eBay 1998 Annual Report Download - page 64

eBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
64
Note 1—The Company and Summary of Significant Accounting Policies:
The Company
eBay Inc. (the “Company”) was incorporated in California in May 1996 and reincorporated in the state of
Delaware in April 1998. The Company operates an online person-to-person trading community. eBay pioneered
online person-to-person trading by developing a Web-based community in which buyers and sellers are brought
together in an auction format to trade personal items such as antiques, coins, collectibles, computers, memorabilia,
stamps and toys. The eBay service permits sellers to list items for sale, buyers to bid on items of interest and all
eBay users to browse through listed items in a fully-automated, topically-arranged service that is available online
24-hours-a-day, seven-days-a-week.
Reincorporation
As a result of the reincorporation in April 1998, the Company was authorized to issue 180,000,000 shares of
$0.001 par value Common Stock and 6,000,000 shares of $0.001 par value Preferred Stock. The Board of Directors
and the stockholders subsequently amended the number of authorized shares such that the Company was authorized
to issue 195,000,000 shares of $0.001 Common Stock and 5,000,000 shares of $0.001 Preferred Stock. The Board of
Directors has the authority to issue the undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof.
Initial public offering
On September 24, 1998, the Company completed its initial public offering of 4,025,000 shares of its Common
Stock, the net proceeds of which aggregated approximately $66.1 million. At the closing of the offering, all issued
and outstanding shares of the Company’ s Convertible Preferred Stock and Mandatorily Redeemable Convertible
Preferred Stock were converted into an aggregate of 27,827,019 shares of Common Stock.
Use of estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Principles of consolidation and basis of presentation
The financial statements as of December 31, 1998 and for the year then ended are consolidated and include the
accounts of the Company and its wholly owned subsidiary. All significant intercompany balances and transactions
have been eliminated in consolidation. From September 1995 (“Inception”) through May 1996, eBay operated as a
sole proprietorship. The sole proprietorship recognized no revenues and incurred no expenses during the period from
Inception to December 31, 1995. The sole proprietorship recognized net revenues totaling $30,000 and incurred
expenses totaling $14,000 during the period from January 1, 1996 until incorporation in May 1996. The results of
operations for this period have been included in the 1996 financial statements to facilitate presentation.
Cash, cash equivalents and short-term investments
The Company considers all highly liquid investments purchased with a maturity of three months or less at the
date of acquisition to be cash equivalents. Both cash equivalents and short-term investments are considered