8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): October 14, 2005

eBay Inc.

(Exact name of registrant as specified in its charter)

Delaware	000-24821	77-0430924
(State or other jurisdiction	(Commission	(I.R.S. Employer
of incorporation)	File Number)	Identification No.)
2145 Hamilton Avenue, San Jose,
California		95125
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code:		(408) 376-7400

Not Applicable

Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

This Form 8-K/A is being filed to amend Item 9.01 of the Current Report on Form 8-K filed by eBay Inc. on October 18, 2005. This amendment provides the audited historical financial statements of the businesses acquired as required by Item 9.01(a) and the unaudited pro forma financial information required by Item 9.01(b), which financial statements and information were not included in the Form 8-K filed on October 18, 2005.

Item 2.01 Completion of Acquisition or Disposition of Assets.

On October 14, 2005, eBay Inc. (“eBay”) completed its previously announced acquisition of the outstanding securities of Skype Technologies S.A., a limited company (société anonyme) registered under the laws of the Grand Duchy of Luxembourg (“Skype”), pursuant to the terms of the Sale and Purchase Agreement dated September 11, 2005 (the “Purchase Agreement”) entered into among eBay, Skype and the shareholders and warrantholders of Skype. Pursuant to the terms of the Purchase Agreement, Skype will become an indirect wholly-owned subsidiary of eBay.

In exchange for the share capital and warrants of Skype, eBay made an initial payment to the sellers of such share capital and warrants consisting of approximately €2.1 billion, or approximately $2.6 billion, which was comprised of approximately $1.3 billion in cash and approximately 32.8 million shares of eBay common stock with a value of approximately $1.3 billion. The sellers have the potential to receive earn out payments tied to the achievement of certain performance targets prior to June 30, 2009. The maximum amount potentially payable under the performance-based earn out is approximately €1.1 billion, or approximately $1.4 billion, and would be payable in cash or eBay stock, at eBay’s discretion, with the expected payment dates for any potential payments in 2008 and/or 2009. All dollar amounts herein are based on the Euro-Dollar exchange rate as of October 12, 2005, as compared with the Euro-Dollar exchange rate as of September 9, 2005 used for purposes of calculating the amounts set forth in eBay’s Current Report on Form 8-K filed on September 15, 2005 (the “Original Form 8-K”). The fair value of the stock consideration issued has, however, been based on the average closing price of our common stock surrounding the acquisition announcement date of September 12, 2005. In addition, since the filing of the Original Form 8-K, certain options to acquire ordinary shares of Skype have been exercised and the holders of the shares issuable upon exercise of the options have made either a “Fixed Consideration Election” or an “Earn Out Election” as described below.

Skype shareholders and warrantholders were offered the choice between several consideration alternatives for their shares and warrants. Shareholders and warrantholders representing approximately 42% of the Skype shares and warrants chose to receive a single payment in cash and eBay stock at the closing of the acquisition (the “Fixed Consideration Election”). Shareholders and warrantholders representing the remaining 58% of the Skype shares and warrants chose to receive a reduced up-front payment in cash and eBay stock at the closing of the acquisition in return for potential future earn-out payments which are based on performance-based targets for active users, gross profit and net revenue (the “Earn Out Election”).

The terms and conditions of the earn out payments are set forth in an Earn Out Agreement entered into concurrently with the Purchase Agreement by eBay, Skype and the sellers of the share capital and warrants of Skype who elected to receive the earn out payments. The earn out payments are contingent upon Skype achieving: (a) a net revenue and gross margin-based target; (b) a gross profit-based target; and (c) a target based on the number of active users of Skype’s communication products. Base earn out payments of up to an aggregate of approximately €877 million, or approximately $1.05 billion, weighted equally among the three targets, would be payable if the targets are achieved over any four-quarter period commencing on January 1, 2006 through June 30, 2009. Additional bonus earn out payments of up to an aggregate of approximately €292 million, or approximately $351 million, weighted equally among the three targets, would be payable if Skype exceeds the targets during calendar year 2008. The Earn Out Agreement also provides that certain persons who were officers and directors of Skype prior to the closing of the transaction will continue to be officers and directors of Skype following the closing of the transaction. However, the earn out payments are not tied to continued employment with Skype or eBay.

The eBay stock issued in connection with the acquisition will be subject to certain contractual and other restrictions on resale. Seventy-five percent of the shares of eBay stock to be issued to persons who made the Fixed Consideration Election that are not otherwise deposited into escrow will be subject to contractual restrictions on transfer that will lapse with respect to one-third of such shares on each of the 180th, 360th and 540th day following the closing of the acquisition. All of the shares of eBay stock to be issued to persons who made the Earn Out Election that are included in the up-front payment but are not otherwise deposited into escrow will be subject to contractual restrictions on transfer that will lapse with respect to twenty-five percent of such shares on each of the 180th, 360th, 540th and 720th day following the closing of the acquisition. eBay and the sellers of the share capital and warrants of Skype have entered into a Registration Rights Agreement requiring eBay to file a registration statement on Form S-3 covering the resale of such eBay stock within 75 days following the closing of the acquisition.

2

In addition to the foregoing, eBay agreed to assume the options to acquire ordinary shares of Skype outstanding as of the closing of the transaction (the “Skype Options”) and convert them into options to acquire approximately 1.9 million shares of eBay stock (the “eBay Options”) pursuant the terms of Option Assumption Agreements or EMI Rollover Agreements entered into between eBay and the holders of options to acquire ordinary shares of Skype in connection with the closing of the transaction.

The foregoing description of the transactions consummated pursuant to the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Purchase Agreement, the Earn Out Agreement and the Registration Rights Agreement, which are filed as Exhibits 2.1, 2.2 and 10.1, respectively, hereto and are incorporated herein by reference, and the Option Assumption Agreements and EMI Rollover Agreements, forms of which are filed as Exhibits 2.3 and 2.4, respectively, hereto and are incorporated herein by reference.

Item 3.02 Unregistered Sales of Equity Securities.

The disclosure set forth in Item 2.01 above is hereby incorporated herein by reference. The eBay stock issued to the sellers of the share capital and warrants of Skype in connection with the Purchase Agreement, as well as the eBay Options into which the Skype Options were converted or exchanged pursuant to the terms of the Option Assumption Agreements or EMI Rollover Agreements, were issued in reliance upon the exemptions from the registration requirements under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(2) thereof and Regulation D and Regulation S thereunder. eBay relied upon representations, warranties, certifications and agreements of the sellers of the share capital and warrants of Skype and the holders of Skype Options, including their agreement with respect to restrictions on resale, in support of the satisfaction of the conditions contained in Section 4(2) of the Securities Act or Regulation D or Regulation S under the Securities Act.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The required audited financial statements of Skype as of and for the years ended December 31, 2004 and 2003 are attached hereto as Exhibit 99.2 and are incorporated in their entirety herein by reference.

The required unaudited interim financial statements of Skype as of and for the six months ended June 30, 2005 and 2004 are attached hereto as Exhibit 99.3 and are incorporated in their entirety herein by reference.

(b) Pro Forma Financial Information.

The required pro forma financial information as of and for the six months ended June 30, 2005 and for the twelve months ended December 31, 2004 is attached hereto as Exhibit 99.4 and is incorporated in its entirety herein by reference.

The required pro forma financial information as of and for the nine months ended September 30, 2005 is attached hereto as Exhibit 99.5 and is incorporated in its entirety herein by reference.

(d) Exhibits.

EXHIBIT
NO.	DESCRIPTION
2.1	Sale and Purchase Agreement dated as of September 11, 2005, by and among eBay Inc., Skype Technologies S.A. and the parties identified on Schedule 1 thereto.*
2.2	Earn Out Agreement dated as of September 11, 2005, by and among eBay Inc., Skype Technologies S.A. and the parties identified on Schedule I thereto.*
2.3	Form of Option Assumption Agreement.**
2.4	Form of EMI Rollover Agreement.**
10.1	Registration Rights Agreement dated as of September 11, 2005, by and among eBay Inc. and the parties identified on Schedule I thereto.*
23.1	Consent of PricewaterhouseCoopers S.à r.l., Independent Accountants.
99.1	Press Release dated October 14, 2005.**
99.2	Consolidated audited financial statements of Skype Technologies S.A. and Subsidiaries as of and for the years ended December 31, 2004 and 2003 and Report of Independent Auditors therein.
99.3	Consolidated unaudited interim financial statements of Skype Technologies S.A. and Subsidiaries as of and for the six months ended June 30, 2005 and 2004.
99.4	Pro forma financial information as of and for the six months ended June 30, 2005 and for the twelve months ended December 31, 2004.
99.5	Pro forma financial information as of and for the nine months ended September 30, 2005.

*	Previously filed as an exhibit to eBay’s Current Report on Form 8-K filed on September 15, 2005
**	Previously filed as an exhibit to eBay’s Current Report on Form 8-K filed on October 18, 2005

3

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	eBay Inc.
November 30, 2005	By:	/s/ Michael R. Jacobson
		Name:	Michael R. Jacobson
		Title:	Senior Vice President, Legal Affairs, General Counsel and Secretary

4

EXHIBIT INDEX

EXHIBIT
NO.	DESCRIPTION
2.1	Sale and Purchase Agreement dated as of September 11, 2005, by and among eBay Inc., Skype Technologies S.A. and the parties identified on Schedule 1 thereto.*
2.2	Earn Out Agreement dated as of September 11, 2005, by and among eBay Inc., Skype Technologies S.A. and the parties identified on Schedule I thereto.*
2.3	Form of Option Assumption Agreement.**
2.4	Form of EMI Rollover Agreement.**
10.1	Registration Rights Agreement dated as of September 11, 2005, by and among eBay Inc. and the parties identified on Schedule I thereto.*
23.1	Consent of PricewaterhouseCoopers S.à r.l, Independent Accountants.
99.1	Press Release dated October 14, 2005.**
99.2	Consolidated audited financial statements of Skype Technologies S.A. and Subsidiaries as of and for the years ended December 31, 2004 and 2003 and Report of Independent Auditors therein.
99.3	Consolidated unaudited interim financial statements of Skype Technologies S.A. and Subsidiaries as of and for the six months ended June 30, 2005 and 2004.
99.4	Pro forma financial information as of and for the six months ended June 30, 2005 and for the twelve months ended December 31, 2004.
99.5	Pro forma financial information as of and for the nine months ended September 30, 2005.

*	Previously filed as an exhibit to eBay’s Current Report on Form 8-K filed on September 15, 2005
**	Previously filed as an exhibit to eBay’s Current Report on Form 8-K filed on October 18, 2005

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-4 (Nos. 333-97727 and 333-117914) and Form S-8 (Nos. 333-64179, 333-87593, 333-41944, 333-58046, 333-97729, 333-100426, 333-107832, 333-117913, 333-127971 and 333-129072) of eBay Inc. of our report dated November 18, 2005, relating to the consolidated financial statements of Skype Technologies S.A., which appears in the Current Report on Form 8-K/A of eBay Inc. dated November 30, 2005.

PricewaterhouseCoopers S.à r.l.
Réviseur d’entreprises

Luxembourg
November 29, 2005

EX-99.2

Exhibit 99.2

SKYPE TECHNOLOGIES S.A.
AND SUBSIDIARIES

Consolidated Financial Statements
As of December 31, 2004 and 2003 and for each of the years then ended

CONTENTS	Pages
Report of the Independent Auditors	1
Consolidated Balance Sheets	2-3
Consolidated Statements of Operations	4
Consolidated Statements of Changes in Stockholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to the Consolidated Financial Statements	7-26

PricewaterhouseCoopers

Société à responsabilité limitée

Réviseur d’Entreprises

400, route d’Esch

B.P. 1443

L-1014 Luxembourg

Telephone +352 494848-1

Facsimile +352 494848-2900

Report of Independent Auditors

To the Board of Directors and Shareholders of
Skype Technologies S.A.

We have audited the accompanying consolidated balance sheets of Skype Technologies S.A. and its subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, statements of changes in stockholders’ equity and statements of cash flows for each of the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Skype Technologies S.A. and its subsidiaries at December 31, 2004 and 2003 and the results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

PricewaterhouseCoopers. S.à r.l.	Luxembourg, November 18, 2005
Réviseur d’Entreprises

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Skype Technologies S.A.
and Subsidiaries

CONSOLIDATED BALANCE SHEETS
As of December 31, 2004 and 2003
(expressed in thousands of USD)

			December 31,			December 31,
ASSETS	Notes		2004			2003
Current assets
Cash and cash equivalents				18,625			1,772
Deposits		4		730			—
Trade accounts receivable		2m		2,583			—
Other receivables				495			—
Prepaid expenses and other current assets				88			7
Total current assets				22,521			1,779
Non-current assets
Deposits		4		133			—
				133			—
Fixed assets, at historical cost		5		339			—
Less: accumulated depreciation				(36	)		—
				303			—
Total assets				22,957			1,779

The accompanying notes are an integral part of these financial statements.

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Skype Technologies S.A.
and Subsidiaries

CONSOLIDATED BALANCE SHEETS
As of December 31, 2004 and 2003
(expressed in thousands of USD)

LIABILITIES AND
STOCKHOLDERS’ EQUITY	Notes		December 31, 2004			December 31, 2003
Current liabilities
Accounts payable
Trade payables				3,974			261
Payable to related parties		10		173			—
Other payables		6		1,876			430
				6,023			691
Accrued liabilities		7		2,484			—
Deferred revenue		2h		6,031			—
Total current liabilities				14,538			691
Stockholders’ Equity		8
Common stock				475			475
Series A-1 preferred stock				86			86
Series A-2 preferred stock				118			118
Series B preferred stock				274			—
Additional paid-in capital		8		21,013			3,520
Accumulated deficit				(14,615	)		(3,013	)
Accumulated other comprehensive income/(loss)				1,068			(98	)
Total stockholders’ equity				8,419			1,088
Total liabilities and stockholders’ equity				22,957			1,779

The accompanying notes are an integral part of these financial statements.

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Skype Technologies S.A.
and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2004 and 2003
(expressed in thousands of USD)

	Notes		2004			2003
Revenues				6,225			—
Cost of sales (excluding depreciation and amortization), of which $38 (2003: $ nil) with related parties				(6,714	)		—
Research and software development costs, of which $2,139 (2003: $748) with related parties		2f		(2,228	)		(970	)
Selling, general and administrative expenses		11		(8,887	)		(708	)
Depreciation and amortization		5		(36	)		—
Operating loss				(11,640	)		(1,678	)
Interest expense		8		—			(133	)
Cost of debt conversion		8		—			(1,202	)
Interest income and other				176			—
Exchange loss, net				(13	)		—
Loss before income taxes				(11,477	)		(3,013	)
Income tax expense		12		(125	)		—
Net loss				(11,602	)		(3,013	)

The accompanying notes are an integral part of these financial statements.

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Skype Technologies S.A.
and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the years ended December 31, 2004 and 2003
(expressed in thousands of USD except number of shares)

																Accumulated
	Number of			Number of												other compre-
	common stocks			preferred						Additional paid-in						hensive
	outstanding			stocks outstanding		Common stock		Preferred stock		capital			Accumulated deficit			income/(loss)			Total
						US$ ’000		US$ ’000		US$ ’000			US$ ’000			US$ ’000			US$ ’000
Stock issuance on incorporation as of November 3, 2003:
• Common stocks		24,800					35													35
Stock issuance as of November 27, 2003
• Series A-1 preferred stocks					57,606				86		1,187	(a)								1,273
• Series A-2 preferred stocks					10,257				15		290									305
• Series A-2 preferred stocks					62,192				93		1,757									1,850
On November 27, 2003, conversion of issued		(24,800	)
shares into 320,502 shares of no par value by		320,502					440				(440	)								—
an appropriation from additional paid-in capital
On November 27, 2003, issuance of 18,992 warrants											537									537
Stock issuance as of December 8, 2003
• Series A-2 preferred stocks					6,499				10		189									199
Comprehensive loss:
• Loss for the year														(3,013	)					(3,013	)
• Other comprehensive loss
Currency Translation Adjustment																	(98	)		(98	)
Total Comprehensive Loss																				(3,111	)
Balance as of December 31, 2003		320,502			136,554		475		204		3,520			(3,013	)		(98	)		1,088
Stock issuance as of March 26, 2004
• Series A-2 preferred stocks					52
Stock issuance as of March 26, 2004
• Series B preferred stocks					180,756				274		17,493									17,767
Comprehensive loss:
• Loss for the year														(11,602	)					(11,602	)
• Other comprehensive income
Currency Translation Adjustment																	1,166			1,166
Total Comprehensive Loss																				(10,436	)
Balance as of December 31, 2004		320,502			317,362		475		478		21,013			(14,615	)		1,068			8,419

(a) Including a beneficial conversion feature of $116 (Note 8)

The accompanying notes are an integral part of these financial statements.

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Skype Technologies S.A.
and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2004 and 2003
(expressed in thousands of USD)

	Notes		2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss				(11,602	)		(3,013	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization				36			—
Amortization of beneficial conversion feature, accounted for as interest expense				—			116
Loss on conversion of debt		8		—			1,202
Changes in operating assets and liabilities:
- (increase) in trade accounts receivable				(2,583	)		—
- (increase) in other receivables				(495	)		—
- (increase) in prepaid expenses and other current assets				(81	)		(7	)
- increase in trade payables				3,713			261
- increase in payable to related parties				173			—
- increase in accrued liabilities				2,484			—
- increase in other payables				1,446			430
- increase in deferred revenue				6,031			—
- (increase) in deposits				(840	)		—
Net cash used in operating activities				(1,718	)		(1,011	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets, net of disposals				(314	)		—
Net cash used in investing activities				(314	)		—
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock				17,767			2,820
Net cash provided by financing activities				17,767			2,820
Increase in cash and cash equivalents				15,735			1,809
Effect of exchange rate changes on cash				1,118			(37	)
Cash and cash equivalents at beginning of the year				1,772			—
Cash and cash equivalents at end of the year				18,625			1,772
Non cash financing/investing activities:
- Conversion of debt to equity				—			1,202

In 2004 and 2003, the Group did not pay any interest and taxes.

The accompanying notes are an integral part of these financial statements.

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Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND HISTORY

Skype Technologies S.A. (the “Company”) and its subsidiaries together form the Skype group (the “Group”). The Company is a limited liability company incorporated and domiciled in Luxembourg. The Company was incorporated on November 3, 2003 and has its registered office at 15, rue Notre-Dame L-2240 Luxembourg.

Skype is a Global peer-to-peer (“P2P”) Voice-Over-Internet Protocol (“VoIP”) Group which offers consumers free, superior-quality calling worldwide as well as providing the capability to paying customers to connect to telephone networks and benefit from VoIP related paid services. The Group mainly operates in the U.S., Latin America, Europe and Asia.

Until July 2004, the Group devoted substantially all of its efforts to developing new business and, as principal operations had not yet commenced, the Group qualified as a development stage company. Since July 2004, the Group has generated sufficient revenues to no longer qualify as a development stage company.

The current regulatory environment for Voice-Over-Internet Protocol (“VoIP”) is uncertain, and is rapidly evolving. In most jurisdictions in which the Group operates, there are little or no regulatory requirements for providing the Group’s VoIP related services, although many jurisdictions are contemplating regulating VoIP services, and in some jurisdictions there are proposed regulations being actively considered. Some of those proposed regulations, and the interpretation of them, could impose obligations on VoIP services that would place additional obligations on the Group or its suppliers, and may inhibit the provision of certain VoIP services or combination of services in some jurisdictions for some period of time. The Group believes that any such regulations would apply equally to all VoIP providers, and thus would not place the Group at a competitive disadvantage, although in some cases it could be more difficult for the Group to implement solutions to regulatory changes due to its use of peer-to-peer technology.

It is not possible to provide any assurance about the Group’s ability to comply with future regulatory changes; however, the Group is actively monitoring the regulatory process in many markets and believes that the regulatory environment will evolve in a manner that recognizes the significant benefits and practical realities of utilizing the full capabilities of the internet for voice communication and related services. Consequently, the Group believes that, although new regulations may impose additional obligations on VoIP providers, such regulations will not fundamentally impair the provision of VoIP services over the longer term.

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Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND HISTORY — CONTINUED

Reorganization of companies under common control

On November 19, 2003, the controlling stockholder of the Group sold its 100% ownership in Skyper Ltd to the Company for a consideration of €31,000 (approximately $37,000). Skyper Ltd is a company incorporated in the Bahamas on October 22, 2002. This transaction represents a reorganization of entities under common control and has been accounted for in a manner similar to a pooling-of-interests for the periods presented. Accordingly, the consolidated financial statements of the Group have been presented using historical carrying costs of Skyper Ltd.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Group are presented in US Dollar (“USD”) and have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”).

a) Basis of consolidation

Subsidiaries

The consolidated financial statements include the accounts of the Company and its subsidiaries, over which it has the ability to exercise unilateral control.

All significant inter-company transactions and balances have been eliminated in the consolidation.

b) Use of estimates

The preparation of consolidated financial statements in conformity with US GAAP 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 amounts of revenues and expenses recognized during the reporting period. On an ongoing basis, Management evaluates estimates, including those related to provisions for doubtful accounts, legal contingencies, accruals and income taxes. Management based its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

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Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

c) Cash equivalents

Highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents.

d) Trade accounts receivable

Trade accounts receivable are carried at original invoice amount less allowance made for doubtful accounts of these receivables. An allowance for doubtful accounts for trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. As of December 31, 2004 and 2003, no allowance for doubtful accounts has been recorded.

e) Fixed assets

Fixed assets are stated at cost, net of depreciation. All repairs and maintenance expenditures are expensed as incurred.

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives are as follows:

- Furniture, fixtures and office equipment      3 years

- Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining term of the related lease.

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Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

f) Software development costs

Software to be sold, leased or otherwise marketed.

The Group develops and continues to enhance its P2P software (“Skype software”) which is downloaded by Skype customers in order to use the Group’s services. This software is accounted for as software to be sold, leased or otherwise marketed in accordance with FASB issued Statement No. 86, “Accounting for the costs of computer softwares to be sold, leased, or otherwise marketed”. The Group expenses the costs of research, including predevelopment efforts prior to establishing technological feasibility of the Skype software, and costs incurred for training and maintenance. Software development costs are capitalized when technological feasibility has been established and anticipated future revenues assure recovery of the capitalized amounts. Capitalization stops when the product is available for general release to customers. Because of the short time period between technological feasibility and product release, and the insignificant amount of costs incurred during such period, the Group has not capitalized any software development costs to date.

Software developed for internal use

The Group is developing its operating systems to support its paid services. The Group accounts for these systems as software developed for internal use, in accordance with SOP 98-1, “Accounting for costs of computer softwares developed or obtained for internal use”. The Group expenses the costs related to preliminary project stage. Capitalization of costs begins when the preliminary project stage is completed and management authorizes and commits to funding a computer software project and it is probable that the project will be completed and the software will be used to perform the function intended.

Costs then capitalized include external direct costs of materials and services consumed in developing or obtaining internal-use computer software and direct payroll and payroll-related costs.

Because of the insignificance of costs that meet criteria for capitalization and incurred to develop various software, including the operating system, the Group has not capitalized any software development costs to date.

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Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

g) Impairment of long-lived assets

The recoverability of the Group’s long-lived assets is subject to the future performance of the Group’s operations and the evolution of the business in accordance with its plans. In evaluating the recoverability of its assets, the value and future benefits of the Group’s operations are periodically reviewed by Management based on technological, regulatory and market conditions. In accordance with SFAS 144, “Accounting for the impairment or Disposal of Long-Lived Assets”, long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the carrying value of an asset exceeds the undiscounted future cash flows expected to be generated by that asset, an impairment loss is measured based on the difference between the estimated fair value and the carrying amount of the asset. Management’s estimates of fair value are based on market prices of similar assets to the extent available under the circumstances and the result of valuation techniques; these include net present values of estimated future cash flows and valuations based on market transactions in similar circumstances. For new product launches where no comparable market information is available, management bases its view on recoverability primarily on cash flow forecasts. In conjunction with the evaluation of a possible impairment of the long-lived assets’ carrying value, the Group also evaluates the appropriateness of the estimated useful lives of the long-lived assets. There were no impairment losses recorded for 2004 and 2003.

h) Revenue recognition

The Group earns revenues primarily from prepaid subscriber services and to a lesser extent, fees earned from the offering of Skype’s products by third-parties.

The Group recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the fees are fixed or determinable and collection is reasonably assured.

As of December 31, 2004, the majority of the Group’s revenues is derived from “Skype-Out” services which consist of calls made from the internet to the telephone network for a fee. Such fees which are prepaid are deferred and recorded as “Deferred revenue” until recognized as revenues at the time of customer usage. Prepaid fees are contractually valid for six months after activation and unused credits after that period are recognized as revenues (breakage). Discounts and incentives are accounted for as a reduction of revenues.

For services which are covered by an upfront yearly or quarterly subscription fee, recognition of revenue is deferred as “Deferred revenue” and recognized ratably over the subscription period.

- 11 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

In addition to the direct relationship that the Group has with the majority of its subscribers, the Group also has agreements with companies whereby those companies’ customers are offered a co-branded subscription service. When the agreement provides that the Group is the party responsible for providing the service and has control over the fees charged to customers, the Group records the gross amount billed as revenue. When the agreement provides that Skype is not the primary obligor to provide such co-branded services, Skype records the net amount received from those companies as revenue, which is in accordance with EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”.

In 2004, the Group started to market bundled services. These transactions contain multiple elements and the Group applies EITF 00-21, “Revenue Arrangements with Multiple Deliverables” to these arrangements. The various elements of the arrangement are separable and each element is recognized separately in accordance with SEC Staff Accounting Bulletin, No. 104, Revenue Recognition. In accounting for multiple deliverables, management’s judgment is necessary when identifying the nature of deliverables in an arrangement as well as measuring and allocating fair value to the multiple deliverables.

The Group offers promotional vouchers to consumers to subscribe for a fixed amount to enable them to try Skype-Out on a free trial basis. The associated incremental costs thereon are provided for as a liability and recorded as selling expenses in the statement of operations.

i) Cost of sales

Cost of sales consists principally of billing and collection costs, hosting cost, termination fees for calls and the direct costs of rendering services.

Payment processing costs are expensed as incurred and included under the caption “cost of sales.”

j) Income taxes

The Group companies are subject to taxation in the countries in which they operate. Corporate tax, including deferred taxation where appropriate, is applied at the applicable current rates on their taxable profits. Deferred income taxes are determined using the liability method whereby the future expected consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements are recognized as deferred tax assets and liabilities. Deferred tax assets are recognized subject to a valuation allowance to reduce the balance to an amount, which is more likely than not to be realized.

- 12 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

k) Leases

Operating lease rentals are charged to the profit and loss account on a straight-line basis over the term of the lease.

l) Foreign currency translation

The reporting currency of the Group is the USD (US$ or $). The functional currency of the Group and most of its subsidiaries is the Euro (“EUR”).

In the financial statements of Group companies, transactions denominated in a currency other than the functional currency are recorded in the functional currency at the actual exchange rate existing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at year-end are reported at the exchange rates prevailing at year-end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the consolidated statements of operations.

For the purpose of consolidating subsidiaries that report in currencies other than the USD, assets and liabilities are translated using exchange rates on the respective balance sheet dates. Income and expense items are translated using the average rates of exchange for the periods involved. The resulting translation adjustments are recorded in stockholders’ equity.

The following is a table of the principal currency translation rates to the USD:

		2004		2004		2003		2003
Country	Currency	Average rate		Period-end rate		Average rate		Period-end rate
United Kingdom	GBP		0.5459		0.5221		0.6121		0.5609
Europe	EUR		0.8047		0.7377		0.8848		0.7962
Estonia	EEK		12.582		11.5533		13.827		12.4565

m) Concentration of credit risk

Financial instruments, which potentially subject the Group to concentrations of credit risk, are primarily cash and cash equivalents, deposits, and accounts receivable. The counter parties to the agreements relating to the Group’s cash and cash equivalents and deposits are well established financial institutions. Accordingly, management does not believe there is a significant risk of non-performance by these counter parties. As of December 31, 2004, Group’s trade accounts receivable mainly comprises receivables from payment processing suppliers. The Group estimates and records, if appropriate, an allowance for doubtful accounts based upon the expected collectibility of all trade accounts receivable.

- 13 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

n) Financial Risk Management

The Group’s activities expose it to a variety of financial risks including price, fraud, currency exchange rates and liquidity risks. The Group’s overall risk management approach considers the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.

Price risk

The Group seeks to maintain multiple suppliers and terms with suppliers and customers that allow for pricing adjustments within reasonable time delays should market conditions change significantly.

Fraud risk

The Group is exposed to fraudulent credit card usage over the internet and is subject to the charge-back costs and potential fines which credit card companies could impose in such circumstances. The Group manages fraud risks via customer and credit card verification processes.

Currency exchange rates risk

The Group operates internationally and is exposed to currency exchange rates risk from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. The Group seeks to reduce its foreign currency exposure through a policy of matching, as far as possible, assets and liabilities denominated in foreign currencies.

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient funding. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding by keeping adequate cash balances available.

o) Financial assets and liabilities

The fair value of financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate carrying value, principally because of the short maturity of these items. The Group does not have long term liabilities and financing.

- 14 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 3 – GROUP COMPANIES

The companies included in the consolidated financial statements other than the Company are the following:

		Holding		Holding
		as		as
		Dec. 31,		Dec. 31,
Name of the Company	Country	2004		2003
		%		%
Skype Communications S.A.	Luxembourg		100		-	*
Skype Software S.A.	Luxembourg		100		-	*
S Technologies Ltd	UK		100		-	*
Skype Technologies OU	Estonia		100		-	*
Skype Ltd	Ireland		100		-	*
Skyper Ltd	Bahamas		100		100
Skype Inc.	United States of America		100		-	*

*   Companies incorporated in 2004

NOTE 4 – DEPOSITS

The Group maintains deposits for a total of $0.9 million (2003: $ nil) as guarantee deposits on certain rental properties and to providers of services to the Group.

- 15 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 5 – FIXED ASSETS

Fixed assets at December 31, 2004 and 2003 comprise the following:

	2004			2003
	US$ ’000			US$ ’000
Leasehold investments		32			—
Furniture, fixtures and office equipment		282			—
		314			—
Exchange difference		25			—
Fixed assets, at historical cost		339			—
Less:
Accumulated depreciation		(36	)		—
Fixed assets, net		303			—

As of December 31, 2004 and 2003 no interest has been capitalized.

NOTE 6 – OTHER PAYABLES

Other payables consist of the following as of December 31, 2004 and 2003:

	2004		2003
	US$ ’000		US$ ’000
VAT		990		—
Payroll and social security		293		162
Payroll taxes		163		—
Travel expenses		298		63
Other		132		205
		1,876		430

- 16 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 7 – ACCRUED LIABILITIES

	2004		2003
	US$ ’000		US$ ’000
Professional services		760		—
Marketing expenses		146		—
Credit card fine provision		678		—
Chargeback provision		609		—
Other		291		—
		2,484		—

Credit card fine provision

Consistent with most pay services conducted over the internet, the Group has experienced fraudulent credit card usage and is subject to the potential fines which credit card companies may impose in such circumstances. The Group has recorded a provision of $0.7 million as of December 31, 2004, in respect of this risk which represents the Group’s best estimate of the probable risk based on information available.

Chargeback provision

The chargeback provision relates to costs charged by financial institutions in relation with fraudulent credit card usage over the internet that occurred in 2004.

- 17 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 8 – STOCKHOLDERS’ EQUITY

a) Common stock, preferred stocks and additional paid-in capital

On November 3, 2003, the Company was incorporated with a share capital of €31,000 ($35,514) consisting of 24,800 registered ordinary shares, at a par value of €1.25 ($1.43) each.

At the time of the reorganization of the entities under common control on November 19, 2003 (refer to note 1), Skyper Ltd had outstanding Bridge Loan Financing Agreements (the “Agreements”) and Promissory Notes (the “Notes”) with third party financial investors for an accumulated nominal value of $716,325 and accrued interest of €15,208 ($18,090) as of November 20, 2003 (interest accruing at 7% per year compounded on a monthly basis). The Agreements and Notes were unsecured convertible loans being convertible into series A-1 and A-2 preferred stocks at agreed conversion rates. With the exception of one Agreement, the conversion rate equals to the subscription price agreed with any third party financial investors at a subsequent round of financing, unless the pre-money valuation exceeded an agreed-upon threshold, upon which the investor is entitled to receive a specified percentage of the Company’s shares as of the time of the financing. One Agreement with a nominal value of €100,000 is convertible at a conversion rate which is in the money at the issuance date. This embedded beneficial conversion feature has been accounted for in accordance with EITF 98-5, “Accounting for convertible securities with beneficial conversion feature or contingently adjustable conversion ratios”. The intrinsic value of the embedded conversion feature exceeds the total amount of the proceeds of the convertible securities and, accordingly, the total proceeds on the issuance of the convertible securities was credited to additional paid-in capital for an amount of €100,000 ($115,810). The debt discount resulting from the allocation of proceeds to the beneficial conversion feature has been amortized over the period from the issuance of the Agreement to its conversion on November 20, 2003. The Company has recognized this amortization as interest expense in the statement of operations for the year ended December 31, 2003. In addition, the Agreements also contained a provision whereby, the investors would be entitled to subscribe for a specified number of warrants for shares indexed to the amount of shares issued on conversion. The warrants would have an exercise price equal to the subscription price agreed with any third party financial investors at subsequent round of financing.

Subsequent to the reorganization, on November 27, 2003, the Bridge Loan Financing was converted into series A-1 preferred stocks, resulting in the issuance of 57,606 shares of Series A-1 preferred stocks, which have been recorded for a total amount of €975,173 ($1,157,260) allocated between share capital for €72,008 ($85,675) and additional paid-in capital for €903,165 ($1,071,585) and the issuance of 18,992 warrants with a right to subscribe to Series A-1 preferred stocks. The warrants were exercisable on issue at an exercise price of €1.25 per share, with an exercise period of five years.

- 18 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 8 – STOCKHOLDERS’ EQUITY — CONTINUED

In addition, other outstanding Notes were converted into Series A-2 preferred stocks at a conversion price of €24.73 ($29.42) per share resulting in the issue of 10,257 shares of Series A-2 preferred stocks.

The aggregate fair value of the shares and warrants issued on November 27, 2003 amounts to €2,147,635 ($2,555,256). However, the original contractual conversion conditions were such that shares and warrants with an aggregated fair value of €1,083,850 ($1,289,564) would have been issued. The incremental fair value of shares and warrants issued amounting to €1,063,785 ($1,202,289) represents an inducement to convert and has been recorded in the statement of operations within the caption “Cost of debt conversion”.

On November 27, 2003, the Company issued 62,192 shares of Series A-2 preferred stocks for an aggregate amount of €1,554,800 ($1,849,901) allocated between share capital for €77,740 ($92,495) and additional paid-in capital for €1,477,060 ($1,757,406).

On November 27, 2003, the stockholders resolved to convert each of the 24,800 existing ordinary shares into 12.9234677 new ordinary shares by appropriating an amount of €369,628 ($439,783) from additional paid in capital to common stocks.

On December 8, 2003, the Board of Directors of the Company resolved to issue 6,499 Series A-2 preferred stocks, for a total amount of €162,475 ($198,658) allocated between share capital for €8,124 ($9,934) and additional paid-in capital for €154,351 ($188,724).

On March 26, 2004, the Stockholders resolved to increase the issued share capital of the Company by the issue of 52 shares of A-2 preferred stocks of no par value by a transfer from additional paid-in capital of €65 ($81).

On March 26, 2004, the Stockholders resolved to ratify and approve the execution on behalf of the Company of a «Series B Preferred Stocks Purchase Agreement» dated February 11, 2004. 180,756 Series B preferred stocks were issued in consideration of subscriptions for an aggregate consideration of €14,644,465 ($17,766,665) allocated between share capital for €225,945 ($274,116) and additional paid-in capital for €14,418,520 ($17,492,549).

- 19 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 8 – STOCKHOLDERS’ EQUITY — CONTINUED

As of December 31, 2004, the share capital of the Company consisted of the following:

	Shares		Shares
	authorized		issued
Common stock		773,402		320,502
Series A-1 preferred stocks		76,598		57,606
Series A-2 preferred stocks		79,000		79,000
Series B preferred stocks		180,756		180,756

Series A-1, A-2 and B preferred stocks:

As further described in the Company’s Articles of Association, the preferred stocks (Series A-1, A-2 and B) have preferences related to:

(1)	a right to convert into ordinary shares with the conversion price subject to adjustment in case of certain dilutive events. Depending upon events, the conversion is at the option of the holder or automatic;
(2)	a right to dividends equal to 7% (on an annualized non-cumulative basis) of the related preferred stocks issuance price when and if dividends are declared out of funds legally available for such purposes;
(3)	a preference in case of liquidation equal to the issue price of the related preferred stocks plus any accrued or declared but unpaid dividends;
(4)	specific board representation, and;
(5)	the vote or written consent of the holders of at least a majority of the outstanding preferred stocks is required, voting together as a class, to effectuate certain actions.
(6)	a share in the Company’s remaining assets up to three times the initial issue price of the preference shares, in case of liquidation and after repayment of the issue price of the related shares plus any accrued or declared but unpaid dividends.

- 20 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 9 – PERSONNEL CHARGES

The following personnel charges are included in cost of sales, selling, general and administrative expenses and research and software development costs:

	2004		2003
	US$ ’000		US$ ’000
Wages and salaries		1,407		147
Social security costs		92		—
Other		256		—
		1,755		147

NOTE 10 – RELATED PARTY TRANSACTIONS

Software license

In November 2003, Skype signed an agreement with a software development company which granted Skype a perpetual non exclusive license on its software, with exclusive use of the software for the limited purpose of providing P2P telephony, multi-directional video communications between end users via the internet. The founders of this software company are also founding shareholders (and senior management) of Skype.

In remuneration of license rights granted to Skype, the software company receives a royalty fee which was $38,316 in 2004 (2003: $ nil) and which is capped at $2.0 million per year.

In addition to the license rights, in 2004, the Company also received consulting services from the same related party in connection with the development of their software and also applications. Costs incurred in relation to these consulting services, amounted to $1.6 million for the year ended December 31, 2004 (2003: $0.6 million).

As of December 31, 2004, the amount payable under this contract is $0.1 million (2003: $ nil). During the year 2004, a total amount of $1.5 million has been paid in relation to the above contract.

- 21 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 10 – RELATED PARTY TRANSACTIONS — CONTINUED

Consulting services

In August 2003, Skype signed an agreement to receive professional services from a minority shareholder of the Company. Such professional services consist of assistance for the development of the Skype software and the operating systems of Skype. Costs incurred in relation to these consulting services, amounted to $0.5 million for the year ended December 31, 2004 (2003: $0.2 million).

As of December 31, 2004, the amount payable under these contracts is $0.1 million (2003: $ nil). During the year 2004, a total amount of $0.4 million has been paid in relation to these consulting services.

NOTE 11 –SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

This caption includes the following items for 2004 and 2003:

	2004		2003
	US$ ‘000		US$ ‘000
Personal costs		1,129		43
Professional services		3,393		570
Travel expenses		887		—
Facilities		455		—
Marketing		1,568		—
Credit cards fines and provisions		1,365		—
Other		90		95
		8,887		708

- 22 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 12 –TAXES

The tax effects of significant items comprising the Group’s net deferred income tax asset/liability as of December 31, 2004 and 2003 are as follows:

	2004			2003
	US$’000			US$’000
Net operating and other loss carry forward		2,012			12
Difference between book and tax basis of assets and liabilities		562			—
Total deferred income tax assets		2,574			12
Valuation allowance		(2,574	)		(12	)
Deferred income tax assets, net of allowance		—			—
Deferred income tax liabilities:		—			—
Net deferred income tax asset		—			—

The reconciliation between statutory tax rate and effective tax rate is as follows:

	2004			2003
	US$ ‘000			US$ ‘000
Statutory tax rate		(166	)		(45	)
Effect of timing difference		562			—
Different tax rates on other jurisdictions		(271	)		45
Income tax expense		125			—

- 23 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 12 –TAXES — CONTINUED

The Group has accumulated tax losses of $9,352,487 and $769,121 for the years ended December 31, 2004 and December 31, 2003 respectively. All of these losses relate to Luxembourg-based group entities. Net operating and other loss carry forwards can be carried forward for an unlimited period.

Realization of the Company’s deferred tax asset is dependent on the ability of the Company and its subsidiaries to generate sufficient taxable income to utilize reversing temporary differences and carry forwards within the carry forward periods or in the near future.

Skype operates in tax jurisdictions with rates ranging from 12.5% to 35%.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries are contingently liable with respect to lawsuits and other matters that arise in the normal course of business. Management is of the opinion that while it is impossible to ascertain the ultimate legal and financial liability with respect to these contingencies, the ultimate outcome of these contingencies is not anticipated to have a material effect on the Group’s financial position and operations.

Lease commitments

The Group has short-term lease commitments for office premises and servers. Future minimum lease payments under scheduled operating leases that have initial or remaining non-cancelable terms in excess of one year are as follows:

	Operating leases
	US$ ‘000
2005		217
2006		9
2007 and thereafter		—
Total minimum lease payments		226

For the year ended December 31, 2004, the operational lease expenses amount to $20,639 (2003: $16,202).

- 24 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 14 – SUBSEQUENT EVENTS

Registered address

On May 3, 2005, the Board of Directors has approved the change of registered address to 15, rue Notre-Dame, L-2240 Luxembourg.

Stock Options

In 2005, the Board of Directors and Stockholders of the Company have approved the implementation of a stock option plan (“the Plan”). Options may be granted by the Board of Directors to employees on a discretionary basis within the limits established by law and the authorizations granted by the general meeting of the shareholders of the Company.

One option entitles the holder to subscribe to one ordinary share in the capital of the Company. The total number of ordinary shares available under the Plan shall not exceed 52,900, unless a new authorization is granted to the Board of Directors by a general meeting of shareholders of the Company. The options are valid for a period of 8 years from the effective grant date as indicated in the option agreement of each beneficiary and vest ratably generally over a 4-year vesting period. The option starts vesting retroactively on the date which the holder starts his employment or relationship with any Group Company. A seniority of one year in the Group is required in any case to acquire options, failing which all vested and unvested options lapse.

The strike price shall be based on a valuation of the ordinary shares of the Company approved by the Board of Directors. Vested and unvested options may be transferred subject to conditions and restrictions. The Plan’s rules are completed or amended according to territorial riders taking into account geographically based requirements applicable to specific grants.

Through October 5, 2005 grants for 35,756 options to employees, directors and consultants had been confirmed by the Board. The weighted average strike price of those options amounts to €209.51 ($251.91) per share and of which 13,965 options were vested as of October 5, 2005 (including those still subject to completion of the one year seniority requirement).

- 25 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2004 and 2003
(expressed in USD)

NOTE 14 – SUBSEQUENT EVENTS — CONTINUED

As of October 5, 2005, no shares have been issued against option exercises.

Shareholders’ agreement with TOM Online

On August 17, 2005, the Company entered into a shareholders’ agreement with Tom Online (BVI) Limited and Tom Online Inc. (together “Tom Online”) by which Tom Online and the Group incorporated Tel-Online Limited. The objective of Tel-Online Limited is to create, market and distribute a customized version of the Skype software in China and to develop and host a mutually-branded website. Tom Online and the Group respectively own 51% and 49% of Tel-Online Limited. The Group invested $49 for its 49% shareholding.

Stockholders’ transactions

In July 2005, the Company issued 757 shares of series A-1 preferred stocks for a total nominal value of €946.25 ($1,137.77) per share against the exercise of outstanding warrants.

In October 2005, eBay Inc. (California, USA) acquired 100% of all shares of the Company for a total consideration approximating €2,100 million ($2,600 million) with an additional potential earn-out of up to €1,200 million ($1,500 million). At the acquisition date on October 14, 2005, all outstanding warrants were exercised and all preferred shares were converted into ordinary shares. In addition, the outstanding options on the Company’s shares were either exercised into ordinary shares, which were purchased by eBay Inc., or converted into eBay Inc. options.

Related parties

During July and August, the Group granted promissory notes to some of its senior management for a total amount of €2.0 million ($2.4 million). Such amounts were fully reimbursed on September 30, 2005. These promissory notes carried interest at LIBOR rate plus 0.02% per annum.

- 26 -

EX-99.3

Exhibit 99.3

SKYPE TECHNOLOGIES S.A.
AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements
As of June 30, 2005 and 2004

CONTENTS	Pages
Interim Consolidated Balance Sheets		1-2
Interim Consolidated Statements of Operations		3
Interim Consolidated Statements of Changes in Stockholders’ Equity		4
Interim Consolidated Statements of Cash Flows		5
Notes to the Interim Consolidated Financial Statements		6-12

Skype Technologies S.A.
and Subsidiaries

INTERIM CONSOLIDATED BALANCE SHEETS
As of June 30, 2005 (unaudited) and December 31, 2004
(expressed in thousands of USD)

	June 30, 2005			December 31,
ASSETS	(Unaudited)			2004
Current assets
Cash and cash equivalents		20,883			18,625
Deposits		2,541			730
Trade accounts receivable		6,117			2,583
Other receivables		234			495
Prepaid expenses and other current assets		220			88
Total current assets		29,995			22,521
Non current assets
Deposits		98			133
		98			133
Fixed assets, at historical cost		647			339
Less: accumulated depreciation		(115	)		(36	)
		532			303
Total assets		30,625			22,957

The accompanying notes are an integral part of these interim consolidated financial statements.

- 1 -

Skype Technologies S.A.
and Subsidiaries

INTERIM CONSOLIDATED BALANCE SHEETS
As of June 30, 2005 (unaudited) and December 31, 2004
(expressed in thousands of USD)

LIABILITIES AND		June 30, 2005			December 31,
STOCKHOLDERS' EQUITY	Notes	(Unaudited)			2004
Current liabilities
Accounts payable
Trade payables			6,752			3,974
Payable to related parties	5		396			173
Other payables			3,271			1,876
			10,419			6,023
Accrued liabilities	3		2,503			2,484
Deferred revenue			13,005			6,031
Total current liabilities			25,927			14,538
Stockholders’ Equity	4, 7
Common stock			475			475
Series A-1 preferred stock			86			86
Series A-2 preferred stock			118			118
Series B preferred stock			274			274
Additional paid-in capital			34,609			21,013
Accumulated deficit			(22,653	)		(14,615	)
Deferred compensation cost			(8,367	)		—
Accumulated other comprehensive income			156			1,068
Total stockholders’ equity			4,698			8,419
Total liabilities and stockholders’ equity			30,625			22,957

The accompanying notes are an integral part of these interim consolidated financial statements.

- 2 -

Skype Technologies S.A.
and Subsidiaries

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the six-month periods ended June 30, 2005 and 2004
(expressed in thousands of USD)

	June 30, 2005			June 30, 2004
	(Unaudited)			(Unaudited)
Revenues		23,716			—
Cost of sales (excluding depreciation and amortization), of which $384 (2004: $ nil) with related parties		(17,532	)		—
Research and software development costs, of which $595 (2004: $1,382) with related parties		(3,482	)		(1,382	)
Selling, general and administrative expenses		(10,793	)		(2,887	)
Depreciation and amortization		(79	)		(2	)
Operating loss		(8,170	)		(4,271	)
Interest income		121			76
Exchange gain/(loss), net		176			(12	)
Loss before income taxes		(7,873	)		(4,207	)
Income tax expense		(165	)		(3	)
Net loss		(8,038	)		(4,210	)

The accompanying notes are an integral part of these interim consolidated financial statements.

- 3 -

Skype Technologies S.A.
and Subsidiaries
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the six-month period ended June 30, 2005 (unaudited) and the year ended December 31, 2004
(expressed in thousands of USD except number of shares)

	Number of																Accumulated other
	common stocks		Number of preferred						Additional paid-in		Deferred						comprehensive
	outstanding		stocks outstanding		Common stock		Preferred stock		capital		compensation			Accumulated deficit			income/(loss)			Total
					US$’ 000		US$ ’000		US$ ’000		US$ ’000			US$ ’000			US$ ’000			US$ ’000
Balance as of December 31, 2003		320,502		136,554		475		204		3,520		—			(3,013	)		(98	)		1,088
Stock issuance as of March 26, 2004
• Series A-2 preferred stocks				52
Stock issuance as of March 26, 2004
• Series B preferred stocks				180,756				274		17,493											17,767
Comprehensive loss:
• Loss for the year															(11,602	)					(11,602	)
• Other comprehensive income
Currency Translation Adjustment																		1,166			1,166
Total Comprehensive Loss																					(10,436	)
Balance as of December 31, 2004		320,502		317,362		475		478		21,013		—			(14,615	)		1,068			8,419
On May 03, 2005
• Stock option plan issue										12,003		(7,418	)								4,585
On June 30, 2005
• Amortization of deferred compensation										1,593		(949	)								644
Comprehensive loss:
• Loss for the period															(8,038	)					(8,038	)
• Other comprehensive loss
Currency Translation Adjustment																		(912	)		(912	)
Total Comprehensive Loss																					(8,950	)
Balance as of June 30, 2005 (Unaudited)		320,502		317,362		475		478		34,609		(8,367	)		(22,653	)		156			4,698

The accompanying notes are an integral part of these interim consolidated financial statements.

- 4 -

Skype Technologies S.A.
and Subsidiaries

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six-month periods ended June 30, 2005 and 2004
(expressed in thousands of USD)

	Six months			Six months ended
	ended June 30, 2005			June 30, 2004
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		(8,038	)		(4,210	)
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Depreciation and amortization		79			2
Compensation cost on stock options		5,252			—
Changes in operating assets and liabilities:
- (increase) in trade accounts receivable		(3,534	)		(44	)
- (increase)/decrease in other receivables		261			(509	)
- (increase) in prepaid expenses and other current assets		(132	)		(86	)
- increase in trade payables		2,778			285
- increase in payable to related parties		223			—
- decrease in accrued liabilities		19			1,266
- increase/(decrease) in other payables		1,395			(360	)
- increase in deferred revenue		6,974			12
- (increase) in deposits		(1,778	)		(110	)
Net cash provided by/(used in) operating activities		3,499			(3,754	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets, net of disposals		(341	)		(36	)
Net cash used in investing activities		(341	)		(36	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock		—			17,767
Net cash provided by financing activities		—			17,767
Increase in cash and cash equivalents		3,158			13,977
Effect of exchange rate changes on cash		(900	)		(195	)
Cash and cash equivalents at beginning of the period		18,625			1,772
Cash and cash equivalents at end of the period		20,883			15,554

During the periods ended June 30, 3005 and 2004, there has been no material interest and taxes paid.

- 5 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
As of June 30, 2005 and 2004
(expressed in USD)

NOTE 1 — ORGANIZATION, NATURE OF OPERATIONS AND HISTORY

Skype Technologies S.A. (the “Company”) and its subsidiaries together form the Skype group (the “Group”). The Company is a limited liability company incorporated and domiciled in Luxembourg. The Company was incorporated on November 3, 2003 and has its registered office at 15, rue Notre-Dame L-2240 Luxembourg.

Skype is a Global peer-to-peer (“P2P”) Voice-Over-Internet Protocol (“VoIP”) Group which offers consumers free, superior-quality calling worldwide as well as providing the capability to paying customers to connect to telephone networks and benefit from VoIP related paid services. The Group mainly operates in the U.S., Latin America, Europe and Asia.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated interim financial statements include the accounts of Skype Technologies S.A. and its wholly owned subsidiaries (collectively, the “Group”) as of and for each of the six month periods ended June 30, 2005 and 2004.

In the opinion of the management all adjustments (consisting of adjustments of a normal recurring nature) considered necessary for a fair presentation of the financial position and results of operations have been included. Operating results of the six-month period ended June 30, 2005 are not necessarily indicative of results to be expected for the full year. The financial statements presented in this report should be read in conjunction with the consolidated financial statements as of December 31, 2004 and 2003 and for each of the years ended.

- 6 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
As of June 30, 2005 and 2004
(expressed in USD)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

The reporting currency of the Group is the USD (US$ or $). The functional currency of the Group and most of its subsidiaries is the Euro (“EUR”).

The accounting policies are consistent with those presented in the consolidated financial statements as of December 31, 2004 and 2003.

Stock Options

Beginning with the stock options granted in May 2005, the Group accounts for stock options and stock-based compensation granted to employees in accordance with the provisions of Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees”. Under APB 25, no compensation expense is recognized for stock options issued to employees with an exercise price equal to or greater than the fair value of the underlying shares at the grant date. Options issued with an exercise price less than the fair value result in deferred compensation which is recorded within shareholder’s equity and amortized to expense over the vesting period.

APB 25 does not apply to stock options granted to selected non-employees. Stock options granted to selected non-employees have been accounted for under the fair value model in accordance with Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” and Issue 96-18 “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services”.

Payment processing costs

Payment processing costs are expensed as incurred and included under the caption “cost of sales.”

NOTE 3 — ACCRUED LIABILITIES

Accrued liabilities include the following items as of June 30, 2005 and December 31, 2004:

Credit card fine provision

Consistent with most pay services conducted over the internet, the Group has experienced fraudulent credit card usage and is subject to the potential fines which credit card companies may impose in such circumstances. The Group has recorded a provision of $0.8 million as of June 30, 2005 (December 31, 2004: $0.7 million) in respect of this risk which represents the Group’s best estimate of the probable risk based on information available.

Chargeback provision

The chargeback provision amounts to $0.3 million as of June 30, 2005 (December 31, 2004: $0.6 million) and relates to costs charged by financial institutions in relation with fraudulent credit card usage over the internet.

- 7 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
As of June 30, 2005 and 2004
(expressed in USD)

NOTE 4 — STOCK-BASED COMPENSATION

In 2005, the Board of Directors and Shareholders of the Company approved the implementation of a stock option plan (the “Plan”). Options may be granted by the Board of Directors to employees on a discretionary basis within the limits established by the law and the authorizations granted by the general meeting of the shareholders of the Company.

One option entitles the holder to subscribe to one ordinary share in the capital of the Company. The total number of ordinary shares available under the Plan shall not exceed 52,900, unless a new authorization is granted to the Board of Directors by a general meeting of shareholders of the Company. The options are valid for a period of 8 years as of the effective grant date as indicated in the option agreement of each beneficiary and vest ratably generally over a 4-year period. The option starts vesting retroactively on the date which the holder starts his employment or relationship with any Group company. A seniority of one year in the Group is required however to benefit from the option scheme, failing which no options vest.

The strike price shall be based on a valuation of the ordinary shares of the Company approved by the Board of Directors. Vested and unvested options may be transferred subject to conditions and restrictions. The transfer of ordinary shares acquired further to the exercise of unvested options shall be subject to the conditions or restrictions. The Plan’s rules are completed or amended according to territorial riders taking into account geographically based requirements applicable to specific grants.

Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” provides an alternative to APB 25 in accounting for stock-based compensation issued to employees. SFAS 123 provides for a fair-value-based method of accounting for employee stock options and similar equity instruments. Companies that elect to continue to account for stock-based compensation arrangements under APB 25 are required by SFAS 123 to disclose the pro forma effect on net income/(loss) as if the fair-value-based method proposed by SFAS 123 had been adopted. Skype is accounting for stock-based compensations arrangements under APB 25.

Pro forma information regarding net loss is required by SFAS 123 as if the Company had accounted for its employee stock options under the fair value method. The fair value of the Company’s options was estimated at the date of grant using the minimum value method, based on the following weighted average assumptions for the period ended June 30, 2005, the Company’s first stock options issue being granted in May 2005: risk-free interest rates of 3.2%; expected dividend yield and volatility of zero; and a weighted average expected life for all options of four years.

- 8 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
As of June 30, 2005 and 2004
(expressed in USD)

NOTE 4 — STOCK-BASED COMPENSATION — CONTINUED

Because the determination of the fair value of the Company’s options is based on assumptions described above, and because additional option grants are expected to be made in future periods, this pro forma information is not likely to be representative of the pro forma effects on reported net income or loss for future periods.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The following table illustrates the net loss that would have occurred had the Company accounted for its stock options under the provisions of SFAS 123.

	6 months to June 30, 2005
	(unaudited)
	US$ ’000
Net loss as reported:		(8,038	)
Add: stock option-based employee compensation included in the reported net loss		2,499
Deduct: stock option-based employee compensation expense determined based on fair value method		(2,520	)
Pro forma net loss		(8,059	)

A summary of stock options activity under the plans is as follows:

			Weighted average
	Number of options		exercise price in $
Outstanding as of January 1, 2005		—		—
2005 Activity:
Granted		29,905		15.73
Exercised		—		—
Expired/ Forfeited		—		—
Outstanding as of June 30, 2005		29,905		15.73

- 9 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
As of June 30, 2005 and 2004
(expressed in USD)

NOTE 4 — STOCK-BASED COMPENSATION — CONTINUED

The following table summarizes information about stock options outstanding as of June 30, 2005:

			Options outstanding				Options exercisable
			Weighted average
			remaining
	Number outstanding		contractual life		Weighted average		Number exercisable		Weighted average
Exercise price	as of 6/30/05		(in years)		exercise price in $		as of 6/30/05		exercise price in $
$15.73		29,905		7.90		15.73		11,587		15.73

NOTE 5 — RELATED PARTY TRANSACTIONS

Software license

In November 2003, Skype signed an agreement with a software development company which granted Skype a perpetual non exclusive license on its software, with exclusive use of the software for the limited purpose of providing P2P telephony, multi-directional video communications between end users via the internet. The founders of this software company are also founding shareholders (and senior management) of Skype.

In remuneration of license rights granted to Skype, the software company receives a royalty fee which was $0.4 million for the period ended June 2005 (for the period ended June 2004: $ nil) and which is capped at $2.0 million per year.

In addition to the license rights, the Company also received consulting services from the same related party in connection with the development of their software and also applications. Costs incurred in relation to these consulting services, amounted to $0.1 million for the period ended June 30, 2005 (for the period ended June 30, 2004: $1.1 million).

As of June 30, 2005, the amount payable under these contracts is $0.3 million (2004: $48,187). During the period ended June 30, 2005, a total amount of $0.3 million has been paid in relation to the above contracts.

- 10 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
As of June 30, 2005 and 2004
(expressed in USD)

NOTE 5 — RELATED PARTY TRANSACTIONS — CONTINUED

Consulting services

In August 2003, Skype signed an agreement to receive professional services from a minority shareholder of the Company. Such professional services consist of assistance for the development of the Skype software and the operating systems of Skype. Costs incurred in relation to these consulting services, amounted to $0.5 million for the period ended June 30, 2005 (for the period ended June 30, 2004: $0.3 million).

As of June 30, 2005, the amount payable under this contract is $0.1 million (2004: $0.1 million). During the period ended June 30, 2005, a total amount of $0.5 million has been paid in relation with these consulting services.

NOTE 6 — COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries are contingently liable with respect to lawsuits and other matters that arise in the normal course of business. Management is of the opinion that while it is impossible to ascertain the ultimate legal and financial liability with respect to these contingencies, the ultimate outcome of these contingencies is not anticipated to have a material effect on the Group’s financial position and operations.

NOTE 7 — SUBSEQUENT EVENTS

Stock options

In July 2005, the Board of Directors granted an additional 5,851 options to employees, directors and consultants at a strike price of €1,218 ($1,473), representing the fair value of the options at that time. These options have similar terms and conditions than those granted in May 2005 and described under note 4.

- 11 -

Skype Technologies S.A.
and Subsidiaries

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
As of June 30, 2005 and 2004
(expressed in USD)

NOTE 7 — SUBSEQUENT EVENTS — CONTINUED

Shareholders’ agreement with Tom Online

On August 17, 2005, the Company entered into a shareholders’ agreement with Tom Online (BVI) Limited and Tom Online Inc. (together “Tom Online”) by which Tom Online and the Group incorporated Tel-Online Limited. The objective of Tel-Online Limited is to create, market and distribute a customized version of the Skype software in China and to develop and host a mutually-branded website. Tom Online and the Group respectively own 51% and 49% of Tel-Online Limited. The Group invested $49 for its 49% shareholding.

Stockholders’ transactions

In July 2005, the Company issued 757 shares of series A-1 preferred stocks for a nominal value of €946.25 ($1,137.77) against the exercise of outstanding warrants.

In October 2005, eBay Inc. (California, USA) acquired 100% of all shares of the Company for a total consideration approximating €2,100 million ($2,600 million) with an additional potential earn-out of up to €1,200 million ($1,500 million). At the acquisition date on October 14, 2005 all outstanding warrants were exercised and all preferred shares were converted into ordinary shares. In addition, the outstanding options on the company’s shares were either exercised into ordinary shares, which were purchased by eBay Inc, or converted into eBay Inc. options.

Related parties

During July and August, the Group granted promissory notes to some of its senior management for a total amount of €2.0 million ($2.4 million). Such amounts were fully reimbursed on September 30, 2005. These promissory notes carried interest at LIBOR rate plus 0.02% per annum.

- 12 -

EX-99.4

Exhibit 99.4

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     The following unaudited pro forma condensed combined balance sheet as of June 30, 2005 and the unaudited pro forma condensed combined statements of income for the year ended December 31, 2004 and the six months ended June 30, 2005 are based on the historical financial statements of eBay Inc. and Skype Technologies S.A. after giving effect to eBay’s acquisition of Skype using the purchase method of accounting and applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements as if such acquisition had occurred as of June 30, 2005, for pro forma balance sheet purposes and as of January 1, 2004, for pro forma income statement purposes.

     The acquisition has been accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. Under the purchase method of accounting, the total estimated purchase price, calculated as described in Note 1 to these unaudited pro forma condensed combined financial statements, is allocated to the net tangible and intangible assets acquired and liabilities assumed of Skype in connection with the acquisition, based on their estimated fair values. Management has made a preliminary allocation of the estimated purchase price to the tangible and intangible assets acquired and liabilities assumed based on various preliminary estimates. The allocation of the estimated purchase price is preliminary pending finalization of those estimates and analyses. Final purchase accounting adjustments may differ materially from the pro forma adjustments presented herein.

     The unaudited pro forma condensed combined financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the condensed consolidated financial position or results of operation in future periods or the results that actually would have been realized had eBay and Skype been a combined company during the specified periods. Certain reclassification adjustments have been made in the presentation of the Skype historical amounts to conform Skype’s financial statement basis of presentation to that followed by eBay. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document. The unaudited pro forma condensed combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, eBay’s historical consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2004 and in its Form 10-Q for the six months ended June 30, 2005, and Skype’s historical consolidated financial statements for the year ended December 31, 2004 and for the six months ended June 30, 2005, which are included as Exhibits 99.2 and 99.3, respectively, to this Form 8-K/A.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OF EBAY AND SKYPE
As of June 30, 2005
(In thousands)

	Historical						Pro Forma
	eBay			Skype			Adjustments			Combined
ASSETS
Current assets:
Cash and cash equivalents	$	1,855,649		$	20,883		$	(1,251,226	)(a)	$	625,306
Short-term investments		896,951			—			—			896,951
Accounts receivable, net		269,641			6,117			(1,522	)(j)		274,236
Funds receivable from customers		200,171			—			—			200,171
Restricted cash and investments		32,077			—			—			32,077
Other current assets		435,339			2,995			—			438,334
Total current assets		3,689,828			29,995			(1,252,748	)		2,467,075
Long-term investments		1,064,260			—			—			1,064,260
Property and equipment, net		745,257			532			—			745,789
Goodwill		3,119,969			—			2,324,522	(b)		5,444,491
Intangible assets, net		387,366			—			280,300	(b)		667,666
Other assets		26,442			98			—			26,540
	$	9,033,122		$	30,625		$	1,352,074		$	10,415,821
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	41,686		$	10,419		$	—		$	52,105
Funds payable and amounts due to customers		507,731			—			(1,522	)(j)		506,209
Accrued expenses and other current liabilities		454,186			2,503			14,863	(c)		471,552
Deferred revenue and customer advances		42,079			13,005			—			55,084
Income taxes payable		141,136			—			—			141,136
Total current liabilities		1,186,818			25,927			13,341			1,226,086
Deferred tax liabilities, net		242,697			—			71,474	(d)		314,171
Other liabilities		34,486			—			—			34,486
Total liabilities		1,464,001			25,927			84,815		$	1,574,743
Stockholders’ equity:
Convertible Preferred Stock		—			478			(478	)(e)		—
Common Stock		1,354			475			(475	)(e)		2,617
								1,263	(f)
Additional paid-in capital		5,224,526			34,609			(34,609	)(e)		6,550,469
								1,261,312	(f)
								64,631	(f)
Unearned stock-based compensation		(1,363	)		(8,367	)		8,367	(e)		(56,612	)
								(55,249	)(g)
Retained earnings (accumulated deficit)		2,182,319			(22,653	)		22,653	(e)		2,182,319
Accumulated other comprehensive income		162,285			156			(156	)(e)		162,285
Total stockholders’ equity		7,569,121			4,698			1,267,259			8,841,078
	$	9,033,122		$	30,625		$	1,352,074		$	10,415,821

The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are an integral part of these financial statements.

2

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME OF EBAY AND SKYPE
For the year ended December 31, 2004
(In thousands, except for per share data)

	Historical						Pro Forma
	eBay			Skype			Adjustments			Combined
Net revenues	$	3,271,309		$	6,225		$	—		$	3,277,534
Cost of net revenues		614,415			6,714			3,294	(g)		624,423
Gross profit		2,656,894			(489	)		(3,294	)		2,653,111
Operating expenses:
Sales and marketing		857,874			1,652			19,646	(g)		879,172
Product development		240,647			2,235			8,110	(g)		250,992
General and administrative		415,725			7,264			6,455	(g)		429,444
Payroll tax on employee stock options		17,479			—			—			17,479
Amortization of acquired intangible assets		65,927			—			59,100	(h)		125,027
Total operating expenses		1,597,652			11,151			93,311			1,702,114
Income (loss) from operations		1,059,242			(11,640	)		(96,605	)		950,997
Interest and other income, net		77,867			163			(20,770	)(a)		57,260
Interest expense		(8,879	)		—			—			(8,879	)
Income (loss) before income taxes and minority interests		1,128,230			(11,477	)		(117,375	)		999,378
Provision for income taxes		(343,885	)		(125	)		35,659	(i)		(308,351	)
Minority interests		(6,122	)		—			—			(6,122	)
Net income (loss)	$	778,223		$	(11,602	)	$	(81,716	)	$	684,905
Net income per share:
Basic	$	0.59								$	0.51
Diluted	$	0.57								$	0.49
Weighted average shares:
Basic		1,319,458						32,806			1,352,264
Diluted		1,367,720						33,620			1,401,340

The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are an integral part of these financial statements.

3

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME OF EBAY AND SKYPE
For the six months ended June 30, 2005
(In thousands, except for per share data)

	Historical						Pro Forma
	eBay			Skype			Adjustments			Combined
Net revenues	$	2,118,027		$	23,716		$	(398	)(j)	$	2,141,345
Cost of net revenues		378,209			17,532			701	(g)		395,694
								(398	)(j)
								(350	)(k)
Gross profit		1,739,818			6,184			(351	)		1,745,651
Operating expenses:
Sales and marketing		558,493			5,296			4,288	(g)		566,867
								(1,210	)(k)
Product development		145,428			3,501			1,505	(g)		148,550
								(1,884	)(k)
General and administrative		265,729			5,557			1,295	(g)		270,773
								(1,808	)(k)
Payroll tax on employee stock options		7,291			—			—			7,291
Amortization of acquired intangible assets		48,317			—			29,150	(h)		77,467
Total operating expenses		1,025,258			14,354			31,336			1,070,948
Income (loss) from operations		714,560			(8,170	)		(31,687	)		674,703
Interest and other income, net		54,928			297			(15,828	)(a)		39,397
Interest expense		(2,125	)		—			—			(2,125	)
Income (loss) before income taxes and minority interests		767,363			(7,873	)		(47,515	)		711,975
Provision for income taxes		(219,466	)		(165	)		14,435	(i)		(205,196	)
Minority interests		(46	)		—			—			(46	)
Net income (loss)	$	547,851		$	(8,038	)	$	(33,080	)	$	506,733
Net income per share:
Basic	$	0.41								$	0.37
Diluted	$	0.40								$	0.36
Weighted average shares:
Basic		1,347,429						32,806			1,380,235
Diluted		1,380,736						34,104			1,414,840

The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are an integral part of these financial statements.

4

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS

1. Basis of Pro Forma Presentation

     On October 14, 2005, eBay completed the acquisition of Skype Technologies, S.A., a global internet communications company. The total estimated purchase price of approximately $2.6 billion includes cash of $1.3 billion and 32.8 million shares of common stock valued at $1.3 billion, plus potential performance-based payments of up to $1.4 billion. In addition, eBay agreed to assume Skype’s stock options outstanding as of the closing date and convert them into options to acquire approximately 1.9 million shares of eBay’s common stock.

     The unaudited pro forma condensed combined balance sheet at June 30, 2005 is presented to give effect to eBay’s acquisition of Skype as if the transaction had been consummated on that date. The unaudited pro forma condensed combined balance sheet at June 30, 2005 has been prepared by combining the historical unaudited consolidated balance sheet data of eBay and Skype as of June 30, 2005 to give effect to eBay’s acquisition of Skype using the purchase method of accounting and apply the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined statements of income of eBay and Skype for the year ended December 31, 2004 and the six-months ended June 30, 2005 are presented as if eBay’s acquisition of Skype had been consummated on January 1, 2004. The unaudited pro forma condensed combined statements of income of eBay and Skype for the year ended December 31, 2004 and the six-months ended June 30, 2005 have been prepared using the historical consolidated statements of income data of eBay and Skype for the year ended December 31, 2004 and the six-months ended June 30, 2005 and giving effect to eBay’s acquisition of Skype using the purchase method of accounting and applying the assumptions and adjustments described in the accompanying notes to these unaudited pro forma condensed combined financial statements.

2. Preliminary Purchase Price

     The unaudited pro forma condensed combined financial statements reflect an estimated purchase price of approximately $2.6 billion, which was comprised of approximately $1.3 billion in cash and the value of approximately 32.8 million shares of eBay common stock. For accounting purposes, the stock portion of the initial consideration is valued at approximately $1.3 billion based on the average closing price of our common stock surrounding the acquisition announcement date of September 12, 2005. The preliminary fair value of the options assumed was determined using the Black-Sholes model. The estimated total purchase price of the proposed Skype acquisition is as follows (in thousands):

Cash	$	1,251,226
Fair value of eBay common stock to be issued		1,262,575
Estimated fair value of assumed options		64,631
Direct transaction costs		14,863
Total preliminary estimated purchase price	$	2,593,295

     In addition to the initial consideration, the maximum amount potentially payable under the performance-based earn out is approximately €1.1 billion, or approximately $1.4 billion, and is payable in cash or common stock, at eBay’s discretion. The earn-out payments are contingent upon Skype achieving certain net revenue and gross margin-based targets, gross profit-based targets and active user targets. Base earn out payments of up to an aggregate of approximately €877 million, or approximately $1.05 billion, weighted equally among the three targets, is payable if the targets are achieved over any four-quarter period commencing on January 1, 2006 through June 30, 2009. Additional bonus earn out payments of up to an aggregate of approximately €292 million, or approximately $351 million, weighted equally among the three targets, would be payable if Skype exceeds the targets during the calendar year 2008. Any contingent earn out payments made will be accounted for as additional purchase price and will increase goodwill. Any contingent earn out payments are to be paid in Euros, the Dollar amounts set forth above are based on the exchange rate of €1 to $1.20 as of October 12, 2005.

     Under the purchase method of accounting, the total estimated purchase price as shown in the table above is allocated to Skype’s net tangible and identifiable intangible assets based on their estimated fair values as of October 14, 2005. The allocation of the purchase price is preliminary pending the completion of various analyses and the finalization of estimates. The allocation of the preliminary purchase price and the estimated useful lives and first year amortization on an annualized basis associated with certain assets is as follows (in thousands):

				First Year		Estimated
	Amount			Amortization		Useful Life
Net Assets	$	4,698		$	—	n/a
Identifiable intangible assets
Registered user base		27,700			5,540	5 years
Existing technology		8,000			4,000	2 years
Trade name		243,800			48,760	5 years
Network access agreements		800			800	1 year
Deferred tax liabilities		(71,474	)		—	n/a
Deferred stock-based compensation		55,249			37,505	3 years
Goodwill		2,324,522			—	n/a
Total preliminary estimated purchase price	$	2,593,295		$	96,605

5

     A preliminary estimate of $280.3 million has been allocated to amortizable intangible assets consisting of registered user base, access and termination agreements, existing technology and trade names with useful lives not exceeding five years.

     Deferred tax liabilities of $71.5 million include tax effects of fair value adjustments related to identifiable intangible assets. Upon finalization of the combined company’s legal entity structure additional adjustments to deferred taxes may be required.

     Deferred stock-based compensation of $55.2 million represents the portion of the estimated intrinsic value, measured as of October 14, 2005, of Skype employee stock options related to future services that were assumed, as well as the fair value for consultant options assumed which have an estimated weighted average remaining vesting period of approximately 3 years.

     A preliminary estimate of $2.3 billion has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that the management of the combined company determined that the value of goodwill has become impaired, the combined company will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made.

3. Pro Forma Adjustments

     The accompanying unaudited pro forma condensed combined financial statements have been prepared as if the acquisition was completed on June 30, 2005 for balance sheet purposes and on January 1, 2004 for statements of income purposes and reflect the following pro forma adjustments:

(a)	To reflect the estimated cash portion of the purchase price and resulting decrease in interest income based on the weighted average rate of return for the periods presented.
(b)	To establish amortizable intangible assets and goodwill resulting from the acquisition.
(c)	To record estimated direct transaction costs incurred by eBay.
(d)	To record deferred tax liability related to identifiable non-goodwill intangible assets at the applicable local statutory rate.
(e)	To eliminate the historical stockholders’ equity of Skype.
(f)	To record the estimated fair value of eBay’s shares of common stock issued and assumed options in the acquisition.
(g)	To record the deferred compensation based on the intrinsic value related to Skype’s unvested employee stock option assumed in connection with the acquisition and the fair value related to Skype’s consultant’s options assumed in connection with the acquisition and to reflect the amortization of the deferred compensation calculated using an accelerated amortization method. The weighted average remaining vesting period of unvested stock options approximates 3 years.
(h)	To record amortization of the intangible assets resulting from the acquisition.
(i)	To record the income tax impact on pro forma adjustments at the statutory tax rate.
(j)	To eliminate intercompany revenue, expenses and balance sheet amounts arising from transactions between Skype and eBay.
(k)	To eliminate the historical deferred compensation expense recorded by Skype related to employee and consultant options.

     Certain reclassifications have been made to conform Skype’s historical financial statement presentation to eBay’s financial statement presentation.

4. Pro Forma Combined Net Income Per Share

     Shares used to calculate unaudited pro forma net income per basic share were computed by adding 32.8 million shares issued as a result of the transaction to eBay’s weighted average shares outstanding. Shares used to calculate unaudited pro forma net income per diluted share were computed by adding 32.8 million shares and approximately 0.8 and 1.3 million equivalent shares related to options assumed for the periods ended December 31, 2004 and June 30, 2005, respectively, (using the treasury stock method) to eBay’s weighted average shares outstanding.

6

EX-99.5

Exhibit 99.5

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined balance sheet as of September 30, 2005 and the unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2005 are based on the historical financial statements of eBay Inc. and Skype Technologies S.A. after giving effect to eBay’s acquisition of Skype using the purchase method of accounting and applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements as if such acquisition had occurred as of September 30, 2005, for pro forma balance sheet purposes and as of January 1, 2004, for pro forma income statement purposes.

The acquisition has been accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. Under the purchase method of accounting, the total estimated purchase price, calculated as described in Note 1 to these unaudited pro forma condensed combined financial statements, is allocated to the net tangible and intangible assets acquired and liabilities assumed of Skype in connection with the acquisition, based on their estimated fair values. Management has made a preliminary allocation of the estimated purchase price to the tangible and intangible assets acquired and liabilities assumed based on various preliminary estimates. The allocation of the estimated purchase price is preliminary pending finalization of those estimates and analyses. Final purchase accounting adjustments may differ materially from the pro forma adjustments presented herein.

The unaudited pro forma condensed combined financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the condensed consolidated financial position or results of income in future periods or the results that actually would have been realized had eBay and Skype been a combined company during the specified periods. Certain reclassification adjustments have been made in the presentation of the Skype historical amounts to conform Skype’s financial statement basis of presentation to that followed by eBay. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document. The unaudited pro forma condensed combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, eBay’s historical consolidated financial statements included in its Form 10-Q for the nine months ended September 30, 2005, and Skype’s historical consolidated financial statements for the year ended December 31, 2004 and for the six months ended June 30, 2005, which are included as Exhibits 99.2 and 99.3, respectively, to this Form 8-K/A.

UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET OF EBAY AND SKYPE
As of September 30, 2005

	Historical						Pro Forma
	eBay			Skype			Adjustments			Combined
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	2,180,598		$	22,810		$	(1,251,226	)(a)	$	952,182
Short-term investments		888,783			—			—			888,783
Accounts receivable, net		274,238			8,508			(1,494	)(j)		281,252
Funds receivable from customers		210,593			—			—			210,593
Restricted cash and investments		33,256			—			—			33,256
Other current assets		403,525			3,221			—			406,746
Total current assets		3,990,993			34,539			(1,252,720	)		2,772,812
Long-term investments		827,191			—			—			827,191
Property and equipment, net		762,413			845			—			763,258
Goodwill		3,529,895			—			2,330,425	(b)		5,860,320
Intangible assets, net		490,245			1,224			280,300	(b)		770,545
								(1,224	)(l)
Other assets		25,306			138			—			25,444
	$	9,626,043		$	36,746		$	1,356,781		$	11,019,570
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	42,726		$	15,685		$	—		$	58,411
Funds payable and amounts due to customers		517,309			—			(1,494	)(j)		515,815
Accrued expenses and other current liabilities		523,584			3,866			14,863	(c)		542,313
Deferred revenue and customer advances		44,222			17,176			—			61,398
Income taxes payable		138,951			—			—			138,951
Total current liabilities		1,266,792			36,727			13,369			1,316,888
Deferred tax liabilities, net		298,197			—			71,474	(d)		369,671
Other liabilities		33,690			—			—			33,690
Total liabilities		1,598,679			36,727			84,843		$	1,720,249
Stockholders’ equity:
Convertible Preferred Stock		—			479			(479	)(e)		—
Common Stock		1,360			475			(475	)(e)		2,623
								1,263	(f)
Additional paid-in capital		5,453,627			46,471			(46,471	)(e)		6,779,570
								1,261,312	(f)
								64,631	(f)
Unearned stock-based compensation		(11,862	)		(16,519	)		16,519	(e)		(67,111	)
								(55,249	)(g)
Retained earnings (accumulated deficit)		2,437,290			(31,176	)		31,176	(e)		2,437,290
Accumulated other comprehensive income		146,949			289			(289	)(e)		146,949
Total stockholders’ equity		8,027,364			19			1,271,938			9,299,321
	$	9,626,043		$	36,746		$	1,356,781		$	11,019,570

The accompanying Notes to Unaudited Pro Forma Condensed Combined
Financial Statements are an integral part of these financial statements.

UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME OF EBAY AND SKYPE
For the Nine Months Ended September 30, 2005

	Historical						Pro Forma
	eBay			Skype			Adjustments			Combined
	(In thousands, except for per share data)
Net revenues	$	3,223,542		$	43,251		$	(698	)(j)	$	3,266,095
Cost of net revenues		578,584			32,158			937	(g)		610,563
								(698	)(j)
								(418	)(k)
Gross profit		2,644,958			11,093			(519	)		2,655,532
Operating expenses:
Sales and marketing		852,239			10,740			5,846	(g)		866,711
								(2,114	)(k)
Product development		224,309			6,182			1,948	(g)		229,359
								(3,080	)(k)
General and administrative		410,016			9,752			1,752	(g)		418,114
								(3,406	)(k)
Payroll tax on employee stock options		9,582			—						9,582
Amortization of acquired intangible assets		77,516			—			43,725	(h)		121,104
								(137	)(l)
Total operating expenses		1,573,662			26,674			44,534			1,644,870
Income (loss) from operations		1,071,296			(15,581	)		(45,053	)		1,010,662
Interest and other income, net		85,585			124			(25,994	)(a)		59,715
Interest expense		(2,556	)		—			—			(2,556	)
Income (loss) before income taxes and minority interest		1,154,325			(15,457	)		(71,047	)		1,067,821
Provision for income taxes		(351,455	)		(1,104	)		21,584	(i)		(330,975	)
Minority interests		(48	)		—			—			(48	)
Net income (loss)	$	802,822		$	(16,561	)	$	(49,463	)	$	736,798
Net income per share:
Basic	$	0.59								$	0.53
Diluted	$	0.58								$	0.52
Weighted average shares:
Basic		1,350,836						32,806			1,383,642
Diluted		1,383,024						34,140			1,417,164

The accompanying Notes to Unaudited Pro Forma Condensed Combined
Financial Statements are an integral part of these financial statements.

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS

1.   Basis of Pro Forma Presentation

On October 14, 2005, eBay completed the acquisition of Skype Technologies S.A., a global internet communications company. The total estimated purchase price of approximately $2.6 billion includes cash of $1.3 billion and 32.8 million shares of common stock valued at $1.3 billion, plus potential performance-based payments of up to $1.4 billion. In addition, eBay agreed to assume Skype’s stock options outstanding as of the closing date and convert them into options to acquire approximately 1.9 million shares of eBay’s common stock.

The unaudited pro forma condensed combined balance sheet at September 30, 2005 is presented to give effect to eBay’s acquisition of Skype as if the transaction had been consummated on that date. The unaudited pro forma condensed combined balance sheet at September 30, 2005 has been prepared by combining the historical unaudited consolidated balance sheet data of eBay and Skype as of September 30, 2005 to give effect to eBay’s acquisition of Skype using the purchase method of accounting and apply the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined statements of income of eBay and Skype for the nine-months ended September 30, 2005 are presented as if eBay’s acquisition of Skype had been consummated on January 1, 2004. The unaudited pro forma condensed combined statements of income of eBay and Skype for the nine-months ended September 30, 2005 have been prepared using the historical consolidated statements of income data of the nine-months ended September 30, 2005 and giving effect to eBay’s acquisition of Skype using the purchase method of accounting and applying the assumptions and adjustments described in these accompanying notes to the unaudited pro forma condensed combined financial statements.

2.   Preliminary Purchase Price

The unaudited pro forma condensed combined financial statements reflect an estimated purchase price of approximately $2.6 billion, which was comprised of approximately $1.3 billion in cash and the value of approximately 32.8 million shares of eBay common stock. For accounting purposes, the stock portion of the initial consideration is valued at approximately $1.3 billion based on the average closing price of our common stock surrounding the acquisition announcement date of September 12, 2005. The preliminary fair value of the options assumed was determined using the Black-Sholes model. The estimated total purchase price of the proposed Skype acquisition is as follows (in thousands):

Cash	$	1,251,226
Fair value of eBay common stock to be issued		1,262,575
Estimated fair value of assumed options		64,631
Direct transaction costs		14,863
Total preliminary estimated purchase price	$	2,593,295

In addition to the initial consideration, the maximum amount potentially payable under the performance-based earn out is approximately €1.1 billion, or approximately $1.4 billion, and is payable in cash or common stock, at eBay’s discretion. The earn-out payments are contingent upon Skype achieving certain net revenue and gross margin-based targets, gross profit-based targets and active user targets. Base earn out payments of up to an aggregate of approximately €877 million, or approximately $1.05 billion, weighted equally among the three targets, is payable if the targets are achieved over any four-quarter period commencing on January 1, 2006 through June 30, 2009. Additional bonus earn out payments of up to an aggregate of approximately €292 million, or approximately $351 million, weighted equally among the three targets, would be payable if Skype exceeds the targets during the calendar year 2008. Any contingent earn out payments made will be accounted for as additional purchase price and will increase goodwill. Any contingent earn-out payments are to be paid in Euros, the Dollar amounts set forth above are based on the exchange rate of €1 to $1.20 as of October 12, 2005.

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)

Under the purchase method of accounting, the total estimated purchase price as shown in the table above is allocated to Skype’s net tangible and identifiable intangible assets based on their estimated fair values as of October 14, 2005. The allocation of the purchase price is preliminary pending the completion of various analyses and the finalization of estimates. The allocation of the preliminary purchase price and the estimated useful lives and first year amortization on an annualized basis associated with certain assets is as follows (in thousands):

				First Year		Estimated
	Amount			Amortization		Useful Life
Net liabilities assumed	$	(1,205	)	$	—	n/a
Identifiable intangible assets
Registered user base		27,700			5,540	5 years
Existing technology		8,000			4,000	2 years
Trade name		243,800			48,760	5 years
Network access agreements		800			800	1 year
Deferred tax liabilities		(71,474	)		—	n/a
Deferred stock-based compensation		55,249			37,505	3 years
Goodwill		2,330,425			—	n/a
Total preliminary estimated purchase price	$	2,593,295		$	96,605

A preliminary estimate of $280.3 million has been allocated to amortizable intangible assets consisting of registered user base, access and termination agreements, existing technology and trade names with useful lives not exceeding five years.

Deferred tax liabilities of $71.5 million include tax effects of fair value adjustments related to identifiable intangible assets. Upon finalization of the combined company’s legal entity structure additional adjustments to deferred taxes may be required.

Deferred stock-based compensation of $55.2 million represents the portion of the estimated intrinsic value, measured as of October 14, 2005, of Skype employee stock options related to future services that were assumed, as well as the fair value for consultant options assumed which have an estimated weighted average remaining vesting period of approximately 3 years.

A preliminary estimate of $2.3 billion has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that the management of the combined company determined that the value of goodwill has become impaired, the combined company will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made.

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)

3.   Pro Forma Adjustments

The accompanying unaudited pro forma condensed combined financial statements have been prepared as if the acquisition was completed on September 30, 2005 for balance sheet purposes and on January 1, 2004 for statements of income purposes and reflect the following pro forma adjustments:

(a)	To reflect the estimated cash portion of the purchase price and resulting decrease in interest income based on the weighted average rate of return for the periods presented.
(b)	To establish amortizable intangible assets and goodwill resulting from the acquisition.
(c)	To record estimated direct transaction costs incurred by eBay.
(d)	To record deferred tax liability related to identifiable non-goodwill intangible assets at the applicable local statutory rate.
(e)	To eliminate the historical stockholders’ equity of Skype.
(f)	To record the estimated fair value of eBay’s shares of common stock issued and assumed options in the acquisition.
(g)	To record the deferred compensation based on the intrinsic value related to Skype’s unvested employee stock options assumed in connection with the acquisition and the fair value related to Skype’s consultant’s options assumed in connection with the acquisition and to reflect the amortization of the deferred compensation calculated using an accelerated amortization method. The weighted average remaining vesting period of unvested stock options approximates 3 years.
(h)	To record amortization of the intangible assets resulting from the acquisition.
(i)	To record the income tax impact on pro forma adjustment at the statutory tax rate.
(j)	To eliminate intercompany revenue, expenses and balance sheet amounts arising from transactions between Skype and eBay.
(k)	To eliminate the historical deferred compensation expense recorded by Skype related to employee and consultant options.
(l)	To eliminate the historical identifiable intangible assets of Skype and the associated amortization.

Certain reclassifications have been made to conform Skype’s financial statement presentation to eBay’s financial statement presentation.

4.   Pro Forma Combined Net Income Per Share

Shares used to calculate unaudited pro forma net income per basic share were computed by adding 32.8 million shares issued as a result of the transaction to eBay’s weighted average shares outstanding. Shares used to calculate unaudited pro forma net income per diluted share were computed by adding 32.8 million shares and approximately 1.3 million equivalent shares related to options assumed for the periods ended September 30, 2005, (using the treasury stock method) to eBay’s weighted average shares outstanding.