |  | 136,436 |  
|Churn %                           |  |      | 12.1   | % |      |  | 13.2   | %  |  |  | 12.4   | % |  |    | 12.0   | % |    |  | 12.4    | %  |  |  | 11.8    | % |  |    | 9.9     | % |    |  | 9.7     | % |  |  | 9.5     | % |  |  | 10.1    | %
|Net Additions                     |  |      | 8,412  |   |      |  | (673   | )  |  |  | 3,783  |   |  |    | 6,559  |   |    |  | 18,081  |    |  |  | 6,734   |   |  |    | 5,419   |   |    |  | 7,794   |   |  |  | 9,135   |   |  |  | 29,082  |  









Advertising Services.






20



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##### Table of Contents







Transaction Services.


Cost of Revenue.




Sales and Marketing.




| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.


21



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Comparison of the Years Ended December 31, 2004 and
December 31, 2003




| |        
| | -------
| | Revenue



Subscription Services.




| |   |                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an expansion in the number of customer support representatives
    and their hours of coverage;                                                                                                                                                      
|
| |  | new features including the offer of subscriptions to popular
    magazines with premium memberships beginning in May 2004, the
    launch of payment via PayPal in October 2004, and the launch of
    an expanded messenger service in October 2004;
|
| |  | a price increase for our Gay.com membership services in October
    2004;                                                                                                                                                                            
|
| |  | 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 beginning in
    the second quarter of 2003, including the Mr. Gay.com
    contest and the Play for Keeps campaign in 2004
    which received widespread press coverage;                       
|
| |  | the effect of unexpected periods of degraded site performance in
    December 2004; and                                                                                                                                                              
|
| |  | a reduction in subscribers and revenue from our PlanetOut.com
    premium membership service, as we have concentrated more of our
    marketing activities on our Gay.com premium membership service.                                                



Advertising Services.


22



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| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the improvement in the advertising market generally and in the
    online advertising market specifically;                                                                             
|
| |  | the increasing interest of advertisers in targeting the LGBT
    community;                                                                                                            
|
| |  | a high renewal rate, with seven of our top ten advertisers for
    the three months ended December 31, 2004 coming from
    renewals by existing advertisers;                          
|
| |  | rising CPMs, especially in the first half of 2004;                                                                                                                                     
|
| |  | periodic inventory constraints on some of the most in-demand
    space on our flagship websites, particularly in the three months
    ended December 31, 2004;                         
|
| |  | periodic advertising capacity constraints during the twelve
    months ended December 31, 2004 on the most popular areas of
    our website serving the United Kingdom, uk.gay.com; and
|
| |  | our decision to suspend advertising on our French language
    website, fr.gay.com, in mid-2003.                                                                                       



Transaction Services.


Operating Costs and Expenses.


Cost of Revenue.


23



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##### Table of Contents



Sales and Marketing.


General and Administrative.


Depreciation and Amortization.




| |                         
| | ------------------------
| | Other Costs and Expenses

Interest Expense.


Equity in Net Loss of Affiliate.




| |                                                                      
| | ---------------------------------------------------------------------
| | Comparison of Years Ended December 31, 2003 and
    December 31, 2002



| |        
| | -------
| | Revenue



Subscription Services.




| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | the increased breadth and attractiveness of our product
    offerings;               
|
| |  | investments in expanded customer support;                                            
|
| |  | an increase in subscription fees for our Gay.com premium
    membership services; and

24



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| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | increased investment in marketing and promotional activities,
    particularly beginning in the second quarter of 2003.



Advertising Services.




| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the improvement in the advertising market generally and in the
    online advertising market specifically;                                                                                                 
|
| |  | the increasing interest of advertisers in targeting the LGBT
    community;                                                                                                                                
|
| |  | lower than expected advertising revenue due to the war in Iraq
    and its effect on business confidence;                                                                                                  
|
| |  | our decision to suspend advertising on our French language
    website, fr.gay.com, in mid-2003, versus a full year of French
    website advertising in the twelve months ended December 31,
    2002; and
|
| |  | periodic advertising inventory constraints during the second
    half of the year on our website serving the United Kingdom,
    uk.gay.com.                                                               

Transaction Services.




| |                             
| | ----------------------------
| | Operating Costs and Expenses



Cost of Revenue.


Sales and Marketing.


General and Administrative.


25



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##### Table of Contents





Depreciation and Amortization.




| |                                
| | -------------------------------
| | Liquidity and Capital Resources











26



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| |                              
| | -----------------------------
| | Off-balance Sheet Liabilities





| |                              
| | -----------------------------
| | Other Contractual Commitments



|                               |  |                        |        |  |      |   |       |           |  |   |           |  |  |              |       |  |  |   |       | 
|------------------------------ |  | ---------------------- | ------ |  | ---- | - | ----- | --------- |  | - | --------- |  |  | ------------ | ----- |  |  | - | ----- | 
|                               |  | Payments Due by Period |       
|                               |  |                        |       
|                               |  | Total                  |        |  | 2005 |   |       | 2006-2007 |  |   | 2008-2009 |  |  | 2010 & After |      
|                               |  |                        |        |  |      |   |       |           |  |   |           |  |  |              |      
|                               |  | (in thousands)         |       
|Contractual obligations:       |  |                        |        |  |      |   |       |           |  |   |           |  |  |              |       |  |  |   |       | 
|Capital lease obligations      |  | $                      | 1,662  |  |      | $ | 1,100 |           |  | $ | 464       |  |  | $            | 98    |  |  | $ |      | 
|Operating leases               |  |                        | 9,561  |  |      |   | 1,041 |           |  |   | 2,680     |  |  |              | 2,773 |  |  |   | 3,067 | 
|Purchase obligations           |  |                        | 803    |  |      |   | 661   |           |  |   | 142       |  |  |              |      |  |  |   |      | 
|                               |  |                        |        |  |      |   |       |           |  |   |           |  |  |              |      
|Total contractual obligations: |  | $                      | 12,026 |  |      | $ | 2,802 |           |  | $ | 3,286     |  |  | $            | 2,871 |  |  | $ | 3,067 | 
|                               |  |                        |        |  |      |   |       |           |  |   |           |  |  |              |      

Capital Lease Obligations.


Operating Leases.


Purchase Obligations.




27



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| |                          
| | -------------------------
| | Seasonality and Inflation







| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements









28



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##### Table of Contents



Risk Factors




| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | We have a history of significant losses. If we do not
    achieve or 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.







| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | 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.



29



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





| |                                                                               
| | ------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Any significant disruption in service on our websites or
    in our computer and communications hardware and software systems
    could harm our business.



30



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| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | If we are unable to compete effectively, we may lose
    market share and our revenue may decline.





31



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| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





32



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##### Table of Contents







| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to manage our growth, including through
    acquisitions and our planned international expansion, our
    business will suffer.









| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | 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;                                                                                                                                                                   

33



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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, 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.                                                                                                                                                                                                                                                         





| |                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



34



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| |                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



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| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | 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 7A. | Quantitative and Qualitative Disclosures about Market
    Risk







36



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37



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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

PlanetOut Inc.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA


|                                          |                                                                                                                                                                   |      |  |    | 
|----------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                                          |                                                                                                                                                                   | Page | 
|                                          |                                                                                                                                                                   |      | 
|Consolidated Financial Statements:        |                                                                                                                                                                   |      |  |   
|                                          | Report of Independent Registered Public
    Accounting Firm                                                                                                       |      |  | 39 | 
|                                          | Consolidated Balance Sheets                                                                                                                                       |      |  | 40 | 
|                                          | Consolidated Statements of Operations                                                                                                                             |      |  | 41 | 
|                                          | Consolidated Statements of Redeemable
    Convertible Preferred Stock and Stockholders Equity
    (Deficit)                                                      |      |  | 42 | 
|                                          | Consolidated Statements of Cash Flows                                                                                                                             |      |  | 44 | 
|                                          | Notes to Consolidated Financial
    Statements                                                                                                                    |      |  | 45 | 
|Financial Statement Schedules:            |                                                                                                                                                                   |      |  |   
|                                          | All schedules are omitted because they are not applicable or the
    required information is shown in the consolidated financial
    statements or notes thereto. |      |  |    | 
|Supplementary Financial Data (unaudited): |                                                                                                                                                                   |      |  |   
|                                          | Quarterly Financial Data for each of the years ended
    December 31, 2003 and 2004                                                                               |      |  | 66 | 

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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










| |                               
| | ------------------------------
| | /s/ PricewaterhouseCoopers LLP
| |                               
| | PricewaterhouseCoopers LLP    





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PlanetOut Inc.





CONSOLIDATED BALANCE SHEETS


|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |        |       |         |        |        | 
|------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------------------------------------------------------------------ | ------- | ------- | ------ | ----- | ------- | ------ | ------ | 
|                                                                                           |                                                                                                                                                                                                    | December 31,                         |                                                                                                 
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                 
|                                                                                           |                                                                                                                                                                                                    | 2003                                 |                                                                                                  |         | 2004    |       
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |       
|                                                                                           |                                                                                                                                                                                                    | (In thousands, except                |                                                                                                 
|                                                                                           |                                                                                                                                                                                                    | per share amounts)                   |                                                                                                 
|ASSETS                                                                                    
|Current assets:                                                                            |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |        |       |        
|                                                                                           | Cash and cash equivalents                                                                                                                                                                          |                                      | $                                                                                                | 2,282   |         |        | $     | 43,128  |       
|                                                                                           | Accounts receivable, net                                                                                                                                                                           |                                      |                                                                                                  | 1,283   |         |        |       | 2,075   |       
|                                                                                           | Prepaid expenses and other current assets                                                                                                                                                          |                                      |                                                                                                  | 319     |         |        |       | 2,209   |       
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |       
|                                                                                           |                                                                                                                                                                                                    | Total current assets                 |                                                                                                  |         | 3,884   |        |       |         | 47,412 |       
|Property and equipment, net                                                                |                                                                                                                                                                                                    |                                      | 3,029                                                                                            |         |         |        | 7,011 |        
|Goodwill                                                                                   |                                                                                                                                                                                                    |                                      | 3,403                                                                                            |         |         |        | 3,403 |        
|Intangible assets, net                                                                     |                                                                                                                                                                                                    |                                      | 20                                                                                               |         |         |        |      |        
|Investment in unconsolidated affiliate                                                     |                                                                                                                                                                                                    |                                      | 151                                                                                              |         |         |        | 57    |        
|Other assets                                                                               |                                                                                                                                                                                                    |                                      | 442                                                                                              |         |         |        | 1,325 |        
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |       
|                                                                                           |                                                                                                                                                                                                    | Total assets                         |                                                                                                  | $       | 10,929  |        |       | $       | 59,208 |       
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |       
|                                                                                          
|LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
    STOCKHOLDERS EQUITY (DEFICIT)
|Current liabilities:                                                                       |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |        |       |        
|                                                                                           | Accounts payable                                                                                                                                                                                   |                                      | $                                                                                                | 483     |         |        | $     | 2,040   |       
|                                                                                           | Accrued liabilities                                                                                                                                                                                |                                      |                                                                                                  | 2,854   |         |        |       | 1,469   |       
|                                                                                           | Deferred revenue                                                                                                                                                                                   |                                      |                                                                                                  | 2,483   |         |        |       | 3,506   |       
|                                                                                           | Capital lease obligations, current portion                                                                                                                                                         |                                      |                                                                                                  | 758     |         |        |       | 998     |       
|                                                                                           | Notes payable, current portion                                                                                                                                                                     |                                      |                                                                                                  | 110     |         |        |       | 190     |       
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |       
|                                                                                           |                                                                                                                                                                                                    | Total current liabilities            |                                                                                                  |         | 6,688   |        |       |         | 8,203  |       
|Capital lease obligations, less current portion                                            |                                                                                                                                                                                                    |                                      | 545                                                                                              |         |         |        | 491   |        
|Notes payable, less current portion                                                        |                                                                                                                                                                                                    |                                      |                                                                                                 |         |         |        | 142   |        
|Deferred rent                                                                              |                                                                                                                                                                                                    |                                      |                                                                                                 |         |         |        | 1,608 |        
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |       
|                                                                                           |                                                                                                                                                                                                    | Total liabilities                    |                                                                                                  |         | 7,233   |        |       |         | 10,444 |       
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |       
|Commitments and contingencies (Note 7)                                                     |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |        |       |        
|                                                                                           | Redeemable convertible preferred stock: $0.001 par value,
    12,918 and 5,000 shares authorized, 9,293 and zero shares
    issued and outstanding at December 31, 2003 and 2004,
    respectively |                                      |                                                                                                  | 41,413  |         |        |       |        |       
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |       
|Stockholders equity (deficit):                                                            |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |        |       |        
|                                                                                           | Common stock: $0.001 par value, 17,136 and
    100,000 shares authorized, 1,728 and 16,943 shares
    issued and outstanding at December 31, 2003 and 2004,
    respectively                       |                                      |                                                                                                  | 2       |         |        |       | 17      |       
|                                                                                           | Additional paid-in capital                                                                                                                                                                         |                                      |                                                                                                  | 17      |         |        |       | 88,387  |       
|                                                                                           | Note receivable from stockholder                                                                                                                                                                   |                                      |                                                                                                  | (603    | )       |        |       | (603    | )     
|                                                                                           | Unearned stock-based compensation                                                                                                                                                                  |                                      |                                                                                                  | (259    | )       |        |       | (1,619  | )     
|                                                                                           | Accumulated other comprehensive loss                                                                                                                                                               |                                      |                                                                                                  | (99     | )       |        |       | (106    | )     
|                                                                                           | Accumulated deficit                                                                                                                                                                                |                                      |                                                                                                  | (36,775 | )       |        |       | (37,312 | )     
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |       
|                                                                                           |                                                                                                                                                                                                    | Total stockholders equity (deficit) |                                                                                                  |         | (37,717 | )      |       |         | 48,764 |       
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |       
|                                                                                           |                                                                                                                                                                                                    |                                      | Total liabilities, redeemable convertible preferred stock and
    stockholders equity (deficit) |         | $       | 10,929 |       |         | $      | 59,208 | 
|                                                                                           |                                                                                                                                                                                                    |                                      |                                                                                                  |         |         |       



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PlanetOut Inc.





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |        |   |        |        |        | 
|-------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------ | ----- | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                                   |                                                                                                                         | Years Ended December 31,        |       
|                                                                                                   |                                                                                                                         |                                 |       
|                                                                                                   |                                                                                                                         | 2002                            |        |       | 2003   |   |        | 2004   |       
|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |       
|                                                                                                   |                                                                                                                         | (In thousands, except per share |       
|                                                                                                   |                                                                                                                         | amounts)                        |       
|Revenue                                                                                            |                                                                                                                         |                                 |        |       |        |   |        |        |        |   |        |       
|                                                                                                   | Subscription fees                                                                                                       |                                 | $      | 8,030 |        |   | $      | 12,727 |        |   | $      | 16,775 |       
|                                                                                                   | Advertising                                                                                                             |                                 |        | 4,227 |        |   |        | 4,626  |        |   |        | 6,541  |       
|                                                                                                   | Transaction services                                                                                                    |                                 |        | 1,700 |        |   |        | 1,746  |        |   |        | 1,646  |       
|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |       
|                                                                                                   |                                                                                                                         | Total revenue                   |        |       | 13,957 |   |        |        | 19,099 |   |        |        | 24,962 | 
|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |       
|Operating costs and expenses:                                                                      |                                                                                                                         |                                 |        |       |        |   |        |        |        |   |        |       
|                                                                                                   | Cost of revenue (inclusive of stock-based compensation of $255
    in 2002, $502 in 2003 and $565 in 2004)              |                                 |        | 6,311 |        |   |        | 6,696  |        |   |        | 8,068  |       
|                                                                                                   | Sales and marketing (inclusive of stock-based compensation of
    $117 in 2002, $419 in 2003, and $556 in 2004)         |                                 |        | 5,739 |        |   |        | 6,554  |        |   |        | 8,806  |       
|                                                                                                   | General and administrative (inclusive of stock-based
    compensation of $369 in 2002, $676 in 2003 and $1,013 in 2004) |                                 |        | 7,099 |        |   |        | 4,242  |        |   |        | 5,182  |       
|                                                                                                   |                                                                                                                         | Depreciation and amortization   |        |       | 2,615  |   |        |        | 2,030  |   |        |        | 2,457  | 
|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |       
|                                                                                                   |                                                                                                                         | Total costs and expenses        |        |       | 21,764 |   |        |        | 19,522 |   |        |        | 24,513 | 
|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |       
|Income (loss) from operations                                                                      |                                                                                                                         |                                 | (7,807 | )     |        |   | (423   | )      |        |   | 449    |       
|Equity in net loss of unconsolidated affiliate                                                     |                                                                                                                         |                                 | (22    | )     |        |   | (59    | )      |        |   | (94    | )     
|Interest expense                                                                                   |                                                                                                                         |                                 | (112   | )     |        |   | (193   | )      |        |   | (1,077 | )     
|Other income, net                                                                                  |                                                                                                                         |                                 | 96     |       |        |   | 72     |        |        |   | 210    |       
|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |       
|Loss before income taxes                                                                           |                                                                                                                         |                                 | (7,845 | )     |        |   | (603   | )      |        |   | (512   | )     
|Provision for income taxes                                                                         |                                                                                                                         |                                 | (9     | )     |        |   | (149   | )      |        |   | (25    | )     
|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |       
|Net loss                                                                                           |                                                                                                                         |                                 | (7,854 | )     |        |   | (752   | )      |        |   | (537   | )     
|Accretion on redeemable convertible preferred stock                                                |                                                                                                                         |                                 | (1,709 | )     |        |   | (1,729 | )      |        |   | (1,402 | )     
|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |       
|Net loss attributable to common stockholders                                                       |                                                                                                                         | $                               | (9,563 | )     |        | $ | (2,481 | )      |        | $ | (1,939 | )     
|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |       
|Net loss per share attributable to common
    stockholders  basic and diluted                     |                                                                                                                         | $                               | (6.17  | )     |        | $ | (1.53  | )      |        | $ | (0.40  | )     
|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |       
|Weighted average number of shares used in computing per share
    calculations  basic and diluted |                                                                                                                         |                                 | 1,551  |       |        |   | 1,624  |        |        |   | 4,837  |       
|                                                                                                   |                                                                                                                         |                                 |        |       |        |   |        |        |       



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PlanetOut Inc.





CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND


STOCKHOLDERS EQUITY (DEFICIT)


(In thousands)


|                                                                                                       |  |                 |       |  |        |              |        |  |            |      |  |            |  |  |             |   |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |     |      |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------ |  | --------------- | ----- |  | ------ | ------------ | ------ |  | ---------- | ---- |  | ---------- |  |  | ----------- | - |  | ------------- | - | ------ | ------------ |  | ------------- | ------ | - |  | ------------- | ------ | - | --------- | - | --- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                       |  | Redeemable      |       |  |        |              |        |  |            |      |  |            |  |  |             |   |  |               |   |        |              | 
|                                                                                                       |  | Convertible     |       |  |        |              |        |  |            | Note |  |            |  |  | Accumulated |   |  |               |   | Total  |              |  |              
|                                                                                                       |  | Preferred Stock |       |  |        | Common Stock |        |  | Additional |      |  | Receivable |  |  | Unearned    |   |  | Other         |   |        |              |  | Stockholders |        |   | 
|                                                                                                       |  |                 |       |  |        |              |        |  | Paid-In    |      |  | from       |  |  | Stock-Based |   |  | Comprehensive |   |        | Accumulated  |  |               | Equity |   |  | Comprehensive |       
|                                                                                                       |  | Shares          |       |  | Amount |              |        |  | Shares     |      |  | Amount     |  |  | Capital     |   |  | Stockholder   |   |        | Compensation |  |               | Loss   |   |  | Deficit       |        |   | (Deficit) |   |     | Loss | 
|                                                                                                       |  |                 |       |  |        |              |        |  |            |      |  |            |  |  |             |   |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |     |      | 
|Balances at December 31, 2001                                                                          |  |                 | 7,886 |  |        | $            | 33,069 |  |            |      |  | 1,552      |  |  | $           | 2 |  |               | $ | 2,678  |              |  | $             | (603   | ) |  | $             | (113   | ) |           | $ | (93 | )    |  | $ | (28,130 | ) |  | $ | (26,259 | ) |  | $ | (16,530 | )
|                                                                                                       |  |                 |       |  |        |              |        |  |            |      |  |            |  |  |             |   |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |     |      | 
|Issuance of Series E redeemable convertible preferred stock
    for cash, net of issuance costs of $48 |  |                 | 812   |  |        |              | 3,256  |  |            |      |  |           |  |  |             |  |  |               |   |       |              |  |               |       |   |  |               |       |   |           |   |    |      |  |   |        |   |  |   |        |   |  |   |         |  
|Unearned stock- based compensation, net of cancellations                                               |  |                 |      |  |        |              |       |  |            |      |  |           |  |  |             |  |  |               |   | 587    |              |  |               |       |   |  |               | (587   | ) |           |   |    |      |  |   |        |   |  |   |        |   |  |   |         |  
|Amortization of unearned stock-based compensation, net of
    cancellations                            |  |                 |      |  |        |              |       |  |            |      |  |           |  |  |             |  |  |               |   |       |              |  |               |       |   |  |               | 593    |   |           |   |    |      |  |   |        |   |  |   | 593     |   |  |   |         |  
|Issuance of stock options to consultants in exchange for services                                      |  |                 |      |  |        |              |       |  |            |      |  |           |  |  |             |  |  |               |   | 32     |              |  |               |       |   |  |               |       |   |           |   |    |      |  |   |        |   |  |   | 32      |   |  |   |         |  
|Issuance of common stock for cash on exercise of options and
    warrants                              |  |                 |      |  |        |              |       |  |            |      |  | 16         |  |  |             |  |  |               |   | 7      |              |  |               |       |   |  |               |       |   |           |   |    |      |  |   |        |   |  |   | 7       |   |  |   |         |  
|Accretion on redeemable convertible preferred stock                                                    |  |                 |      |  |        |              | 1,709  |  |            |      |  |           |  |  |             |  |  |               |   | (1,709 | )            |  |               |       |   |  |               |       |   |           |   |    |      |  |   |        |   |  |   | (1,709  | ) |  |   |         |  
|Foreign currency translation adjustment                                                                |  |                 |      |  |        |              |       |  |            |      |  |           |  |  |             |  |  |               |   |       |              |  |               |       |   |  |               |       |   |           |   | 48  |      |  |   |        |   |  |   | 48      |   |  | $ | 48      |  
|Net loss                                                                                               |  |                 |      |  |        |              |       |  |            |      |  |           |  |  |             |  |  |               |   |       |              |  |               |       |   |  |               |       |   |           |   |    |      |  |   | (7,854  | ) |  |   | (7,854  | ) |  |   | (7,854  | )
|                                                                                                       |  |                 |       |  |        |              |        |  |            |      |  |            |  |  |             |   |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |     |      | 
|Balances at December 31, 2002                                                                          |  |                 | 8,698 |  |        |              | 38,034 |  |            |      |  | 1,568      |  |  |             | 2 |  |               |   | 1,595  |              |  |               | (603   | ) |  |               | (107   | ) |           |   | (45 | )    |  |   | (35,984 | ) |  |   | (35,142 | ) |  | $ | (7,806  | )
|                                                                                                       |  |                 |       |  |        |              |        |  |            |      |  |            |  |  |             |   |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |     |      | 
|Issuance of common stock for cash on exercise of options                                               |  |                 |      |  |        |              |       |  |            |      |  | 160        |  |  |             |  |  |               |   | 5      |              |  |               |       |   |  |               |       |   |           |   |    |      |  |   |        |   |  |   | 5       |   |  |   |         |  
|Unearned stock- based compensation, net of cancellations                                               |  |                 |      |  |        |              | 1,643  |  |            |      |  |           |  |  |             |  |  |               |   | 75     |              |  |               |       |   |  |               | (1,717 | ) |           |   |    |      |  |   |        |   |  |   | (1,642  | ) |  |   |         |  
|Amortization of unearned stock-based compensation, net of
    cancellations                            |  |                 |      |  |        |              |       |  |            |      |  |           |  |  |             |  |  |               |   |       |              |  |               |        |   |  |               | 1,565  |   |           |   |    |      |  |   |        |   |  |   | (1,565  | ) |  |   |         |  
|Issuance of Series D redeemable convertible preferred stock
    for cash on exercise of options        |  |                 | 93    |  |        |              | 1      |  |            |      |  |           |  |  |             |  |  |               |   |       |              |  |               |       |   |  |               |       |   |           |   |    |      |  |   |        |   |  |   |        |   |  |   |         |  
|Issuance of Series B preferred stock for cash                                                          |  |                 | 502   |  |        |              | 6      |  |            |      |  |           |  |  |             |  |  |               |   |       |              |  |               |       |   |  |               |       |   |           |   |    |      |  |   |        |   |  |   |        |   |  |   |         |  
|Issuance of stock options to consultants in exchange for services                                      |  |                 |      |  |        |              |       |  |            |      |  |           |  |  |             |  |  |               |   | 32     |              |  |               |       |   |  |               |       |   |           |   |    |      |  |   |        |   |  |   | 32      |   |  |   |         |  
|Accretion on redeemable convertible preferred stock                                                    |  |                 |      |  |        |              | 1,729  |  |            |      |  |           |  |  |             |  |  |               |   | (1,690 | )            |  |               |       |   |  |               |       |   |           |   |    |      |  |   | (39     | ) |  |   | (1,729  | ) |  |   |         |  
|Foreign currency translation adjustment                                                                |  |                 |      |  |        |              |       |  |            |      |  |           |  |  |             |  |  |               |   |       |              |  |               |       |   |  |               |       |   |           |   | (54 | )    |  |   |        |   |  |   | (54     | ) |  | $ | (54     | )
|Net loss                                                                                               |  |                 |      |  |        |              |       |  |            |      |  |           |  |  |             |  |  |               |   |       |              |  |               |       |   |  |               |       |   |           |   |    |      |  |   | (752    | ) |  |   | (752    | ) |  |   | (752    | )
|                                                                                                       |  |                 |       |  |        |              |        |  |            |      |  |            |  |  |             |   |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |     |      | 
|Balances at December 31, 2003                                                                          |  |                 | 9,293 |  |        |              | 41,413 |  |            |      |  | 1,728      |  |  |             | 2 |  |               |   | 17     |              |  |               | (603   | ) |  |               | (259   | ) |           |   | (99 | )    |  |   | (36,775 | ) |  |   | (37,717 | ) |  | $ | (806    | )
|                                                                                                       |  |                 |       |  |        |              |        |  |            |      |  |            |  |  |             |   |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |     |      | 



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PlanetOut Inc.





CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND


STOCKHOLDERS EQUITY
(DEFICIT)  (Continued)


(In thousands)


|                                                                                                      |  |                 |        |   |        |              |         |   |            |      |  |            |   |  |             |    |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |      |      |  |   |         |   |  |   |         |   |  |   |      |  
|----------------------------------------------------------------------------------------------------- |  | --------------- | ------ | - | ------ | ------------ | ------- | - | ---------- | ---- |  | ---------- | - |  | ----------- | -- |  | ------------- | - | ------ | ------------ |  | ------------- | ------ | - |  | ------------- | ------ | - | --------- | - | ---- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ---- | -
|                                                                                                      |  | Redeemable      |        |   |        |              |         |   |            |      |  |            |   |  |             |    |  |               |   |        |              | 
|                                                                                                      |  | Convertible     |        |   |        |              |         |   |            | Note |  |            |   |  | Accumulated |    |  |               |   | Total  |              |  |              
|                                                                                                      |  | Preferred Stock |        |   |        | Common Stock |         |   | Additional |      |  | Receivable |   |  | Unearned    |    |  | Other         |   |        |              |  | Stockholders |        |   | 
|                                                                                                      |  |                 |        |   |        |              |         |   | Paid-In    |      |  | from       |   |  | Stock-Based |    |  | Comprehensive |   |        | Accumulated  |  |               | Equity |   |  | Comprehensive |       
|                                                                                                      |  | Shares          |        |   | Amount |              |         |   | Shares     |      |  | Amount     |   |  | Capital     |    |  | Stockholder   |   |        | Compensation |  |               | Loss   |   |  | Deficit       |        |   | (Deficit) |   |      | Loss | 
|                                                                                                      |  |                 |        |   |        |              |         |   |            |      |  |            |   |  |             |    |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |      |      | 
|Balances at December 31, 2003                                                                         |  |                 | 9,293  |   |        |              | 41,413  |   |            |      |  | 1,728      |   |  |             | 2  |  |               |   | 17     |              |  |               | (603   | ) |  |               | (259   | ) |           |   | (99  | )    |  |   | (36,775 | ) |  |   | (37,717 | ) |  | $ | (806 | )
|                                                                                                      |  |                 |        |   |        |              |         |   |            |      |  |            |   |  |             |    |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |      |      | 
|Issuance of common stock for cash on exercise of options and
    warrants                             |  |                 |       |   |        |              |        |   |            |      |  | 223        |   |  |             |   |  |               |   | 44     |              |  |               |       |   |  |               |       |   |           |   |     |      |  |   |        |   |  |   | 44      |   |  |   |      |  
|Issuance of common stock for cash, net of offering expenses of
    $5,226                             |  |                 |       |   |        |              |        |   |            |      |  | 5,348      |   |  |             | 5  |  |               |   | 42,896 |              |  |               |       |   |  |               |       |   |           |   |     |      |  |   |        |   |  |   | 42,901  |   |  |   |      |  
|Issuance of shares in consideration of services provided by
    consultant                            |  |                 |       |   |        |              |        |   |            |      |  |            |   |  |             |   |  |               |   | 6      |              |  |               |       |   |  |               |       |   |           |   |     |      |  |   |        |   |  |   | 6       |   |  |   |      |  
|Issuance of common stock warrants in connection with
    subordinated promissory note                 |  |                 |       |   |        |              |        |   |            |      |  |           |   |  |             |   |  |               |   | 543    |              |  |               |       |   |  |               |       |   |           |   |     |      |  |   |        |   |  |   | 543     |   |  |   |      |  
|Unearned stock based compensation, net of cancellations                                               |  |                 |       |   |        |              |        |   |            |      |  |           |   |  |             |   |  |               |   | 3,406  |              |  |               |       |   |  |               | (3,406 | ) |           |   |     |      |  |   |        |   |  |   |        |   |  |   |      |  
|Amortization of unearned stock based compensation, net of
    cancellations                           |  |                 |       |   |        |              |        |   |            |      |  |           |   |  |             |   |  |               |   |       |              |  |               |       |   |  |               | 2,046  |   |           |   |     |      |  |   |        |   |  |   | 2,046   |   |  |   |      |  
|Repurchase of unvested Series B convertible preferred stock
    upon termination of employee services |  |                 | (26    | ) |        |              | (20     | ) |            |      |  |           |   |  |             |   |  |               |   |       |              |  |               |       |   |  |               |       |   |           |   |     |      |  |   |        |   |  |   |        |   |  |   |      |  
|Repurchase of unvested common stock upon termination of employee
    services                         |  |                 |       |   |        |              |        |   |            |      |  | (3         | ) |  |             |   |  |               |   |       |              |  |               |       |   |  |               |       |   |           |   |     |      |  |   |        |   |  |   |        |   |  |   |      |  
|Issuance of stock options to consultants in exchange for services                                     |  |                 |       |   |        |              |        |   |            |      |  |           |   |  |             |   |  |               |   | 82     |              |  |               |       |   |  |               |       |   |           |   |     |      |  |   |        |   |  |   | 82      |   |  |   |      |  
|Issuance of Series D in consideration for cash on exercise
    of options                             |  |                 | 4      |   |        |              | 15      |   |            |      |  |           |   |  |             |   |  |               |   |       |              |  |               |       |   |  |               |       |   |           |   |     |      |  |   |        |   |  |   |        |   |  |   |      |  
|Accretion on redeemable convertible preferred stock                                                   |  |                 |       |   |        |              | 1,402   |   |            |      |  |           |   |  |             |   |  |               |   | (1,402 | )            |  |               |       |   |  |               |       |   |           |   |     |      |  |   |        |   |  |   | (1,402  | ) |  |   |      |  
|Conversion of preferred stock into common stock upon completion
    of initial public offering        |  |                 | (9,271 | ) |        |              | (42,810 | ) |            |      |  | 9,647      |   |  |             | 10 |  |               |   | 42,800 |              |  |               |       |   |  |               |       |   |           |   |     |      |  |   |        |   |  |   | 42,810  |   |  |   |      |  
|Amount paid to shareholder for fractional shares due to reverse
    stock split                       |  |                 |       |   |        |              |        |   |            |      |  |           |   |  |             |   |  |               |   | (5     | )            |  |               |       |   |  |               |       |   |           |   |     |      |  |   |        |   |  |   | (5      | ) |  |   |      |  
|Foreign currency translation adjustment                                                               |  |                 |        |   |        |              |         |   |            |      |  |            |   |  |             |    |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   | (7   | )    |  |   |        |   |  |   | (7      | ) |  | $ | (7   | )
|Net loss                                                                                              |  |                 |       |   |        |              |        |   |            |      |  |           |   |  |             |   |  |               |   |       |              |  |               |       |   |  |               |       |   |           |   |     |      |  |   | (537    | ) |  |   | (537    | ) |  |   | (537 | )
|                                                                                                      |  |                 |        |   |        |              |         |   |            |      |  |            |   |  |             |    |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |      |      | 
|Balances at December 31, 2004                                                                         |  |                 |       |   |        | $            |        |   |            |      |  | 16,943     |   |  | $           | 17 |  |               | $ | 88,387 |              |  | $             | (603   | ) |  | $             | (1,619 | ) |           | $ | (106 | )    |  | $ | (37,312 | ) |  | $ | 48,764  |   |  | $ | (544 | )
|                                                                                                      |  |                 |        |   |        |              |         |   |            |      |  |            |   |  |             |    |  |               |   |        |              |  |               |        |   |  |               |        |   |           |   |      |      | 



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PlanetOut Inc.





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |       |      |        |        |       |        |        |  
|------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | --------------------------------- | --------------------------------------------------- | ----- | ----- | ------ | ------ | ----- | ---- | ------ | ------ | ----- | ------ | ------ | -
|                                                                                |                                                                                                   | Years Ended December 31,                                                                              |                                  
|                                                                                |                                                                                                   |                                                                                                       |                                  
|                                                                                |                                                                                                   | 2002                                                                                                  |                                   |                                                     | 2003  |       |        | 2004   |      
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|                                                                                |                                                                                                   | (In thousands)                                                                                        |                                  
|Cash flows from operating activities:                                           |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |       |      |        |       
|                                                                                | Net loss                                                                                          |                                                                                                       | $                                 | (7,854                                              | )     |       | $      | (752   | )     |      | $      | (537   | )    
|                                                                                | Adjustments to reconcile net loss to net cash (used in) provided
    by operating activities:     |                                                                                                       |                                   |                                                     |       |       |        |        |       |      |        |        |      
|                                                                                |                                                                                                   | Depreciation and amortization                                                                         |                                   |                                                     | 2,615 |       |        |        | 2,030 |      |        |        | 2,457 |       
|                                                                                |                                                                                                   | Amortization of unearned stock-based compensation, net of
    cancellations                           |                                   |                                                     | 593   |       |        |        | 1,565 |      |        |        | 2,046 |       
|                                                                                |                                                                                                   | Amortization of warrant and issuance costs in connection with
    senior subordinated promissory note |                                   |                                                     |      |       |        |        |      |      |        |        | 636   |       
|                                                                                |                                                                                                   | Amortization of deferred rent                                                                         |                                   |                                                     | 57    |       |        |        | (31   | )    |        |        | 354   |       
|                                                                                |                                                                                                   | Issuance of stock options and shares in exchange for services                                         |                                   |                                                     | 124   |       |        |        | 32    |      |        |        | 88    |       
|                                                                                |                                                                                                   | Loss on disposal or write-off of property and equipment                                               |                                   |                                                     | 683   |       |        |        | 28    |      |        |        | 60    |       
|                                                                                |                                                                                                   | Issuance of common stock warrants in connection with facility
    lease agreement                     |                                   |                                                     | 24    |       |        |        |      |      |        |        |      |       
|                                                                                |                                                                                                   | Equity in net loss of unconsolidated affiliate                                                        |                                   |                                                     | 22    |       |        |        | 59    |      |        |        | 94    |       
|                                                                                |                                                                                                   | Changes in operating assets and liabilities:                                                          |                                   |                                                     |       |       |        |        |       |      |        |        |       |       
|                                                                                |                                                                                                   |                                                                                                       | Accounts receivable               |                                                     |       | (57   | )      |        |       | (145 | )      |        |       | (792   | )     
|                                                                                |                                                                                                   |                                                                                                       | Prepaid expenses and other assets |                                                     |       | 523   |        |        |       | (209 | )      |        |       | (1,300 | )     
|                                                                                |                                                                                                   |                                                                                                       | Accounts payable                  |                                                     |       | 964   |        |        |       | (496 | )      |        |       | 1,557  |       
|                                                                                |                                                                                                   |                                                                                                       | Accrued and other liabilities     |                                                     |       | 1,482 |        |        |       | (577 | )      |        |       | (1,385 | )     
|                                                                                |                                                                                                   |                                                                                                       | Deferred revenue                  |                                                     |       | 667   |        |        |       | 532  |        |        |       | 1,023  |       
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|                                                                                |                                                                                                   |                                                                                                       |                                   | Net cash provided by (used in) operating activities |       |       | (157   | )      |       |      | 2,036  |        |       |        | 4,301  |  
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|Cash flows from investing activities:                                           |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |       |      |        |       
|                                                                                | Purchase of equity investment                                                                     |                                                                                                       |                                   | (124                                                | )     |       |        |       |       |      |        |       |      
|                                                                                | Purchases of property and equipment                                                               |                                                                                                       |                                   | (1,220                                              | )     |       |        | (1,299 | )     |      |        | (4,866 | )    
|                                                                                | Changes in restricted cash                                                                        |                                                                                                       |                                   |                                                    |       |       |        | 30     |       |      |        | 30     |      
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|                                                                                |                                                                                                   |                                                                                                       |                                   | Net cash used in investing activities               |       |       | (1,344 | )      |       |      | (1,269 | )      |       |        | (4,836 | )
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|Cash flows from financing activities:                                           |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |       |      |        |       
|                                                                                | Proceeds from issuance of redeemable convertible preferred
    stock, net of offering costs       |                                                                                                       |                                   | 3,256                                               |       |       |        | 7      |       |      |        |       |      
|                                                                                | Proceeds from exercise of common stock and preferred stock
    options and warrants               |                                                                                                       |                                   | 7                                                   |       |       |        | 5      |       |      |        | 59     |      
|                                                                                | Proceeds from senior subordinated promissory note and related
    warrants, net of issuance costs |                                                                                                       |                                   |                                                    |       |       |        |       |       |      |        | 4,907  |      
|                                                                                | Repurchase of convertible preferred stock and common stock                                        |                                                                                                       |                                   |                                                    |       |       |        |       |       |      |        | (20    | )    
|                                                                                | Repayment of senior subordinated promissory notes                                                 |                                                                                                       |                                   |                                                    |       |       |        |       |       |      |        | (5,000 | )    
|                                                                                | Principal payments under capital lease obligations and notes
    payable                          |                                                                                                       |                                   | (491                                                | )     |       |        | (525   | )     |      |        | (1,454 | )    
|                                                                                | Purchase of fractional shares due to reverse stock split                                          |                                                                                                       |                                   |                                                    |       |       |        |       |       |      |        | (5     | )    
|                                                                                | Proceeds from issuance of common stock in initial public
    offering, net of issuance costs      |                                                                                                       |                                   |                                                    |       |       |        |       |       |      |        | 42,901 |      
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|                                                                                |                                                                                                   |                                                                                                       |                                   | Net cash provided by (used in) financing activities |       |       | 2,772  |        |       |      | (513   | )      |       |        | 41,388 |  
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|Effect of exchange rate on cash and cash equivalents                            |                                                                                                   |                                                                                                       | 48                                |                                                     |       |       | (54    | )      |       |      | (7     | )     
|Net increase in cash and cash equivalents                                       |                                                                                                   |                                                                                                       | 1,319                             |                                                     |       |       | 200    |        |       |      | 40,846 |       
|Cash and cash equivalents, beginning of period                                  |                                                                                                   |                                                                                                       | 763                               |                                                     |       |       | 2,082  |        |       |      | 2,282  |       
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|Cash and cash equivalents, end of period                                        |                                                                                                   | $                                                                                                     | 2,082                             |                                                     |       | $     | 2,282  |        |       | $    | 43,128 |       
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|Supplemental disclosure of cash flow information:                               |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |       |      |        |       
|                                                                                | Interest expense paid                                                                             |                                                                                                       | $                                 | 112                                                 |       |       | $      | 193    |       |      | $      | 441    |      
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|                                                                                | Income taxes paid                                                                                 |                                                                                                       | $                                 | 9                                                   |       |       | $      | 62     |       |      | $      | 86     |      
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|Supplemental disclosure of noncash flow investing and financing
    activities: |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |       |      |        |       
|                                                                                | Property and equipment and related maintenance acquired under
    capital leases                  |                                                                                                       | $                                 | 646                                                 |       |       | $      | 1,503  |       |      | $      | 1,991  |      
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|                                                                                | Accretion on redeemable convertible preferred stock                                               |                                                                                                       | $                                 | 1,709                                               |       |       | $      | 1,729  |       |      | $      | 1,402  |      
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|                                                                                | Unearned stock-based compensation                                                                 |                                                                                                       | $                                 | 587                                                 |       |       | $      | 1,717  |       |      | $      | 3,406  |      
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      
|                                                                                | Conversion of preferred stock to common stock upon completion of
    initial public offering      |                                                                                                       | $                                 |                                                    |       |       | $      |       |       |      | $      | 42,810 |      
|                                                                                |                                                                                                   |                                                                                                       |                                   |                                                     |       |       |        |        |      



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PlanetOut Inc.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|         |            
|-------- | -----------
|Note 1  | The Company







|         |                                           
|-------- | ------------------------------------------
|Note 2  | Summary of Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation







| |                            
| | ---------------------------
| | Principles of Consolidation





| |                    
| | -------------------
| | Reverse Stock Split





| |                  
| | -----------------
| | Reclassifications



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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                 
| | ----------------
| | Use of Estimates





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |                             
| | ----------------------------
| | Concentration of Credit Risk







| |                             
| | ----------------------------
| | Foreign Currency Translation



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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |          
| | ---------
| | Inventory





| |            
| | -----------
| | Investments





| |                       
| | ----------------------
| | Property and Equipment







| |                                                    
| | ---------------------------------------------------
| | Internal Use Software and Website Development Costs



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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |         
| | --------
| | Goodwill







| |                
| | ---------------
| | Restricted Cash





| |                    
| | -------------------
| | Revenue Recognition





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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |            
| | -----------
| | Advertising





| |                         
| | ------------------------
| | Stock-based Compensation







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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                  |                                 |                          |        |       |      |   |        |       |   |   |        |       |  
|------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------ | ------ | ----- | ---- | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                                                  |                                 | Years Ended December 31, |       
|                                                                                                  |                                 |                          |       
|                                                                                                  |                                 | 2002                     |        |       | 2003 |   |        | 2004  |  
|                                                                                                  |                                 |                          |        |       |      |   |        |       |  
|Net loss attributable to common stockholders, as reported:                                        |                                 | $                        | (9,563 | )     |      | $ | (2,481 | )     |   | $ | (1,939 | )    
|Add: Employee stock-based compensation expense included in
    reported net loss, net of tax      |                                 |                          | 593    |       |      |   | 1,565  |       |   |   | 2,046  |      
|Less: Total employee stock-based compensation expense determined
    under fair value, net of tax |                                 |                          | (538   | )     |      |   | (1,959 | )     |   |   | (2,653 | )    
|                                                                                                  |                                 |                          |        |       |      |   |        |       |  
|Pro forma net loss attributable to common stockholders:                                           |                                 | $                        | (9,508 | )     |      | $ | (2,875 | )     |   | $ | (2,546 | )    
|                                                                                                  |                                 |                          |        |       |      |   |        |       |  
|Net loss per share attributable to common stockholders:                                           |                                 |                          |        |       |      |   |        |       |   |   |        |      
|                                                                                                  | As reported  basic and diluted |                          | $      | (6.17 | )    |   | $      | (1.53 | ) |   | $      | (0.40 | )
|                                                                                                  |                                 |                          |        |       |      |   |        |       |  
|Proforma  basic and diluted                                                                      |                                 | $                        | (6.13  | )     |      | $ | (1.77  | )     |   | $ | (0.53  | )    
|                                                                                                  |                                 |                          |        |       |      |   |        |       |  



|                         |                           |                          |  |               |      |  |  |               |  |  |  |              | 
|------------------------ | ------------------------- | ------------------------ |  | ------------- | ---- |  |  | ------------- |  |  |  | ------------ | 
|                         |                           | Years Ended December 31, | 
|                         |                           |                          | 
|                         |                           | 2002                     |  |               | 2003 |  |  | 2004          | 
|                         |                           |                          |  |               |      |  |  |               | 
|Preferred stock options: |                           |                          |  |               |      |  |  |               |  |  |  |             
|                         | Expected lives (in years) |                          |  | 2.50          |      |  |  | 2.50          |  |  |  | 2.50         | 
|                         | Risk free interest rates  |                          |  | 2.76% - 3.62% |      |  |  | 2.15% - 3.36% |  |  |  | 2.77 - 4.05% | 
|                         | Dividend yield            |                          |  | 10%           |      |  |  | 10%           |  |  |  | 10%          | 
|                         | Volatility                |                          |  | 0%            |      |  |  | 0%            |  |  |  | 0%           | 
|Common stock options:    |                           |                          |  |               |      |  |  |               |  |  |  |             
|                         | Expected lives (in years) |                          |  | 5             |      |  |  | 5             |  |  |  | 5            | 
|                         | Risk free interest rates  |                          |  | 2.76% - 3.62% |      |  |  | 2.15% - 3.36% |  |  |  | 2.77 - 4.05% | 
|                         | Dividend yield            |                          |  | 0%            |      |  |  | 0%            |  |  |  | 0%           | 
|                         | Volatility                |                          |  | 0%            |      |  |  | 0%            |  |  |  | 0 - 94.6%    | 



| |             
| | ------------
| | Income Taxes





| |                   
| | ------------------
| | Comprehensive Loss



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##### Table of Contents



PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                  
| | -----------------
| | Segment Reporting





| |                            
| | ---------------------------
| | Net Income (Loss) Per Share







|                                                                              |  |                          |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                              |  | Years Ended December 31, |       
|                                                                              |  |                          |       
|                                                                              |  | 2002                     |        |   | 2003 |   |        | 2004 | 
|                                                                              |  |                          |        |   |      |   |        |      | 
|Numerator:                                                                    |  |                          |        |   |      |   |        |      |  |   |        |  
|Net loss attributable to common stockholders                                  |  | $                        | (9,563 | ) |      | $ | (2,481 | )    |  | $ | (1,939 | )
|                                                                              |  |                          |        |   |      |   |        |      | 
|Denominator for basic and diluted net loss per common share:                  |  |                          |        |   |      |   |        |      |  |   |        |  
|Weighted-average common shares outstanding                                    |  |                          | 1,551  |   |      |   | 1,624  |      |  |   | 4,837  |  
|                                                                              |  |                          |        |   |      |   |        |      | 
|Net loss per share attributable to common
    stockholder  basic and diluted |  | $                        | (6.17  | ) |      | $ | (1.53  | )    |  | $ | (0.40  | )
|                                                                              |  |                          |        |   |      |   |        |      | 

51



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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                            |  |                          |        |  |      |  |        |      |  |  |       | 
|----------------------------------------------------------- |  | ------------------------ | ------ |  | ---- |  | ------ | ---- |  |  | ----- | 
|                                                            |  | Years Ended December 31, |       
|                                                            |  |                          |       
|                                                            |  | 2002                     |        |  | 2003 |  |        | 2004 | 
|                                                            |  |                          |        |  |      |  |        |      | 
|Redeemable convertible preferred stock                      |  |                          | 8,698  |  |      |  | 9,293  |      |  |  |      | 
|Redeemable convertible preferred stock options and warrants |  |                          | 481    |  |      |  | 327    |      |  |  |      | 
|Common stock options and warrants                           |  |                          | 2,137  |  |      |  | 1,790  |      |  |  | 2,424 | 
|Common stock subject to repurchase                          |  |                          | 2      |  |      |  | 2      |      |  |  | 2     | 
|                                                            |  |                          |        |  |      |  |        |      | 
|                                                            |  |                          | 11,318 |  |      |  | 11,412 |      |  |  | 2,426 | 
|                                                            |  |                          |        |  |      |  |        |      | 



| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements









52



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##### Table of Contents



PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|         |                  
|-------- | -----------------
|Note 3  | Equity Investment





|                        |  |  |  |                |  |   |      |  |  |   |     | 
|----------------------- |  |  |  | -------------- |  | - | ---- |  |  | - | --- | 
|                        |  |  |  | December       |  |   | 31,4 | 
|                        |  |  |  |                |  |   |      | 
|                        |  |  |  |                |  |   |      | 
|                        |  |  |  | (In thousands) | 
|Current assets          |  |  |  |                |  | $ | 661  |  |  | $ | 490 | 
|Non-current assets      |  |  |  |                |  |   | 89   |  |  |   | 82  | 
|Current liabilities     |  |  |  |                |  |   | 306  |  |  |   | 299 | 
|Non-current liabilities |  |  |  |                |  |   |     |  |  |   |    | 

|                         |  |                          |     |   |      |   |      |      |  |   |      |  
|------------------------ |  | ------------------------ | --- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                         |  | Years Ended December 31, |    
|                         |  |                          |    
|                         |  | 2002                     |     |   | 2003 |   |      | 2004 | 
|                         |  |                          |     |   |      |   |      |      | 
|                         |  | (In thousands)           |    
|Net sales revenue        |  | $                        | 758 |   |      | $ | 692  |      |  | $ | 565  |  
|Operating expenses       |  |                          | 803 |   |      |   | 806  |      |  |   | 743  |  
|Net loss from operations |  |                          | (45 | ) |      |   | (114 | )    |  |   | (178 | )
|Net loss                 |  | $                        | (67 | ) |      | $ | (132 | )    |  | $ | (209 | )





|         |                                                                                          
|-------- | -----------------------------------------------------------------------------------------
|Note 4  | Changes in Accounting for Business Combinations, Goodwill and
    Other Intangible Assets





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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                        |  |                   |       |  |                   |   |       |          |  |       |          |  |  |              |       |  |          |   |       |  |  |   |   | 
|--------------------------------------- |  | ----------------- | ----- |  | ----------------- | - | ----- | -------- |  | ----- | -------- |  |  | ------------ | ----- |  | -------- | - | ----- |  |  | - | - | 
|                                        |  | December 31, 2003 |       |  | December 31, 2004
|                                        |  |                   |       |  |                  
|                                        |  | Gross             |       |  |                   |   | Net   |          |  | Gross |          |  |  |              | Net  
|                                        |  | Carrying          |       |  | Accumulated       |   |       | Carrying |  |       | Carrying |  |  | Accumulated  |       |  | Carrying
|                                        |  | Amount            |       |  | Amortization      |   |       | Amount   |  |       | Amount   |  |  | Amortization |       |  | Amount  
|                                        |  |                   |       |  |                   |   |       |          |  |       |          |  |  |              |       |  |         
|Other intangible assets (in thousands): |  |                   |       |  |                   |   |       |          |  |       |          |  |  |              |       |  |          |   |       |  |  |   |   | 
|Registered user base                    |  | $                 | 3,278 |  |                   | $ | 3,278 |          |  | $     |         |  |  | $            | 3,278 |  |          | $ | 3,278 |  |  | $ |  | 
|Trade names                             |  |                   | 2,340 |  |                   |   | 2,325 |          |  |       | 15       |  |  |              | 2,340 |  |          |   | 2,340 |  |  |   |  | 
|Other intangibles                       |  |                   | 726   |  |                   |   | 721   |          |  |       | 5        |  |  |              | 726   |  |          |   | 726   |  |  |   |  | 
|                                        |  |                   |       |  |                   |   |       |          |  |       |          |  |  |              |       |  |          |  
|                                        |  | $                 | 6,344 |  |                   | $ | 6,324 |          |  | $     | 20       |  |  | $            | 6,344 |  |          | $ | 6,344 |  |  | $ |  | 
|                                        |  |                   |       |  |                   |   |       |          |  |       |          |  |  |              |       |  |          |  





|         |                               
|-------- | ------------------------------
|Note 5  | Other Balance Sheet Components

|                                      |  |              |       |   |      |   |       |      |  |   |       |  
|------------------------------------- |  | ------------ | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                      |  | December 31, |      
|                                      |  |              |      
|                                      |  | 2002         |       |   | 2003 |   |       | 2004 | 
|                                      |  |              |       |   |      |   |       |      | 
|Accounts receivable (in thousands):   |  |              |       |   |      |   |       |      |  |   |       |  
|Trade accounts receivable             |  | $            | 1,220 |   |      | $ | 1,326 |      |  | $ | 2,134 |  
|Less: Allowance for doubtful accounts |  |              | (82   | ) |      |   | (43   | )    |  |   | (59   | )
|                                      |  |              |       |   |      |   |       |      | 
|                                      |  | $            | 1,138 |   |      | $ | 1,283 |      |  | $ | 2,075 |  
|                                      |  |              |       |   |      |   |       |      | 



|                                                   |  |              |        |   |      |   |        |  
|-------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                   |  | December 31, |       
|                                                   |  |              |       
|                                                   |  | 2003         |        |   | 2004 |  
|                                                   |  |              |        |   |      |  
|Property and equipment (in thousands):             |  |              |        |   |      |   |        |  
|Computer and network equipment                     |  | $            | 4,805  |   |      | $ | 7,130  |  
|Furniture and fixtures                             |  |              | 278    |   |      |   | 918    |  
|Computer software                                  |  |              | 1,090  |   |      |   | 1,683  |  
|Leasehold improvements                             |  |              | 355    |   |      |   | 1,191  |  
|Capitalized software and website development costs |  |              | 1,419  |   |      |   | 2,919  |  
|                                                   |  |              |        |   |      |  
|                                                   |  |              | 7,947  |   |      |   | 13,841 |  
|Less: Accumulated depreciation and amortization    |  |              | (4,918 | ) |      |   | (6,830 | )
|                                                   |  |              |        |   |      |  
|                                                   |  | $            | 3,029  |   |      | $ | 7,011  |  
|                                                   |  |              |        |   |      |  

54



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##### Table of Contents



PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                        |  |              |     |  |      |   |       | 
|--------------------------------------------------------------------------------------- |  | ------------ | --- |  | ---- | - | ----- | 
|                                                                                        |  | December 31, |    
|                                                                                        |  |              |    
|                                                                                        |  | 2003         |     |  | 2004 |  
|                                                                                        |  |              |     |  |      |  
|Prepaid expenses and other current assets (in thousands):                               |  |              |     |  |      |   |       | 
|Prepaid expenses and other current assets                                               |  | $            | 319 |  |      | $ | 1,262 | 
|Receivable from landlord for tenant improvement allowance,
    current portion (Note 2) |  |              |    |  |      |   | 947   | 
|                                                                                        |  |              |     |  |      |  
|                                                                                        |  | $            | 319 |  |      | $ | 2,209 | 
|                                                                                        |  |              |     |  |      |  

|                                                                                             |  |              |     |  |      |   |       | 
|-------------------------------------------------------------------------------------------- |  | ------------ | --- |  | ---- | - | ----- | 
|                                                                                             |  | December 31, |    
|                                                                                             |  |              |    
|                                                                                             |  | 2003         |     |  | 2004 |  
|                                                                                             |  |              |     |  |      |  
|Other assets (in thousands):                                                                 |  |              |     |  |      |   |       | 
|Restricted cash                                                                              |  | $            | 30  |  |      | $ |      | 
|Other assets                                                                                 |  |              | 270 |  |      |   | 838   | 
|Receivable from landlord for tenant improvement allowance, less
    current portion (Note 2) |  |              |    |  |      |   | 308   | 
|Interest on note receivable from stockholder                                                 |  |              | 142 |  |      |   | 179   | 
|                                                                                             |  |              |     |  |      |  
|                                                                                             |  | $            | 442 |  |      | $ | 1,325 | 
|                                                                                             |  |              |     |  |      |  

|                                        |  |              |       |  |      |   |       | 
|--------------------------------------- |  | ------------ | ----- |  | ---- | - | ----- | 
|                                        |  | December 31, |      
|                                        |  |              |      
|                                        |  | 2003         |       |  | 2004 |  
|                                        |  |              |       |  |      |  
|Accrued liabilities (in thousands):     |  |              |       |  |      |   |       | 
|Accrued payroll and related liabilities |  | $            | 521   |  |      | $ | 493   | 
|Lease settlement payable (Note 8)       |  |              | 1,562 |  |      |   |      | 
|Other accrued liabilities               |  |              | 771   |  |      |   | 976   | 
|                                        |  |              |       |  |      |  
|                                        |  | $            | 2,854 |  |      | $ | 1,469 | 
|                                        |  |              |       |  |      |  



|         |                           
|-------- | --------------------------
|Note 6  | Related Party Transactions



| |                
| | ---------------
| | Note Receivable





| |                             
| | ----------------------------
| | Consulting Service Agreement



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##### Table of Contents



PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                        
| | -----------------------
| | Anchor Tenant Agreement







| |                      
| | ---------------------
| | Advertising Agreement





| |                                    
| | -----------------------------------
| | Senior Subordinated Promissory Note





|         |                              
|-------- | -----------------------------
|Note 7  | Commitments and Contingencies



| |                 
| | ----------------
| | Operating Leases



56



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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |   |       | 
|------------------------ |  | - | ----- | 
|Year Ending December 31, |  |  
|                         |  |  
|2005                     |  | $ | 1,041 | 
|2006                     |  |   | 1,333 | 
|2007                     |  |   | 1,347 | 
|2008                     |  |   | 1,375 | 
|2009 and thereafter      |  |   | 4,465 | 
|                         |  |   |      
|                         |  | $ | 9,561 | 
|                         |  |   |      



| |               
| | --------------
| | Capital Leases



|                                               |  |                |       |  
|---------------------------------------------- |  | -------------- | ----- | -
|Year Ending December 31,                       |  | Capital Leases |      
|                                               |  |                |      
|2005                                           |  | $              | 1,100 |  
|2006                                           |  |                | 342   |  
|2007                                           |  |                | 122   |  
|2008                                           |  |                | 73    |  
|2009                                           |  |                | 25    |  
|                                               |  |                |      
|Total minimum lease payments                   |  |                | 1,662 |  
|Less: Amount representing interest             |  |                | (173  | )
|                                               |  |                |      
|Present value of capital lease obligations     |  |                | 1,489 |  
|Less: Current portion                          |  |                | (998  | )
|                                               |  |                |      
|Long-term portion of capital lease obligations |  | $              | 491   |  
|                                               |  |                |      





| |                      
| | ---------------------
| | Maintenance Agreement





| |                               
| | ------------------------------
| | Co-location Facility Agreement



57



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##### Table of Contents



PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                
| | ---------------
| | Indemnification





| |              
| | -------------
| | Contingencies










|         |                 
|-------- | ----------------
|Note 8  | Lease Settlement



58



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##### Table of Contents



PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|         |                                       
|-------- | --------------------------------------
|Note 9  | Redeemable Convertible Preferred Stock





|       |  |            |        |        |             |  |       | 
|------ |  | ---------- | ------ | ------ | ----------- |  | ----- | 
|       |  |            |        | Shares |            
|       |  | Shares     |        |        | Issued and  | 
|Series |  | Authorized |        |        | Outstanding | 
|       |  |            |        |        |             | 
|E      |  |            | 1,273  |        |             |  | 812   | 
|D      |  |            | 3,864  |        |             |  | 3,185 | 
|C-1    |  |            | 1,188  |        |             |  | 729   | 
|C-2    |  |            | 1,667  |        |             |  | 801   | 
|C-3    |  |            | 321    |        |             |  | 221   | 
|C-4    |  |            | 2,129  |        |             |  | 1,305 | 
|C-5    |  |            | 1,967  |        |             |  | 1,737 | 
|B      |  |            | 509    |        |             |  | 503   | 
|       |  |            |        |        |             | 
|       |  |            | 12,918 |        |             |  | 9,293 | 
|       |  |            |        |        |             | 











| |          
| | ---------
| | Dividends



59



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##### Table of Contents



PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |           
| | ----------
| | Redemption







|          |         
|--------- | --------
|Note 10  | Warrants



|                                                                                        |  |                 |     |  |                |   |                  |            |  |  |      | 
|--------------------------------------------------------------------------------------- |  | --------------- | --- |  | -------------- | - | ---------------- | ---------- |  |  | ---- | 
|                                                                                        |  | Number          |     |  |                |   |                 
|                                                                                        |  | Outstanding and |     |  |                |   | Year of          |           
|                                                                                        |  | Exercisable     |     |  | Exercise Price |   |                  | Expiration | 
|                                                                                        |  |                 |     |  |                |   |                  |            | 
|Series D warrants , converted to common stock warrant upon
    initial public offering  |  |                 | 116 |  |                | $ | 4.07             |            |  |  | 2006 | 
|Series C-4 warrants, converted to common stock warrant upon
    initial public offering |  |                 | 28  |  |                | $ | 13.47            |            |  |  | 2005 | 
|Series C-5 warrants, converted to common stock warrant upon
    initial public offering |  |                 | 16  |  |                | $ | 11.44            |            |  |  | 2005 | 
|Common stock warrants                                                                   |  |                 | 66  |  |                | $ | 39.60 to $100.32 |            |  |  | 2005 | 







|          |                   
|--------- | ------------------
|Note 11  | Stock Option Plans



60



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##### Table of Contents



PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                              |                                                                                                                          |                  |       |        |             |  |       |               |   |   |      |      | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ---------------- | ----- | ------ | ----------- |  | ----- | ------------- | - | - | ---- | ---- | 
|                              |                                                                                                                          | Shares Available |       |        | Options     |  |       | Weighted      |  
|                              |                                                                                                                          | for Grant        |       |        | Outstanding |  |       | Average Price |  
|                              |                                                                                                                          |                  |       |        |             |  |       |               |  
|Balances at December 31, 2001 |                                                                                                                          |                  | 292   |        |             |  | 649   |               |   | $ | 8.58 |     
|                              | Additional shares reserved                                                                                               |                  |       | 1,528  |             |  |       |              |   |   |      |     | 
|                              | Options granted                                                                                                          |                  |       | (1,629 | )           |  |       | 1,629         |   |   |      | 0.44 | 
|                              | Options exercised                                                                                                        |                  |       |       |             |  |       | (16           | ) |   |      | 0.44 | 
|                              | Options cancelled                                                                                                        |                  |       | 525    |             |  |       | (525          | ) |   |      | 8.69 | 
|                              |                                                                                                                          |                  |       |        |             |  |       |               |  
|Balances at December 31, 2002 |                                                                                                                          |                  | 716   |        |             |  | 1,737 |               |   |   | 0.99 |     
|                              | Options granted                                                                                                          |                  |       | (102   | )           |  |       | 102           |   |   |      | 0.77 | 
|                              | Options exercised                                                                                                        |                  |       |       |             |  |       | (160          | ) |   |      | 0.44 | 
|                              | Options cancelled                                                                                                        |                  |       | 107    |             |  |       | (107          | ) |   |      | 0.55 | 
|                              |                                                                                                                          |                  |       |        |             |  |       |               |  
|Balances at December 31, 2003 |                                                                                                                          |                  | 721   |        |             |  | 1,572 |               |   |   | 1.10 |     
|                              | Additional shares reserved                                                                                               |                  |       | 904    |             |  |       |              |   |   |      |     | 
|                              | Options granted                                                                                                          |                  |       | (883   | )           |  |       | 883           |   |   |      | 9.25 | 
|                              | Options exercised                                                                                                        |                  |       |       |             |  |       | (78           | ) |   |      | 0.56 | 
|                              | Options cancelled                                                                                                        |                  |       | 291    |             |  |       | (291          | ) |   |      | 3.83 | 
|                              | Conversion of Series D redeemable convertible preferred
    stock stock options to common options upon completion of IPO |                  |       | 37     |             |  |       | 112           |   |   |      | 4.07 | 
|                              |                                                                                                                          |                  |       |        |             |  |       |               |  
|Balances at December 31, 2004 |                                                                                                                          |                  | 1,070 |        |             |  | 2,198 |               |   | $ | 4.19 |     
|                              |                                                                                                                          |                  |       |        |             |  |       |               |  



61



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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |  |                                     |       |           |                |  |          |          |  |   |        |          |  |          |       |  |  |   |       | 
|----------------------- |  | ----------------------------------- | ----- | --------- | -------------- |  | -------- | -------- |  | - | ------ | -------- |  | -------- | ----- |  |  | - | ----- | 
|                        |  | Options Outstanding and Exercisable |       |           |               
|                        |  |                                     |       |           | Options Vested | 
|                        |  |                                     |       | Weighted  |                |  |          |          |  |  
|                        |  |                                     |       | Average   |                |  | Weighted |          |  |   |        | Weighted | 
|                        |  |                                     |       | Remaining |                |  | Average  |          |  |   |        | Average  | 
|                        |  | Number                              |       |           | Contractual    |  |          | Exercise |  |   | Number |          |  | Exercise |      
|Range of Exercise Price |  | Outstanding                         |       |           | Life (Years)   |  |          | Price    |  |   | Vested |          |  | Price    |      
|                        |  |                                     |       |           |                |  |          |          |  |   |        |          |  |          |      
|$ 0.00 - $ 1.46         |  |                                     | 1,149 |           |                |  | 7.4      |          |  | $ | 0.47   |          |  |          | 844   |  |  | $ | 0.46  | 
|$ 1.47 - $ 2.93         |  |                                     | 107   |           |                |  | 4.7      |          |  |   | 2.26   |          |  |          | 101   |  |  |   | 2.26  | 
|$ 2.94 - $ 4.40         |  |                                     | 112   |           |                |  | 6.6      |          |  |   | 4.07   |          |  |          | 112   |  |  |   | 4.07  | 
|$ 7.33 - $ 8.79         |  |                                     | 15    |           |                |  | 9.2      |          |  |   | 8.25   |          |  |          |      |  |  |   | 8.25  | 
|$ 8.80 - $10.26         |  |                                     | 717   |           |                |  | 9.1      |          |  |   | 9.07   |          |  |          | 116   |  |  |   | 9.02  | 
|$10.27 - $11.72         |  |                                     | 2     |           |                |  | 9.9      |          |  |   | 11.70  |          |  |          |      |  |  |   |      | 
|$11.73 - $13.19         |  |                                     | 12    |           |                |  | 9.5      |          |  |   | 12.33  |          |  |          |      |  |  |   |      | 
|$13.20 - $14.66         |  |                                     | 84    |           |                |  | 7.3      |          |  |   | 13.84  |          |  |          | 47    |  |  |   | 14.18 | 
|                        |  |                                     |       |           |                |  |          |          |  |   |        |          |  |          |      
|                        |  |                                     | 2,198 |           |                |  | 7.8      |          |  | $ | 4.19   |          |  |          | 1,220 |  |  | $ | 2.28  | 
|                        |  |                                     |       |           |                |  |          |          |  |   |        |          |  |          |      







|                                                                                  |  |                     |      |          |           |  |         |          |  |   |      | 
|--------------------------------------------------------------------------------- |  | ------------------- | ---- | -------- | --------- |  | ------- | -------- |  | - | ---- | 
|                                                                                  |  | Options Outstanding |     
|                                                                                  |  |                     |     
|                                                                                  |  |                     |      | Weighted |          
|                                                                                  |  | Shares              |      |          |           |  | Average |         
|                                                                                  |  | Available for       |      |          | Number of |  |         | Exercise | 
|                                                                                  |  | Grant               |      |          | Shares    |  |         | Price    | 
|                                                                                  |  |                     |      |          |           |  |         |          | 
|Shares reserved                                                                   |  |                     | 255  |          |           |  |        |          |  |   |     | 
|Options granted                                                                   |  |                     | (256 | )        |           |  | 256     |          |  | $ | 4.07 | 
|Options cancelled                                                                 |  |                     | 27   |          |           |  | (27     | )        |  |   | 4.07 | 
|                                                                                  |  |                     |      |          |           |  |         |          | 
|Balances at December 31, 2002                                                     |  |                     | 26   |          |           |  | 229     |          |  |   | 4.07 | 
|Options exercised                                                                 |  |                     |     |          |           |  | (93     | )        |  |   | 4.07 | 
|Options cancelled                                                                 |  |                     | 11   |          |           |  | (11     | )        |  |   | 4.07 | 
|                                                                                  |  |                     |      |          |           |  |         |          | 
|Balances at December 31, 2003                                                     |  |                     | 37   |          |           |  | 125     |          |  |   | 4.07 | 
|Options exercised                                                                 |  |                     |     |          |           |  | (4      | )        |  |   | 4.07 | 
|Options cancelled                                                                 |  |                     |     |          |           |  | (9      | )        |  |   | 4.07 | 
|Conversion of Series D options to common stock
    options upon completion of IPO |  |                     | (37  | )        |           |  | (112    | )        |  |   | 4.07 | 
|                                                                                  |  |                     |      |          |           |  |         |          | 
|Balances at December 31, 2004                                                     |  |                     |     |          |           |  |        |          |  | $ |     | 
|                                                                                  |  |                     |      |          |           |  |         |          | 



62



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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                                 
| | ----------------------------------------------------------------
| | Stock-based Compensation Associated with Awards to
    Employees











| |                                        
| | ---------------------------------------
| | Option Cancellation and Regrant Program







| |                       
| | ----------------------
| | Restricted Stock Grant



63



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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                                            
| | ---------------------------------------------------------------------------
| | Stock-based Compensation Associated with Awards Granted to
    Nonemployees







|          |                           
|--------- | --------------------------
|Note 12  | Deferred Contribution Plan





|          |             
|--------- | ------------
|Note 13  | Income Taxes





|                                 |  |                          |         |   |      |   |         |      |  |   |         |  
|-------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                 |  | Years Ended December 31, |        
|                                 |  |                          |        
|                                 |  | 2002                     |         |   | 2003 |   |         | 2004 | 
|                                 |  |                          |         |   |      |   |         |      | 
|Deferred tax assets:             |  |                          |         |   |      |   |         |      |  |   |         |  
|Net operating loss carryforwards |  | $                        | 14,908  |   |      | $ | 15,140  |      |  | $ | 14,637  |  
|Accruals                         |  |                          | 233     |   |      |   | 210     |      |  |   | 281     |  
|Other                            |  |                          | 569     |   |      |   | 101     |      |  |   | 128     |  
|                                 |  |                          |         |   |      |   |         |      | 
|                                 |  |                          | 15,710  |   |      |   | 15,451  |      |  |   | 15,046  |  
|Less: Valuation allowance        |  |                          | (15,710 | ) |      |   | (15,451 | )    |  |   | (15,046 | )
|                                 |  |                          |         |   |      |   |         |      | 
|                                 |  | $                        |        |   |      | $ |        |      |  | $ |        |  
|                                 |  |                          |         |   |      |   |         |      | 

64



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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|          |                  
|--------- | -----------------
|Note 14  | Subsequent Events



| |                         
| | ------------------------
| | Additional Office Leases





65



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PlanetOut Inc.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Selected Quarterly Financial Data




|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |       |       |   |       |       |       |   |        |       |       | 
|--------------------------------------------------------------------------------------------- | ----------------------------- | ---------------------------------------- | ----- | ----- | ------- | - | ----- | ------- | ----- | - | ------- | ----- | ----- | ------- | ----- | ----- | ------- | - | ----- | ------- | ----- | - | ------- | ----- | ----- | - | ----- | ----- | ----- | - | ------ | ----- | ----- | 
|                                                                                              |                               | Three Months Ended                       |      
|                                                                                              |                               |                                          |      
|                                                                                              |                               | Mar 31,                                  |       |       | Jun 30, |   |       | Sep 30, |       |   | Dec 31, |       |       | Mar 31, |       |       | Jun 30, |   |       | Sep 30, |       |   | Dec 31, |      
|                                                                                              |                               | 2003                                     |       |       | 2003    |   |       | 2003    |       |   | 2003    |       |       | 2004    |       |       | 2004    |   |       | 2004    |       |   | 2004    |      
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|                                                                                              |                               | (In thousands, except per share amounts) |      
|Revenue                                                                                       |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |       |       |   |       |       |       |   |        |      
|                                                                                              | Subscription services         |                                          | $     | 2,729 |         |   | $     | 3,098   |       |   | $       | 3,337 |       |         | $     | 3,563 |         |   | $     | 3,789   |       |   | $       | 4,051 |       |   | $     | 4,328 |       |   | $      | 4,607 |      
|                                                                                              | Advertising services          |                                          |       | 894   |         |   |       | 1,116   |       |   |         | 1,180 |       |         |       | 1,436 |         |   |       | 1,097   |       |   |         | 1,712 |       |   |       | 1,604 |       |   |        | 2,128 |      
|                                                                                              | Transaction services          |                                          |       | 621   |         |   |       | 437     |       |   |         | 384   |       |         |       | 304   |         |   |       | 554     |       |   |         | 347   |       |   |       | 378   |       |   |        | 367   |      
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|                                                                                              |                               | Total revenue                            |       |       | 4,244   |   |       |         | 4,651 |   |         |       | 4,901 |         |       |       | 5,303   |   |       |         | 5,440 |   |         |       | 6,110 |   |       |       | 6,310 |   |        |       | 7,102 | 
|Operating costs and expenses:                                                                 |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |       |       |   |       |       |       |   |        |      
|                                                                                              | Cost of revenue               |                                          |       | 1,506 |         |   |       | 1,498   |       |   |         | 2,084 |       |         |       | 1,608 |         |   |       | 2,143   |       |   |         | 2,014 |       |   |       | 1,941 |       |   |        | 1,970 |      
|                                                                                              | Sales and marketing           |                                          |       | 1,356 |         |   |       | 1,638   |       |   |         | 2,055 |       |         |       | 1,505 |         |   |       | 1,672   |       |   |         | 2,315 |       |   |       | 2,248 |       |   |        | 2,571 |      
|                                                                                              | General and administrative    |                                          |       | 917   |         |   |       | 851     |       |   |         | 1,592 |       |         |       | 882   |         |   |       | 1,295   |       |   |         | 1,301 |       |   |       | 1,263 |       |   |        | 1,323 |      
|                                                                                              | Depreciation and amortization |                                          |       | 453   |         |   |       | 485     |       |   |         | 488   |       |         |       | 604   |         |   |       | 470     |       |   |         | 559   |       |   |       | 645   |       |   |        | 783   |      
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|                                                                                              |                               | Total costs and operating expenses       |       |       | 4,232   |   |       |         | 4,472 |   |         |       | 6,219 |         |       |       | 4,599   |   |       |         | 5,580 |   |         |       | 6,189 |   |       |       | 6,097 |   |        |       | 6,647 | 
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|Income (loss) from operations                                                                 |                               |                                          | 12    |       |         |   | 179   |         |       |   | (1,318  | )     |       |         | 704   |       |         |   | (140  | )       |       |   | (79     | )     |       |   | 213   |       |       |   | 455    |      
|Other income (expense), net                                                                   |                               |                                          | (27   | )     |         |   | (29   | )       |       |   | (54     | )     |       |         | (70   | )     |         |   | (64   | )       |       |   | (128    | )     |       |   | (223  | )     |       |   | (546   | )    
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|Income (loss) before taxes                                                                    |                               |                                          | (15   | )     |         |   | 150   |         |       |   | (1,372  | )     |       |         | 634   |       |         |   | (204  | )       |       |   | (207    | )     |       |   | (10   | )     |       |   | (91    | )    
|Provision for income taxes                                                                    |                               |                                          | (4    | )     |         |   | (28   | )       |       |   |        |       |       |         | (117  | )     |         |   |      |         |       |   | (5      | )     |       |   | (19   | )     |       |   | (1     | )    
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|Net income (loss)                                                                             |                               | $                                        | (19   | )     |         | $ | 122   |         |       | $ | (1,372  | )     |       | $       | 517   |       |         | $ | (204  | )       |       | $ | (212    | )     |       | $ | (29   | )     |       | $ | (92    | )    
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|Accretion on redeemable convertible preferred stock                                           |                               |                                          | (428  | )     |         |   | (427  | )       |       |   | (437    | )     |       |         | (436  | )     |         |   | (438  | )       |       |   | (437    | )     |       |   | (438  | )     |       |   | (89    | )    
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|Net income (loss) attributable to common stockholders                                         |                               | $                                        | (447  | )     |         | $ | (305  | )       |       | $ | (1,809  | )     |       | $       | 81    |       |         | $ | (642  | )       |       | $ | (649    | )     |       | $ | (467  | )     |       | $ | (181   | )    
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|Net income (loss) attributable to common stockholders used in
    basic earnings per share(1) |                               | $                                        | (447  | )     |         | $ | (305  | )       |       | $ | (1,809  | )     |       | $       | 24    |       |         | $ | (642  | )       |       | $ | (649    | )     |       | $ | (467  | )     |       | $ | (181   | )    
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|Basic net income (loss) attributable to common stockholders                                   |                               | $                                        | (0.29 | )     |         | $ | (0.19 | )       |       | $ | (1.10   | )     |       | $       | 0.01  |       |         | $ | (0.37 | )       |       | $ | (0.37   | )     |       | $ | (0.25 | )     |       | $ | (0.01  | )    
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|Diluted net income (loss) attributable to common stockholders                                 |                               | $                                        | (0.29 | )     |         | $ | (0.19 | )       |       | $ | (1.10   | )     |       | $       | 0.00  |       |         | $ | (0.37 | )       |       | $ | (0.37   | )     |       | $ | (0.25 | )     |       | $ | (0.01  | )    
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|Basic weighted-average number of shares used in per share
    calculations                    |                               |                                          | 1,566 |       |         |   | 1,567 |         |       |   | 1,641   |       |       |         | 1,720 |       |         |   | 1,725 |         |       |   | 1,773   |       |       |   | 1,841 |       |       |   | 14,035 |      
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      
|Diluted weighted-average number of shares use in per share
    calculations                   |                               |                                          | 1,566 |       |         |   | 1,567 |         |       |   | 1,641   |       |       |         | 7,735 |       |         |   | 1,725 |         |       |   | 1,773   |       |       |   | 1,841 |       |       |   | 14,035 |      
|                                                                                              |                               |                                          |       |       |         |   |       |         |       |   |         |       |       |         |       |       |         |   |       |         |       |   |         |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In April 2004, the Emerging Issues Task Force issued Statement
    No. 03-06 Participating Securities and the Two
    Class Method Under FASB Statement No. 128, Earnings Per
    Share (EITF 03-06). Net income available
    to common shareholders used in basic earnings per share excludes
    earnings that were contractually entitled to preferred
    stockholders in the event that a dividend was declared.

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosures








|         |                       
|-------- | ----------------------
|Item 9A. | Control and Procedures












|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant

www.planetoutinc.com www.planetoutinc.com









|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters



67



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|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated Financial Statements; See Index to Consolidated
    Financial Statements at Item 8 on page 38 of this
    report.                                  
|
| | Exhibits are incorporated herein by reference or are filed with
    this report as indicated below (numbered in accordance with
    Item 601 of Regulation S-K):

|        |    |                          |  |                                                                                                                                                                                                                                                                                                                                                              
|------- | -- | ------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                         
|Number  |    | Description of Documents
|        |    |                         
|        | 3  | .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 | .1                       |  | 1996 Stock Option Plan of PlanetOut Corporation (filed as
    Exhibit 10.1 to our Registration Statement on
    Form S-1, File No. 333-114988, initially filed on
    April 29, 2004 and incorporated herein by reference).                                                                                                                                  
|       
|        | 10 | .2                       |  | 1996 Equity Incentive Plan of PlanetOut Corporation (filed as
    Exhibit 10.2 to our Registration Statement on
    Form S-1, File No. 333-114988, initially filed on
    April 29, 2004 and incorporated herein by reference).                                                                                                                              
|       
|        | 10 | .3                       |  | Indemnity Agreement dated June 28, 2001 between Online
    Partners.com, Inc. and Mark Elderkin, Jeffery Bennett, Pridecom
    Productions, L.L.C. and Pridecom Productions, Inc. (filed as
    Exhibit 10.3 to our Registration Statement on
    Form S-1, File No. 333-114988, initially filed on
    April 29, 2004 and incorporated herein by reference).
|       
|        | 10 | .4                       |  | Secured Promissory Note dated May 2001 and Stock Pledge
    Agreement dated June 29, 2001 by and between PlanetOut
    Partners, Inc. and Mark Elderkin (filed as Exhibit 10.4 to
    our Registration Statement on Form S-1, File
    No. 333-114988, initially filed on April 29, 2004 and
    incorporated herein by reference).                          
|       
|        | 10 | .5                       |  | Online Partners.com, Inc. 1997 Stock Plan (filed as
    Exhibit 10.5 to our Registration Statement on
    Form S-1, File No. 333-114988, initially filed on
    April 29, 2004 and incorporated herein by reference).                                                                                                                                        

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|        |    |     |                          |                                                                                                                                                                                                                                                                                                              
|------- | -- | --- | ------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |                         
|Number  |    |     | Description of Documents
|        |    |     |                         
|       
|        | 10 | .6  |                          | PlanetOut Partners, Inc. 2001 Equity Incentive Plan (filed as
    Exhibit 10.6 to our Registration Statement on
    Form S-1, File No. 333-114988, initially filed on
    April 29, 2004 and incorporated herein by reference).                                                                              
|       
|        | 10 | .7  |                          | PlanetOut Inc. 2004 Equity Incentive Plan (filed as
    Exhibit 10.7 to our Registration Statement on
    Form S-1, File No. 333-114988, initially filed on
    April 29, 2004 and incorporated herein by reference).                                                                                        
|       
|        | 10 | .8  |                          | PlanetOut Inc. 2004 Executive Officers and Directors Equity
    Incentive Plan (filed as Exhibit 10.8 to our Registration
    Statement on Form S-1, File No. 333-114988, initially
    filed on April 29, 2004 and incorporated herein by
    reference).                                                   
|       
|        | 10 | .9  |                          | Form of PlanetOut Inc. 2004 Equity Incentive Plan Stock Option
    Grant Notice and Agreement (filed as Exhibit 99.7 to our
    Registration Statement on Form S-8, File No. 333-121633,
    initially filed on December 23, 2004 and incorporated
    herein by reference).                                 
|       
|        | 10 | .10 |                          | Form of PlanetOut Inc. 2004 Equity Incentive Plan Restricted
    Stock Award Agreement (filed as Exhibit 99.8 to our
    Registration Statement on Form S-8, File No. 333-121633,
    initially filed on December 23, 2004 and incorporated
    herein by reference).                                        
|       
|        | 10 | .12 |                          | Office lease dated July 1, 2004 by and between Blue Jean
    Equities West and PlanetOut Inc. (filed as Exhibit 10.12 to
    our Registration Statement on Form S-1, File
    No. 333-114988, initially filed on April 29, 2004 and
    incorporated herein by reference).                                   
|       
|        | 10 | .13 |                          | Form of Warrant dated May 10, 2000, as amended
    March 21, 2001 issued to entities associated with Mayfield
    (filed as Exhibit 10.14 to our Registration Statement on
    Form S-1, File No. 333-114988, initially filed on
    April 29, 2004 and incorporated herein by reference).                   
|       
|        | 10 | .14 |                          | Warrant No. PCW-2 dated May 15, 2000 issued to America
    Online, Inc. (filed as Exhibit 10.15 to our Registration
    Statement on Form S-1, File No. 333-114988, initially
    filed on April 29, 2004 and incorporated herein by
    reference).                                                         
|       
|        | 10 | .15 |                          | Form of Warrant dated June 21, 2000, as amended
    March 21, 2001 issued to entities associated with Mayfield
    (filed as Exhibit 10.16 to our Registration Statement on
    Form S-1, File No. 333-114988, initially filed on
    April 29, 2004 and incorporated herein by reference).                  
|       
|        | 10 | .16 |                          | Amended and Restated Warrant No. PCW-4 dated July 25, 2000,
    amended March 21, 2001 issued to America Online, Inc.
    (filed as Exhibit 10.17 to our Registration Statement on
    Form S-1, File No. 333-114988, initially filed on
    April 29, 2004 and incorporated herein by reference).           
|       
|        | 10 | .17 |                          | Form of Series D Preferred Stock Warrant (filed as
    Exhibit 10.21 to our Registration Statement on
    Form S-1, File No. 333-114988, initially filed on
    April 29, 2004 and incorporated herein by reference).                                                                                        
|       
|        | 10 | .18 |                          | Form of directors and officers indemnification
    agreement (filed as Exhibit 10.22 to our Registration
    Statement on Form S-1, File No. 333-114988, initially
    filed on April 29, 2004 and incorporated herein by
    reference).                                                                  
|       
|        | 10 | .19 |                          | Amended and Restated Employment Agreement dated as of
    April 26, 2004 by and between Lowell R. Selvin and
    PlanetOut Inc. (filed as Exhibit 10.24 to our Registration
    Statement on Form S-1, File No. 333-114988, initially
    filed on April 29, 2004 and incorporated herein by
    reference). 
|       
|        | 10 | .20 |                          | Amended and Restated Employment Agreement dated as of
    April 26, 2004 by and between Mark D. Elderkin and
    PlanetOut Inc. (filed as Exhibit 10.25 to our Registration
    Statement on Form S-1, File No. 333-114988, initially
    filed on April 29, 2004 and incorporated herein by
    reference). 
|       
|        | 10 | .21 |                          | Amended and Restated Employment Agreement dated as of
    April 26, 2004 by and between Jeffery T. Soukup and
    PlanetOut Inc. (filed as Exhibit 10.26 to our Registration
    Statement on Form S-1, File No. 333-114988, initially
    filed on April 29, 2004 and incorporated herein by
    reference).

69



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|        |    |     |                          |                                                                                                                                                                                                                                                                                                                 
|------- | -- | --- | ------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |                         
|Number  |    |     | Description of Documents
|        |    |     |                         
|       
|        | 10 | .22 |                          | Amended and Restated Employment Agreement dated as of
    April 26, 2004 by and between Jeffery J. Titterton and
    PlanetOut Inc. (filed as Exhibit 10.27 to our Registration
    Statement on Form S-1, File No. 333-114988, initially
    filed on April 29, 2004 and incorporated herein by
    reference).
|       
|        | 10 | .23 |                          | Amended and Restated Investors Rights Agreement by and among the
    registrant and the parties identified on Schedule A thereto
    (filed as Exhibit 10.23 to our Registration Statement on
    Form S-1, File No. 333-114988, initially filed on
    April 29, 2004 and incorporated herein by reference).   
|       
|        | 10 | .24 |                          | Employment Agreement dated as of January 31, 2005 by and
    between Donna L. Gibbs and PlanetOut Inc. (filed as
    Exhibit 99.1 to our Current Report on Form 8-K, File No.
    000-50879, filed on February 4, 2005, and incorporated
    herein by reference).                                              
|       
|        | 21 | .1  |                          | List of subsidiaries, filed herewith.                                                                                                                                                                                                                                                                           
|       
|        | 23 | .1  |                          | Consent PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm                                                                                                                                                                                                                           
|       
|        | 24 | .1  |                          | Power of Attorney (see the signature page of this Annual Report
    on Form 10-K)                                                                                                                                                                                                                               
|       
|        | 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.                                                                                                                                                                                                                          

70



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##### Table of Contents






SIGNATURES


th




| |               
| | --------------
| | PLANETOUT INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ Jeffrey T. Soukup

| | 
| | 
| | 



| |                        
| | -----------------------
| | Jeffrey T. Soukup      
| | Chief Financial Officer

POWER OF ATTORNEY








|                                                   |  |                                                                                                       |  |                |  | 
|-------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                          |  | Title                                                                                                 |  | Date          
|                                                   |  |                                                                                                       |  |               
|                                                  
|/s/ Lowell R. SelvinLowell
    R. Selvin           |  | Chief Executive Officer (Principal Executive Officer) and
    Chairman of the Board                   |  | March 30, 2005
|                                                  
|/s/ Jeffrey T. SoukupJeffrey
    T. Soukup         |  | Executive Vice President and Chief Financial Officer (Principal
    Financial and Accounting Officer) |  | March 30, 2005
|                                                  
|/s/ Jerry ColonnaJerry
    Colonna                 |  | Director                                                                                              |  | March 30, 2005
|                                                  
|/s/ H. William Jesse, Jr.H.
    William Jesse, Jr. |  | Director                                                                                              |  | March 30, 2005
|                                                  
|/s/ Karen MageeKaren
    Magee                     |  | Director                                                                                              |  | March 30, 2005



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##### Table of Contents



|                                     |  |          |  |                |  | 
|------------------------------------ |  | -------- |  | -------------- |  | 
|Signature                            |  | Title    |  | Date          
|                                     |  |          |  |               
|                                    
|/s/ Allen MorganAllen
    Morgan     |  | Director |  | March 30, 2005
|                                    
|/s/ Robert W. KingRobert
    W. King |  | Director |  | March 30, 2005