PURCHASEPRO COM INC, 424B4, 2000-02-11

PURCHASEPRO COM INC
424B4, 2000-02-11
BUSINESS SERVICES, NEC

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<PAGE>

Filed pursuant to Rule 424(b)(4)
Registration No. 333-92303

3,000,000 Shares

[PURCHASEPRO.COM LOGO APPEARS HERE]

Common Stock

------------

We are selling 2,000,000 shares of common stock and the selling stockholders
are selling 1,000,000 shares of common stock. We will not receive any proceeds
from shares of common stock sold by the selling stockholders.

Charles E. Johnson, Jr., PurchasePro.com's Chairman and Chief Executive
Officer, has indicated an interest in purchasing up to $5,000,000 worth of our
common stock in this offering at the public offering price.

Our common stock is quoted in The Nasdaq Stock Market's National Market
under the symbol "PPRO." On February 10, 2000, the last reported sale price on
The Nasdaq National Market was $83.063 per share.

The underwriters have an option to purchase a maximum of 450,000 additional
shares to cover over-allotments of shares.

Investing in the common stock involves risks. See "Risk Factors" on page 6.

<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions PurchasePro.com Stockholders
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Per Share.............$80.00...... $4.16 $75.84 $75.84
Total..............$240,000,000...$12,480,000....$151,680,000.. $75,840,000
</TABLE>

Delivery of the shares of common stock will be made on or about February 16,
2000.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston
Bear, Stearns & Co. Inc.
Prudential Volpe Technology
a unit of Prudential Securities
Robertson Stephens
Jefferies & Company, Inc.

The date of this prospectus is February 10, 2000.
<PAGE>

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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary....................................................... 3

Risk Factors............................................................. 6

Forward-Looking Statements............................................... 18

Use of Proceeds.......................................................... 19

Dividend Policy.......................................................... 19

Price Range of Common Stock.............................................. 19
Dilution................................................................. 20

Capitalization........................................................... 21

Selected Consolidated Financial and Operating Data....................... 22

Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 30

Management................................................................. 42

Certain Transactions....................................................... 50

Principal and Selling Stockholders......................................... 55

Description of Capital Stock............................................... 58

Shares Eligible for Future Sale............................................ 61

Underwriting............................................................... 63

Legal Matters.............................................................. 65

Experts.................................................................... 65

Where You Can Find More Information........................................ 65

Index to Financial Statements.............................................. F-1
</TABLE>
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

The PurchasePro logo is a registered trademark and PurchasePro and
PurchasePro.com are trademarks of PurchasePro.com, Inc. This prospectus
contains trademarks and trade names of other companies.
<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully before investing in the common
stock of PurchasePro.com. Except as otherwise noted, all information in this
prospectus assumes that the underwriters have not exercised their over-
allotment option and reflects the three-for-two stock split effected in the
form of a stock dividend on December 13, 1999.

PurchasePro.com

PurchasePro.com is a leading provider of Internet business-to-business
electronic commerce services. Our e-commerce solution is comprised of public
and private procurement networks where businesses can buy and sell a wide range
of products and services in an efficient, competitive and cost-effective
manner. Forrester Research estimates that the business-to-business e-commerce
market will grow from $43 billion in 1998 to $1.3 trillion by 2003. Our target
customers are primarily the smaller and medium sized businesses that constitute
over 99% of the businesses in the United States according to estimates by the
U.S. Small Business Administration. We have designed our procurement networks
to meet the needs of these customers and their large business partners.

We designed our solution for quick deployment and immediate use. With a
standard Internet connection, a Web browser and a PurchasePro.com membership,
our procurement network members can participate in interactive buying and
selling communities. Our procurement networks have many features and can be
integrated with our members' existing resource planning and accounting systems.

Our solution takes advantage of the growth, pervasiveness, low costs and
community building nature of the Internet as a basis for e-commerce for the
broad business-to-business market. We believe our procurement networks grow in
value as each new member brings new products or services and buying power to
our communities.

Our procurement networks are designed to streamline the procurement cycle
for our members--from sourcing to bidding to order to payment. Our procurement
networks enable each member to participate as both a buyer and a seller. When
acting as buyers, our members can reduce processing costs, improve pricing,
enforce corporate purchasing policies and maintain an audit trail for
evaluating purchasing programs. When acting as suppliers, our members can
strengthen customer relationships, reach new buyers and lower sales, marketing
and administrative costs.

We pursue relationships with large organizations to gain access to, and
assistance in recruiting, their numerous smaller and medium sized business
partners. Our public procurement network members include:

. Caesars Palace, . Mission Industries,
. Carnival Cruise Lines, . Nevada Power Company,
. MeriStar Management . Park Place Entertainment, and
Company, . Phoenix Suns.
. MGM Grand,

In addition, we provide services to develop and maintain private procurement
networks for:

. Best Western . Marriott International, and
International, . Prime Hospitality.
. Building One Services,

A key element of our strategy is to develop sales and marketing
relationships. These relationships include:

. Office Depot, . ZoomTown.com, a Cincinnati Bell
. VerticalNet, and subsidiary.

3
<PAGE>

Recent Developments

Since our initial public offering in September 1999, we have entered into
strategic relationships with:

<TABLE>
<S> <C>
. Advanstar, . Sprint, and
. DigitalWork, . Workflow Management.
. Primavera Systems,
</TABLE>

In some cases we issued warrants to purchase our common stock. For more
information on our strategic relationships see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Strategic Relationships."

On February 9, 2000, we reported revenues of $2.7 million for the fourth
quarter of 1999. The net loss for the fourth quarter was $57.8 million, or a
loss of $2.06 per diluted share. The net loss included a one-time non-cash
charge of $50.1 million related to the issuance of warrants to Sprint. These
estimates of revenues, net loss and loss per share are preliminary and may
change as results are finalized in the course of our audit.

Our predecessor was formed in October 1996, and we began offering commercial
access to our procurement network in April 1997. Our headquarters are located
at 3291 N. Buffalo Drive, Las Vegas, Nevada 89129 and our telephone number is
(702) 316-7000. Our website address is www.purchasepro.com. The information on
our website is not a part of this prospectus.

The Offering

<TABLE>
<C> <S>
Shares offered by PurchasePro.com.......... 2,000,000 shares

Shares offered by the selling 1,000,000 shares
stockholders..............................

Total shares outstanding after the 30,319,710 shares
offering..................................

Use of proceeds by PurchasePro.com......... To expand our sales and marketing
activities, for working capital
and other general corporate
purposes and for potential
acquisitions.

Nasdaq National Market symbol.............. PPRO
</TABLE>

The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of September 30, 1999 and reflects
the three-for-two stock split effected in the form of a stock dividend on
December 13, 1999, and does not include the following:

. 4,917,465 shares of common stock issuable upon the exercise of stock
options outstanding as of September 30, 1999 and 1,652,824 shares of
common stock reserved for issuance under our stock option plans.

. 583,334 shares of common stock issuable upon exercise of warrants issued
and outstanding as of September 30, 1999, and 3,083,558 shares of common
stock issuable upon exercise of warrants issued subsequent to September
30, 1999.

Unless otherwise noted, the information in this prospectus assumes warrants
for the purchase of 80,000 shares of common stock outstanding as of September
30, 1999 have been exercised and the total shares outstanding after the
offering includes 225,000 shares of common stock to be issued upon exercise of
warrants by two selling stockholders.

Risk Factors

You should consider the risk factors before investing in PurchasePro.com and
the impact from various events which could adversely affect our business.

4
<PAGE>

Summary Consolidated Financial Data

<TABLE>
<CAPTION>
Inception Year Ended Nine Months Ended
(October 8, 1996) December 31, September 30,
Through December ------------------------ -------------------------
31, 1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 675,390 $ 1,670,238 $ 1,031,713 $ 3,349,998
Cost of revenues........ -- 213,857 445,639 335,411 567,669
Gross profit............ -- 461,533 1,224,599 696,302 2,782,329
Operating expenses...... 119,314 3,326,362 7,708,014 5,458,676 16,519,932
Operating loss.......... (119,314) (2,864,829) (6,483,415) (4,762,374) (13,737,603)
Other income (expense).. (3,638) (120,497) (316,595) (211,319) (359,154)
Net loss................ (122,952) (2,985,326) (6,800,010) (4,973,693) (14,096,757)
Preferred stock
dividends, accretion of
preferred stock to
redemption value and
value of preferred
stock beneficial
conversion feature..... -- -- (335,438) (184,981) (10,042,037)
Net loss applicable to
common stockholders.... $ (122,952) $(2,985,326) $(7,135,448) $(5,158,674) $(24,138,794)
========== =========== =========== =========== ============
Loss per share
Basic.................. $ (0.01) $ (0.26) $ (0.55) $ (0.38) $ (1.86)
========== =========== =========== =========== ============
Diluted................ $ (0.01) $ (0.24) $ (0.52) $ (0.36) $ (1.80)
========== =========== =========== =========== ============
Weighted average shares
outstanding
Basic.................. 11,550,000 11,550,000 12,900,000 13,650,000 13,002,895
========== =========== =========== =========== ============
Diluted................ 12,389,999 12,389,999 13,739,999 14,489,999 13,438,329
========== =========== =========== =========== ============
</TABLE>

<TABLE>
<CAPTION>
As of September 30, 1999
------------------------
Actual As Adjusted
----------- ------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............................. $48,477,852 $199,358,385
Working capital........................................ 46,990,205 197,870,738
Total assets........................................... 55,005,879 205,886,412
Notes payable.......................................... 50,000 50,000
Total stockholders' equity............................. 51,387,602 202,268,135
</TABLE>

The as adjusted consolidated balance sheet data gives effect to the sale of
the 2,000,000 shares of common stock by us at the public offering price of
$80.00 per share, after deducting the underwriting discounts and commissions
and estimated offering expenses payable by us and the application of the
estimated net proceeds. See "Use of Proceeds" and "Capitalization."

5
<PAGE>

RISK FACTORS

You should carefully consider the following risk factors, in addition to
the other information in this prospectus, before purchasing shares of common
stock of PurchasePro.com. Each of these risk factors could adversely affect
our business, financial condition and results of operations as well as
adversely affect the value of an investment in our common stock. This offering
involves a high degree of risk.

Risks Related to Our Business

We are an early stage company. Our limited operating history makes it
difficult to evaluate our future prospects.

We only began offering access to our procurement network in April 1997. We
have entered into the majority of our contracts and significant relationships
only within the last 15 months. Our extremely limited operating history makes
it difficult to evaluate our future prospects. Our prospects are subject to
risks and uncertainties frequently encountered by start-up companies in new
and rapidly evolving markets such as the business-to-business e-commerce
market. Many of these risks are unknown, but include the lack of widespread
acceptance of the Internet as a means of purchasing products and services and
managing our growth. Our failure to identify the challenges and risks in this
new market and successfully address these risks would harm our business.

We have a history of losses and anticipate continued losses, and we may be
unable to achieve profitability.

We have never been profitable and expect to continue to incur operating
losses on both a quarterly and annual basis for at least the foreseeable
future. We may be unable to achieve profitability in the future. We have
incurred net losses in each accounting period since our organization in
October 1996. As of September 30, 1999, we had an accumulated deficit of $31.3
million. For a detailed discussion of our losses, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview." We
expect to continue to make significant expenditures for sales and marketing,
programming and development and general and administrative functions. As a
result, we will need to generate significant revenues to achieve
profitability. We cannot assure you that revenues will grow in the future or
that we will achieve sufficient revenues for profitability. If revenues grow
more slowly than we anticipate, or if operating expenses exceed our
expectations, our business would be severely harmed.

The revenue and profit potential of our business model is unproven. Our
success is dependent on our ability to expand our membership base and
expand into new markets and industries.

Our business model is to generate revenues from the development of both
public and private procurement networks for business-to-business e-commerce.
Our business model is new and our ability to generate revenue or profits is
unproven. We have initially focused on the hospitality industry and our
success is dependent on our ability to expand our membership base within the
hospitality industry. Our success is also dependent on our ability to expand
into new markets and industries. We cannot assure you that we will be
successful.

We depend on sales and marketing strategic relationships for growth. These
relationships may not contribute to increased use of our services, help us
add new members, or increase our revenue. We may not be able to enter into
new relationships or maintain our existing relationships.

We have used and plan to continue to establish sales and marketing
strategic relationships with large organizations as part of our growth
strategy. These arrangements may not generate any new members or increase
revenues and may not achieve the anticipated member or revenue growth. We may
not be able to enter into new relationships or renew existing relationships on
favorable terms, if at all. As an example, in September 1999 we announced our
intent to form a strategic alliance with Ariba, Inc. We no longer intend to
form a strategic alliance with Ariba, Inc. In addition, we may not be able to
recover our costs and expenses associated with these efforts which could
severely harm our business.

6
<PAGE>

A number of statements in our press releases and interviews are based on
internal estimates and projections that may not be achieved by us, our
partners or our customers.

We from time to time issue press releases and give press interviews
concerning our products, business and strategic relationships. Some of our
recent press releases and interviews contained statements about the potential
revenue that may be achieved as a result of these strategic relationships,
including our recently announced relationship with Sprint. These statements
were based on our internal estimates and projections.

In the press release we issued on December 3, 1999 announcing that we had
entered into a strategic e-commerce marketing agreement with Sprint, Charles
E. Johnson, Jr., our Chairman and Chief Executive Officer, was quoted as
saying: "Although there is no guarantee, we anticipate generating up to $40
million dollars in net annualized recurring revenue with this agreement. For
PurchasePro.com, this represents new incremental business derived from the
Sprint marketplace over a twelve month period." Management's internally
prepared projections forecast $10 million in quarterly revenue derived from
the Sprint agreement being realized during the second quarter of 2001. The $10
million quarterly rate would be equivalent to a $40 million annualized rate.
The projections we used were based upon assumed penetration rates in reaching
Sprint's customers. These statements are forward-looking statements subject to
risks and uncertainties, including the risk that the full revenue target may
not be achieved. Delays or difficulties could be encountered in achieving the
assumed penetration rates and in reaching the revenue forecasted. In addition,
while we have reached agreement on the basic elements of the marketing
agreement between Sprint and us, we must reach agreement with Sprint on all
material terms in order for our relationship to go forward. Delays or
difficulties may be experienced in reaching agreement and we may never reach
the full revenue target. You should only consider this forward-looking
statement after carefully evaluating these factors and all the other
information in this prospectus, including the risks described in this section
and throughout this prospectus.

In addition, in an article published by The Street.com on December 3, 1999,
Mr. Johnson was quoted as saying he expects a "significant leap" in non-
hospitality transaction fees in the quarter ended December 31, 1999. While we
believe the percentage increase in our non-hospitality transaction fees in the
quarter ended December 31, 1999 was significant, the amount of non-hospitality
transaction fees was not a material component of our revenues for that
quarter. These statements about our expected levels of transaction fee
revenues are forward-looking statements that are subject to risks and
uncertainties, including the risks described in this section and throughout
this prospectus. Actual results could differ materially.

At the time of those press releases and interviews, we believed the
statements regarding the potential revenue that may be achieved from these
relationships, including our relationship with Sprint, to be reasonable based
upon these estimates. These estimates are subject to substantial
uncertainties. As a result, actual results could vary significantly from the
projected results contained in our press releases and interviews. In addition,
many of the risks described elsewhere in this risk factors section apply to
these statements.

We have historically received substantially all of our revenue from
companies serving the hospitality industry. A serious downturn in the
hospitality industry could adversely affect us.

Our dependence on members associated with the hospitality industry makes us
vulnerable to downturns in this industry. Such a downturn could lead our
members associated with this industry to reduce their level of activity on our
procurement network and cause some to cancel their membership.

We face intense competition in the business-to-business e-commerce market,
and we cannot assure you that we will be able to compete successfully.

The business-to-business e-commerce market is new, rapidly evolving and
intensely competitive, and we expect competition to intensify in the future.
Barriers to entry are minimal, and competitors may develop and offer similar
services in the future. Our business could be severely harmed if we are not
able to compete successfully against current or future competitors. Although
we believe that there may be opportunities for several providers of

7
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products and services similar to ours, a single provider may dominate the
market. We believe there is no current dominant provider in our market. We
expect that additional companies will offer competing e-commerce solutions in
the future.

In addition, our members and partners may become competitors in the future.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could harm our business. Our
competitors vary in size and in the scope and breadth of the services they
offer. In addition to competition from several e-commerce trade communities,
we primarily encounter competition from enterprise software purchasing systems
providers such as Ariba and Commerce One. We may also encounter competition
from enterprise software developers such as Peoplesoft, Oracle and SAP.

We will need to improve and implement new systems, procedures and controls
in order to effectively manage our growth and expansion.

Continued implementation of our business plan requires an effective
planning and management process. Our business will suffer dramatically if we
do not effectively manage our growth. We expect that we will need to continue
to improve our financial and managerial controls and reporting systems and
procedures, and we will need to continue to expand, train and manage our
workforce. We continue to increase the scope of our operations both
domestically and internationally, and we have grown our workforce
substantially. Our growth has placed, and our anticipated future growth in our
operations will continue to place, a significant strain on our management
systems and resources. We have grown from eight employees in January 1997 to
227 employees as of September 30, 1999. In addition, we plan to continue to
add to our sales and marketing, customer support and product development
personnel. Our future performance may also depend on the effective integration
of acquired businesses. This integration, even if successful, may take a
significant period of time and expense, and may place a significant strain on
our resources.

We may pursue the acquisition of new and complementary business, products
and technologies to grow our business. Unsuccessful acquisitions could harm
our operating results, business and growth.

We may acquire businesses, products and technologies that complement or
augment our existing businesses, services and technologies. The inability to
integrate any newly acquired entities or technologies effectively could harm
our operating results, business and growth. Integrating any newly acquired
businesses or technologies may be expensive and time consuming. To finance any
acquisitions, we may need to raise additional funds through public or private
financings. Any equity or debt financings, if available at all, may be on
terms that are not favorable to us and, in the case of equity financings, may
result in dilution to our stockholders. We may not be able to operate any
acquired businesses profitably or otherwise implement our business strategy
successfully.

Our long sales cycle for large corporate accounts could cause delays in
revenue growth.

Our sales cycle for large corporate accounts typically takes six to nine
months to complete and varies from contract to contract, but has taken up to
18 months for some contracts. A large number of our members are introduced to
our procurement networks through such accounts. Our lengthy sales cycle for
large corporate accounts could cause delays in revenue growth, and result in
significant fluctuations in our quarterly operating results. The length of the
sales cycle may vary depending on a number of factors over which we may have
little or no control, including the internal decision-making process of the
potential customer and the level of competition that we encounter in our
selling activities. Additionally, since the market for business-to-business

8
<PAGE>

e-commerce is relatively new, we often have to educate potential customers
about the use and benefits of our products and services, which can prolong the
sales process. In some cases, we provide access to our procurement networks on
a trial basis for customer evaluation, which can again prolong the sales
process. Our sales cycle can be further extended for product sales made
through third parties.

Our quarterly results are subject to significant fluctuations, and our
stock price may decline if we do not meet expectations of investors and
analysts.

We expect that our quarterly operating results will fluctuate significantly
due to many factors, many of which are outside our control, including:

<TABLE>
<S> <C>
. demand for and market acceptance of . intense and increased competition;
our products and services;

. inconsistent growth, if any, of our . introductions of new services or
member base; enhancements, or changes in pricing
policies, by us and our competitors;

. loss of key customers or strategic . our ability to control costs; and
partners;

. timing of the recognition of revenue . reliable continuity of service and
for large contracts; procurement network availability.

. variations in the dollar volume of
transactions effected through our
procurement networks;
</TABLE>
We believe that quarterly revenues, expenses and operating results are
likely to vary significantly in the future, that period-to-period comparisons
of results of operations are not necessarily meaningful and that, as a result,
such comparisons should not be relied upon as indications of future
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Due to these and other factors, it is likely that
our operating results will be below market analysts' expectations in some
future quarters, which would cause the market price of our stock to decline.

Some smaller and medium sized businesses that supply larger organizations
have been reluctant to join or continue as a member of our procurement
networks. Our failure to attract and retain a large number of members would
severely harm our business.

Our public procurement network operates as an open bidding process allowing
buyers to instantaneously compare the prices of suppliers. In some instances,
suppliers have been reluctant to join or continue as a member of our
procurement networks and participate in an open bidding process because of the
increased competition and comparisons this environment creates. We must add
and retain a substantial number of smaller to medium sized businesses as
members. Our ability to attract and retain members will depend in part on the
continued willingness of our large organization members who buy from them to
support us in our recruiting and retention efforts. A significant number of
our members using an older version of our software allowed their procurement
network memberships to lapse at the end of 1998.

Our revenue is derived from providing procurement network access to members
under short-term, pilot and verbal agreements. The cancellation or non-
renewal of these agreements would adversely affect us.

We have generated substantially all of our revenues through member
subscription and license fees for access to our procurement networks. A
failure of our members to continuously renew their contracts, or a high rate
of termination, would significantly reduce our revenues. For the nine months
ended September 30, 1999, approximately 60% of our revenues were comprised of
member subscription fees. Generally, our subscription and license fee
contracts are entered into on a month-to-month basis. Although we have
executed contracts of a longer duration, generally these longer contracts may
be terminated on short-term notice. Some of our agreements with members are
verbal and may be terminated at any time. Moreover, several of our significant

9
<PAGE>

member agreements are pilot programs. We have expended significant financial
and personnel resources and have expanded our operations on the assumption
that these will be long-term contracts. If these become contracts of short-
term duration because of an early termination or non-renewal by the member, we
may be unable to recover the costs we incurred and our business could suffer
dramatically.

Our success depends on our ability to continuously enhance our services.

Our future success will depend on our ability to enhance our procurement
network software, and to continue to develop and introduce new services that
keep pace with competitive introductions and technological developments,
satisfy diverse and evolving member requirements, and otherwise achieve market
acceptance. Any failure by us to anticipate or respond adequately to changes
in technology and member preferences, or any significant delays in our
development efforts, could make our services unmarketable or obsolete. We may
not be successful in developing and marketing quickly and effectively future
versions or upgrades of our procurement network software and browser system,
or offer new services that respond to technological advances or new market
requirements.

We depend upon our key personnel and they would be difficult to replace.

We believe that our success will depend on the continued employment of our
senior management team and key sales and technical personnel. If one or more
members of our senior management team were unable or unwilling to continue in
their present positions, our business would suffer.

We plan to expand our employee base to manage our anticipated growth. Most
importantly, we plan to hire additional members of senior management.
Competition for personnel, particularly for senior management personnel and
employees with technical and sales expertise, is intense. The success of our
business is dependent upon hiring and retaining suitable personnel.

If our intellectual property protection is inadequate, competitors may gain
access to our technology and undermine our competitive position, causing us
to lose members. Infringement by us on the intellectual property rights of
others could expose us to substantial liabilities which would severely harm
our business.

We regard our copyrights, service marks, trademarks, patents, trade secrets
and similar intellectual property as important to our success, and rely on
trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with our employees, customers and business partners
to protect our proprietary rights. Despite our precautions, unauthorized third
parties may copy certain portions of our services or reverse engineer or
obtain and use information that we regard as proprietary. End-user license
provisions protecting against unauthorized use, copying, transfer and
disclosure of the licensed program may be unenforceable under the laws of
certain jurisdictions and foreign countries. The status of United States
patent protection in the software industry is not well defined and will evolve
as the U.S. Patent and Trademark Office grants additional patents. We have
been granted one patent in the United States and we may seek additional
patents in the future. We do not know if any future patent application will be
issued with the scope of the claims we seek, if at all, or whether any patents
we receive will be challenged or invalidated. In addition, the laws of some
foreign countries do not protect proprietary rights to the same extent as do
the laws of the United States. Our means of protecting our proprietary rights
in the United States or abroad may not be adequate and competitors may
independently develop similar technology.

Third parties may infringe or misappropriate our copyrights, trademarks,
patents and similar proprietary rights. In addition, other parties may assert
infringement claims against us. We cannot be certain that our services do not
infringe patents or other intellectual property rights that may relate to our
services. In addition, because patent applications in the United States are
not publicly disclosed until the patent is issued, applications may have been
filed which relate to our services. We may be subject to legal proceedings and
claims from time to time in the ordinary course of our business, including
claims of alleged infringement of the

10
<PAGE>

trademarks and other intellectual property rights of third parties. If our
services violate third-party proprietary rights, we cannot assure you that we
would be able to obtain licenses to continue offering such services on
commercially reasonable terms, or at all. Any claims against us relating to
the infringement of third-party proprietary rights, even if not meritorious,
could result in the expenditure of significant financial and managerial
resources and in injunctions preventing us from distributing these services.
Ranel Erickson, Ph.D., a co-founder, has threatened to file a lawsuit in which
he would seek a return of intellectual property rights. These claims could
severely harm our business. See "Business--Legal Proceedings."

Our inability to continue licensing third-party technologies could delay
product development which could result in a loss of members or slow our
growth.

We intend to continue to license technology from third parties, including
our Web server and encryption technology. Our inability to obtain any of these
licenses could delay product development until equivalent technology could be
identified, licensed and integrated. Any such delays in services could result
in a loss of members, and slow our growth and severely harm our business. The
market is evolving and we may need to license additional technologies to
remain competitive. We may not be able to license these technologies on
commercially reasonable terms or at all. In addition, we may fail to
successfully integrate any licensed technology into our services. These third-
party licenses may expose us to increased risks, including risks associated
with the integration of new technology, the diversion of resources from the
development of our own proprietary technology and our ability to generate
revenues from new technology sufficient to offset associated acquisition and
maintenance costs.

Our agreements with affiliates may not have been the result of arm's-length
negotiations, and may be less favorable to us than those we could obtain
from unaffiliated third parties. Entering into agreements on less than the
most favorable terms available could harm our business or limit our revenue
growth.

Our agreements with some of our sales and marketing partners may not have
been the result of arm's-length negotiations. To the extent our agreements
with our affiliates, such as E-MarketPro, were not negotiated at arm's-length,
they may contain terms and conditions less favorable to us than we could have
obtained from unaffiliated third parties. Any future agreements or
relationships with affiliates may not necessarily result from arm's-length
negotiations and may not be on terms that are most favorable to us, which
could severely harm our business or limit our revenue growth.

If we expand our international sales and marketing activities, our business
will be exposed to the numerous risks associated with international
operations.

We intend to have operations in a number of international markets. To date,
we have limited experience in developing localized versions of our procurement
network enabling software and in marketing, selling and distributing our
solutions internationally.

International operations are subject to many risks, including:

. the impact of recessions in economies outside the United States,
especially in Asia;

. changes in regulatory requirements;

. reduced protection for intellectual property rights in some countries;

. potentially adverse tax consequences;

. difficulties and costs of staffing and managing foreign operations;

. political and economic instability;

. fluctuations in currency exchange rates;

11
<PAGE>

. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and

. tarriffs, export controls and other trade barriers.

Risks Related to the Internet and E-commerce Industries

Our success depends on the Internet's ability to accommodate growth in e-
commerce.

The use of the Internet for retrieving, sharing and transferring information
among businesses, buyers, suppliers and partners has only recently begun to
develop. If the Internet is not able to accommodate growth in e-commerce, our
business would suffer. The recent growth in the use of the Internet has caused
frequent periods of performance degradation. Our ability to sustain and improve
our services is limited, in part, by the speed and reliability of the
procurement networks operated by third parties. Consequently, the emergence and
growth of the market for our services is dependent on improvements being made
to the Internet infrastructure to alleviate overloading and congestion.

We are dependent upon the growth of the Internet as a means of commerce.

If the e-commerce market does not grow or grows more slowly than expected,
our business will suffer. The possible slow adoption of the Internet as a means
of commerce by businesses may harm our prospects. A number of factors could
prevent the acceptance and growth of e-commerce, including the following:

. e-commerce is at an early stage and buyers may be unwilling to shift
their traditional purchasing to online purchasing;

. businesses may not be able to implement e-commerce applications on these
procurement networks;

. increased government regulation or taxation may adversely affect the
viability of e-commerce;

. insufficient availability of telecommunication services or changes in
telecommunication services may result in slower response times; and

. adverse publicity and consumer concern about the reliability, cost, ease
of access, quality of services, capacity, performance and security of e-
commerce transactions could discourage its acceptance and growth.

Even if the Internet is widely adopted as a means of commerce, the adoption
of our procurement network for procurement, particularly by companies that have
relied on traditional means of procurement, will require broad acceptance of
the new approach. In addition, companies that have already invested substantial
resources in traditional methods of procurement, or in-house e-commerce
solutions, may be reluctant to adopt our e-commerce solution.

Security risks of electronic commerce may deter use of our products and
services.

A fundamental requirement to conduct business-to-business e-commerce is the
secure transmission of information over public procurement networks. If members
are not confident in the security of e-commerce, they may not effect
transactions on our procurement networks or renew their memberships which would
severely harm our business. We cannot be certain that advances in computer
capabilities, new discoveries in the field of cryptography, or other
developments will not result in the compromise or breach of the algorithms we
use to protect content and transactions on our procurement networks or
proprietary information in our databases. Anyone who is able to circumvent our
security measures could misappropriate proprietary, confidential member
information, place false orders or cause interruptions in our operations. We
may be required to incur significant costs to protect against security breaches
or to alleviate problems caused by breaches. Further, a well-publicized
compromise of security could deter people from using the Internet to conduct
transactions that involve transmitting confidential information. Our failure to
prevent security breaches, or well-publicized security breaches affecting the
Internet in general could adversely affect our business.

12
<PAGE>

Failure to maintain accurate databases could seriously harm our business
and reputation.

We update and maintain extensive databases of the products, services and
procurement network transactions for our members. Our computer systems and
databases must allow for expansion as a member's business grows without losing
performance. Database capacity constraints may result in data maintenance and
accuracy problems which could cause a disruption in our service and our
ability to provide accurate information to our members. These problems may
result in a loss of members which could severely harm our business. Some of
our customer contracts provide for service level guarantees for the accuracy
of data. Our failure to satisfy these service level guarantees could result in
liability or termination of the contract and a loss of business, and our
business and our reputation would suffer.

We may not be able to accurately predict the rate of increase in the usage
of our procurement network, which may affect our timing and ability to
expand and upgrade our systems.

Traffic in our procurement networks has increased to the point where we
must expand and upgrade some of our transaction processing systems and
procurement network hardware and software. We may not be able to accurately
predict the rate of increase in the usage of our procurement network. This may
affect our timing and ability to expand and upgrade our systems and
procurement network hardware and software capabilities to accommodate
increased use of our procurement network. If we do not upgrade our systems and
procurement network hardware and software appropriately, we may experience
downgraded service which could damage our business reputation, relationship
with members and our operating results.

If we encounter system failure, service to our customers could be delayed
or interrupted. Service delays or interruptions could severely harm our
business and result in a loss of customers.

Our ability to successfully maintain an e-commerce marketplace and provide
acceptable levels of customer service largely depends on the efficient and
uninterrupted operation of our computer and communications hardware and
procurement network systems. Any interruptions could severely harm our
business and result in a loss of customers. Our computer and communications
systems are located in Las Vegas, Nevada. Although we periodically back up our
databases to tapes and store the backup tapes offsite, we do not maintain a
redundant site. Our systems and operations are vulnerable to damage or
interruption from human error, sabotage, fire, flood, earthquake, power loss,
telecommunications failure and similar events. Although we have taken steps to
prevent a system failure, we cannot assure you that our measures will be
successful and that we will not experience system failures in the future.
Moreover, we have experienced delays and interruptions in our telephone and
Internet access which have prevented members from accessing our procurement
networks and customer service department. Furthermore, we do not have a formal
disaster recovery plan and do not carry sufficient business interruption
insurance to compensate us for losses that may occur as a result of any system
failure. The occurrence of any system failure or similar event could harm our
business dramatically. In addition, we may move to third-party hosting of our
servers. We cannot assure you that this transition, if undertaken, would be
effected without interruptions. Further, any such third-party host could be
subject to the same risks of system failure as our current site.

Our services depend on complex software. Unknown defects in this software
could result in service and development delays.

Our procurement network services depend on complex software developed
internally and by third parties. Software often contains defects, particularly
when first introduced or when new versions are released. Our testing
procedures may not discover software defects that affect our new or current
services or enhancements until after they are deployed. These defects could
cause service interruptions, which could damage our reputation or increase our
service costs, cause us to lose revenue, delay market acceptance or divert our
development resources, any of which could severely harm our business. In the
past, we have missed internal software development and enhancement deadlines.
Some of our contracts contain software enhancement and development milestones.
If we are unable to meet these milestones, whether or not the failure is
attributable to

13
<PAGE>

us or a third party, we may be in breach of our contractual obligations. Such
a breach could damage our reputation, lead to termination of the contract, and
adversely affect our business.

Governmental regulation and legal uncertainties could impair the growth of
the Internet and decrease demand for our services and increase our cost of
doing business.

The laws governing Internet transactions remain largely unsettled, even in
areas where there has been some legislative action. The adoption or
modification of laws or regulations relating to the Internet could increase
our costs and administrative burdens. It may take years to determine whether
and how existing laws such as those governing intellectual property, privacy,
libel, consumer protection and taxation apply to the Internet.

Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. We must comply with new regulations
in the United States and other countries where we conduct business. The growth
and development of the business-to-business e-commerce market may prompt calls
for more stringent laws governing consumer protection and the taxation of e-
commerce. Non-compliance with any newly adopted laws and regulations could
expose us to significant liabilities.

The inability to acquire or maintain effective Web domain names could
create confusion and direct traffic away from our procurement networks.

We currently hold various Internet Web addresses relating to our
procurement network. If we are not able to prevent third parties from
acquiring Web addresses that are similar to our addresses third parties could
acquire similar domain names which could create confusion that diverts traffic
to other websites away from our procurement networks thereby adversely
affecting our business. The acquisition and maintenance of Web addresses
generally is regulated by governmental agencies and their designees. The
regulation of Web addresses in the United States and in foreign countries is
subject to change. As a result, we may not be able to acquire or maintain
relevant Web addresses in all countries where we conduct business.
Furthermore, the relationship between regulations governing such addresses and
laws protecting proprietary rights is unclear.

We may be subject to legal liability for communication on our procurement
network.

We may be subject to legal claims relating to the content in our
procurement network, or the downloading and distribution of such content.
Claims could involve matters such as fraud, defamation, invasion of privacy
and copyright infringement. Providers of Internet products and services have
been sued in the past, sometimes successfully, based on the content of
material. Our insurance may not cover claims of this type, or may not provide
sufficient coverage. Even if we are ultimately successful in our defense of
these claims, any such litigation is costly and these claims could harm our
reputation and our business.

Risks Related to this Offering

Our executive officers and directors will continue to exercise significant
control over PurchasePro.com and could limit the ability of our other
stockholders to influence the outcome of director elections and other
transactions submitted to a vote of our stockholders.

We anticipate that our executive officers and directors will, in the
aggregate, beneficially own approximately 36% of our outstanding common stock
following the completion of this offering. These stockholders will be able to
exercise substantial influence over all matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the
effect of delaying or preventing a change in control of PurchasePro.com. See
"Principal and Selling Stockholders."

14
<PAGE>

You will experience immediate and substantial dilution with respect to your
shares. We may need to raise additional capital which may further dilute
existing stockholders.

You will incur immediate and substantial dilution of $73.35 per share in the
net tangible book value of your shares as a result of this offering. See
"Dilution."

Historically, we have financed our business and operations through the sale
of equity, including our initial public offering. We believe that the net
proceeds from this offering will enable us to maintain our current and planned
operations for at least the next 18 months. After that, we may need to raise
additional funds. If our capital requirements vary materially from those
currently planned, we may require additional financing sooner than anticipated.
Such financing may not be available in sufficient amounts or on terms
acceptable to us, or at all, and may be dilutive to existing stockholders.

We expect to experience volatility in our stock price.

The stock market has, from time to time, experienced significant price and
volume fluctuations that have affected the market prices for the common stock
of technology companies, particularly Internet companies. These broad market
fluctuations may result in a material decline in the market price of our common
stock. You may be unable to resell your stock at or above the public offering
price due to factors including:

. actual or anticipated fluctuations in our results of operations;

. changes in or failure by us to meet securities analysts' expectations;

. announcements of technological innovations;

. introduction of new services by us or our competitors;

. developments with respect to intellectual property rights;

. conditions and trends in the Internet and other technology industries;
and

. general market conditions.

We are at risk of securities class action litigation due to our expected
stock price volatility.

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources.

There may be sales of a substantial amount of our common stock after this
offering, which could depress our stock price.

After this offering, approximately 30,319,710 shares of common stock will be
outstanding. All of the 3,000,000 shares sold in this offering will be freely
tradable. Of the remaining shares of common stock outstanding after this
offering, 20,380,710 shares will be restricted as a result of securities laws
or lock-up agreements. These remaining shares will be available for sale in the
public market as shown in the chart below. As restrictions on resale end, the
market price could drop significantly if the holders of these restricted shares
sell them or are perceived by the market as intending to sell them.

<TABLE>
<CAPTION>
Number of
Shares Date of Availability for Resale into Public Market
--------- --------------------------------------------------
<C> <S>
3,025,340 March 13, 2000, based on the expiration of a 180-day lock-up
agreement. Prudential Securities Incorporated can waive this
restriction at any time and without notice.

1,913,024 April 13, 2000, based on expiration of a lock-up agreement. Credit
Suisse First Boston Corporation can waive this restriction at any
time and without notice.
</TABLE>

15
<PAGE>

<TABLE>
<C> <S>
734,659 May 10, 2000, based on expiration of a 90-day lock-up agreement.
Credit Suisse First Boston Corporation can waive this restriction
at any time and without notice.

4,843,037 June 2, 2000, due to requirements of federal securities law.

9,409,620 June 9, 2000, based on the expiration of a 120-day lock-up
agreement. Credit Suisse First Boston Corporation can waive this
restriction at any time and without notice.

455,030 At various times thereafter, based on the requirements of federal
securities law.
</TABLE>

See "Underwriting" and "Shares Eligible for Future Sale."

Our management will have broad discretion over the use of the net proceeds.
Failure to use the net proceeds in an effective and beneficial manner could
impede our ability to expand our sales and marketing activities and make
strategic investments.

We have no current specific plans for the use of the net proceeds from this
offering. We intend generally to use the net proceeds from this offering to
expand our sales and marketing activities and for general corporate purposes,
including working capital and strategic investments. We have not yet
determined the actual expected expenditures and thus cannot estimate the
amounts to be used for each specified purpose. The actual amounts and timing
of these expenditures will vary significantly depending on a number of
factors, including, but not limited to, the amount of cash generated by our
operations and the market response to the introduction of any new service
offerings. Depending on future developments and circumstances, we may use some
of the proceeds for uses other than those described above. Our management will
therefore have significant flexibility in applying the net proceeds of this
offering. Our success and growth depends on the beneficial use of the net
proceeds.

We may be harmed by delayed Year 2000 problems.

Although the date is now past January 1, 2000, and we have not experienced
immediate adverse impact from the transition to the Year 2000, we cannot
provide assurance that we or our suppliers and customers have not been
affected in a manner that is not yet apparent. In addition, some computer
programs that were date sensitive to the Year 2000 may not have been
programmed to process the Year 2000 as a leap year, and any negative
consequential effects remain unknown. As a result, we will continue to monitor
our Year 2000 compliance and the Year 2000 compliance of our suppliers and
customers.

Our articles of incorporation and bylaws and Nevada law contain provisions
which could delay or prevent a change in control and could also limit the
market price of your stock.

Our articles of incorporation and bylaws contain provisions that could
delay or prevent a change in control. These provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock. Some of these provisions:

. divide our board of directors into three classes;

. authorize the issuance of preferred stock which can be created and issued
by the board of directors without prior stockholder approval, commonly
referred to as "blank check" preferred stock, with rights senior to those
of common stock;

. prohibit stockholder action by written consent; and

. establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.

In addition, we intend to seek approval from our stockholders to increase
the amount of our authorized capital stock, which could then be used to
prevent a change in control.

16
<PAGE>

Further, certain provisions of Nevada law make it more difficult for a third
party to acquire us. Some of these provisions:

. establish a supermajority stockholder voting requirement to approve an
acquisition by a third party of a controlling interest; and

. impose time restrictions or require additional approvals for an
acquisition of us by an interested stockholder.

These provisions could also limit the price that investors might be willing
to pay in the future for shares of our common stock. See "Description of
Capital Stock" for additional discussion of these provisions.

17
<PAGE>

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends affecting the financial condition of our business. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions
about PurchasePro.com, including, among other things:

. general economic and business conditions, both nationally and in our
markets;

. our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;

. anticipated trends in our business;

. existing and future regulations affecting our business;

. our successful implementation of our business strategy;

. our relationship with our strategic partners;

. fluctuations in our operating results;

. technological changes in the Internet industry; and

. other risk factors described under "Risk Factors" in this prospectus.

In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to PurchasePro.com, our business or our management,
are intended to identify forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
after the date of this prospectus. Because of these risks and uncertainties,
the forward-looking events and circumstances discussed in this prospectus may
not occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements.

18
<PAGE>

USE OF PROCEEDS

The net proceeds to us from the sale of 2,000,000 shares of common stock
offered by us in this offering will be approximately $150.9 million based upon
the public offering price of $80.00 per share, after deducting underwriting
discounts and commissions and estimated offering expenses.

Our management will have broad discretion over the use of the net proceeds.
We generally intend to use the net proceeds of this offering for the following:

. expansion of our sales and marketing activities; and

. working capital and other general corporate purposes.

In addition, we plan to use a portion of the net proceeds of this offering
to acquire or invest in businesses, products, services or technologies
complementary to our current business, through mergers, acquisitions, joint
ventures or otherwise. However, we have no specific agreements or commitments
and are not currently engaged in any negotiations with respect to these
transactions. We have not yet established criteria for evaluating acquisitions
or investments. We intend to invest the net proceeds of this offering in short-
term, interest bearing, investment grade securities or guaranteed obligations
of the U.S. government pending the above uses.

We have not yet determined the actual expected expenditures and thus cannot
estimate the amounts to be used for each purpose discussed above. The amounts
and timing of these expenditures will vary significantly depending on a number
of factors, including, but not limited to, the amount of cash generated by our
operations and the market response to our introduction of any new services.

We will not receive any proceeds from the sale of common stock by the
selling stockholders.

DIVIDEND POLICY

We have never declared or paid dividends on our capital stock and do not
anticipate declaring or paying any dividends in the foreseeable future. We
currently intend to retain any future earnings for the expansion of our
business.

PRICE RANGE OF COMMON STOCK

Since September 14, 1999, PurchasePro.com's common stock has been quoted in
the Nasdaq National Market under the symbol "PPRO."

The following table sets forth the high and low sales prices of the common
stock as reported by the Nasdaq National Market and as adjusted for the three-
for-two stock split:

<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1999
----
Third Quarter (September 14, 1999 through September 30,
1999)..................................................... $ 31.83 $14.66
Fourth Quarter ............................................ $175.00 $18.33

2000
----
First Quarter (through February 10, 2000).................. $157.50 $75.50
</TABLE>

On February 10, 2000, the last reported sale price of the common stock in
the Nasdaq National Market was $83.063 per share. As of February 9, 2000, there
were approximately 227 shareholders of record.

19
<PAGE>

DILUTION

Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock
from the public offering price. Net tangible book value per share represents
the amount of our total tangible assets reduced by the amount of our total
liabilities, divided by the number of shares of common stock outstanding.

. As of September 30, 1999, our net tangible book value was $50.8 million,
or $1.81 per share.

. As of September 30, 1999, our net tangible book value as adjusted for the
sale of the 2,000,000 shares offered by us in this offering and
application of the estimated net proceeds to us of $150.9 million (at the
public offering price of $80.00 per share after deducting the
underwriting discounts and commissions and estimated offering expenses),
would have been approximately $6.65 per share.

This represents an immediate increase of $4.84 per share to existing
stockholders and an immediate and substantial dilution of $73.35 per share to
new investors purchasing common stock in this offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Public offering price.......................................... $80.00
Net tangible book value as of September 30, 1999.............. $1.81
Increase attributable to new investors........................ 4.84
-----
Net tangible book value after the offering..................... 6.65
------
Dilution to new investors...................................... $73.35
======
</TABLE>

The following table summarizes as of September 30, 1999 the differences
between the total consideration paid and the average price per share paid by
the existing stockholders and the new investors with respect to the number of
shares of common stock purchased from us at the public offering price of $80.00
per share and before deducting the underwriting discounts and commissions and
our estimated offering expenses. The following table does not give effect to
sales of shares by selling stockholders:

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 28,094,710 93% $ 74,251,500 32% $ 2.64
New investors.............. 2,000,000 7 160,000,000 68 $80.00
---------- --- ------------ ---
Total.................... 30,094,710 100% $234,251,500 100%
========== === ============ ===
</TABLE>

The above discussion and tables assume no exercise of the underwriter's
over-allotment options and except as set forth above no exercise of any stock
options outstanding as of September 30, 1999. In addition, the above table does
not include 225,000 shares of common stock to be issued upon exercise of
warrants by two selling stockholders. As of September 30, 1999, there were
options outstanding to purchase a total of 4,917,465 shares of common stock at
a weighted average exercise price of $3.03 per share, of which 1,333,934 were
exercisable as of September 30, 1999. If these options are exercised in the
future it will be further dilutive to investors who purchase shares in this
offering. Options available for grant under our stock option plans may be
granted at exercise prices less than the market value of common stock on the
grant date. If we grant options below fair market value it could be dilutive to
investors who purchase shares in this offering.

20
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of PurchasePro.com as of
September 30, 1999:

. on an actual basis; and

. as adjusted, to reflect the receipt of the estimated net proceeds from
the sale of the 2,000,000 shares of common stock by us in this offering
at the public offering price of $80.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses.

You should read the capitalization table together with the sections of this
prospectus entitled "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes included in this prospectus.

<TABLE>
<CAPTION>
September 30, 1999
--------------------------
Actual As Adjusted
------------ ------------
<S> <C> <C>
Notes payable...................................... $ 50,000 $ 50,000
Stockholders' equity (deficit):
Common stock: $0.01 par value; 40,000,000 shares
authorized; 28,014,710 shares issued and
outstanding; as adjusted--40,000,000 shares
authorized, 30,319,710 issued and
outstanding(1)................................... 280,147 303,197
Additional paid-in capital........................ 87,154,900 238,012,383
Deferred stock-based compensation................. (4,773,203) (4,773,203)
Accumulated deficit............................... (31,274,242) (31,274,242)
------------ ------------
Total stockholders' equity (deficit).............. 51,387,602 202,268,135
------------ ------------
Total capitalization............................ $ 51,437,602 $202,318,135
============ ============
</TABLE>
- --------
(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999,
reflects the three-for-two stock split effected in the form of a stock
dividend on December 13, 1999 and does not include the following:

. 583,334 shares of common stock issuable upon exercise of warrants
issued and outstanding as of September 30, 1999, and 3,083,558 shares
of common stock issuable upon exercise of warrants issued subsequent to
September 30, 1999.

21
<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

We derived the selected consolidated financial data presented below from our
historical financial statements and related notes included elsewhere in this
prospectus. You should read the selected consolidated financial data together
with our historical financial statements, related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Arthur Andersen LLP, independent public accountants, audited our historical
financial statements for the period from inception (October 8, 1996) through
December 31, 1996, and for each of the two years in the period ended December
31, 1998. Their report appears in another part of this prospectus. Our
historical financial statements for the nine months ended September 30, 1998
and 1999 are unaudited, and in our opinion include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results for the unaudited period. You should not rely on interim results as
being indicative of results we may experience for future periods.

<TABLE>
<CAPTION>
Inception Nine Months Ended
(October 8, 1996) Year Ended December 31, September 30,
through ------------------------ -------------------------
Statement of Operations December 31, 1996 1997 1998 1998 1999
Data: ----------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Subscription fees...... $ -- $ 512,761 $ 1,461,439 $ 819,546 $ 1,993,346
Other.................. -- 162,629 208,799 212,167 1,356,652
---------- ----------- ----------- ----------- ------------
Total revenues........ -- 675,390 1,670,238 1,031,713 3,349,998
---------- ----------- ----------- ----------- ------------
Cost of revenues........ -- 213,857 445,639 335,411 567,669
---------- ----------- ----------- ----------- ------------
Gross profit ........... -- 461,533 1,224,599 696,302 2,782,329

Operating expenses
Sales and marketing ... 22,592 1,179,327 3,840,776 2,766,137 5,404,783
General and
administrative ....... 9,860 1,344,860 2,895,779 2,005,234 4,637,895
Programming and
development .......... 86,862 802,175 971,459 687,305 1,530,973
Amortization of stock-
based compensation.... -- -- -- -- 4,946,281
---------- ----------- ----------- ----------- ------------
Total operating
expenses ............ 119,314 3,326,362 7,708,014 5,458,676 16,519,932
---------- ----------- ----------- ----------- ------------
Operating loss.......... (119,314) (2,864,829) (6,483,415) (4,762,374) (13,737,603)

Other income (expense)
Interest income
(expense), net........ (3,638) (120,497) (332,895) (218,176) (80,147)
Other.................. -- -- 16,300 6,857 (279,007)
---------- ----------- ----------- ----------- ------------
Total other income
(expense)............ (3,638) (120,497) (316,595) (211,319) (359,154)
---------- ----------- ----------- ----------- ------------
Net loss before benefit
for income taxes....... (122,952) (2,985,326) (6,800,010) (4,973,693) (14,096,757)
Benefit for income
taxes.................. -- -- -- -- --
---------- ----------- ----------- ----------- ------------
Net loss................ (122,952) (2,985,326) (6,800,010) (4,973,693) (14,096,757)
---------- ----------- ----------- ----------- ------------
Preferred stock
dividends.............. -- -- (245,000) (140,000) (511,000)
Accretion of preferred
stock to redemption
value.................. -- -- (90,438) (44,981) (131,037)
Value of preferred stock
beneficial conversion
feature................ -- -- -- -- (9,400,000)
---------- ----------- ----------- ----------- ------------
Net loss applicable to
common stockholders.... $ (122,952) $(2,985,326) $(7,135,448) $(5,158,674) $(24,138,794)
========== =========== =========== =========== ============
Loss per share
Basic.................. $ (0.01) $ (0.26) $ (0.55) $ (0.38) $ (1.86)
========== =========== =========== =========== ============
Diluted................ $ (0.01) $ (0.24) $ (0.52) $ (0.36) $ (1.80)
========== =========== =========== =========== ============
Weighted average shares
outstanding
Basic.................. 11,550,000 11,550,000 12,900,000 13,650,000 13,002,895
========== =========== =========== =========== ============
Diluted................ 12,389,999 12,389,999 13,739,999 14,489,999 13,438,329
========== =========== =========== =========== ============
</TABLE>

<TABLE>
<CAPTION>
As of December 31, As of
----------------------------------- September 30,
1996 1997 1998 1999
--------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.. $ 835 $ 7,894 $ 1,689,288 $48,477,852
Working capital (deficit).. (49,254) (1,907,159) 907,276 46,990,205
Total assets............... 70,269 608,565 2,744,757 55,005,879
Notes payable.............. 133,132 2,567,000 1,544,939 50,000
Redeemable convertible
preferred stock........... -- -- 6,339,438 --
Total stockholders' equity
(deficit)................. (112,952) (2,708,896) (5,880,944) 51,387,602
</TABLE>

22
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of
operations should be read together with the consolidated financial statements
and the related notes included elsewhere in this prospectus and which are
deemed to be incorporated into this section. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results may differ materially from those anticipated in these forward-
looking statements as a result of a number of factors, including but not
limited to those set forth under "Risk Factors" and included elsewhere in this
prospectus.

Overview

PurchasePro.com, Inc. is a leading provider of Internet business-to-business
electronic commerce services. We develop public and private online business
procurement network communities. Our procurement networks provide businesses of
all sizes with a low cost and efficient e-commerce solution for buying and
selling a wide range of products and services over the Internet.

Our predecessor company was incorporated in October 1996. In January 1998,
we incorporated PurchasePro.com, Inc. and acquired all of the assets and
assumed all the liabilities of our predecessor. In August 1998, we acquired our
subsidiary company, Hospitality Purchasing Systems (HPS). From October 1996 to
the commercial release of our service in April 1997, we were primarily engaged
in raising capital and developing our procurement network and software
infrastructure.

In April 1997, we released PurchasePro 1.0, enabling our members to transact
e-commerce over our procurement network. Our next release in July 1997 provided
this capability over the Internet. In September 1998, we released PurchasePro
3.0, our procurement network enabling software. In February 1999, we released
PurchasePro 4.0, which allows members the additional capability of building
private procurement networks.

From inception through June 30, 1999, substantially all of our revenues were
derived from monthly membership subscription fees for access to our procurement
networks. Beginning in 1999, we began to earn revenues from other sources,
including transaction fees, license fees and advertising. Most of our members
are companies that sell products and services to large hotels and resorts.
Generally, our subscription and license fee contracts are entered into on a
month-to-month basis. Although we have executed contracts of a longer duration,
generally these contracts may be terminated at any time on 30 to 60 days'
notice. Some of our contracts may be terminated on even shorter notice,
however, and in certain cases in as little as seven days. Some of our
agreements with members are verbal and as such may be terminated at any time.
In August 1998, HPS began generating transaction fees from group buying
services provided to the hospitality industry. In 1999, with the release of
version 4.0, we began contracting with larger corporate customers to create
customized, private procurement networks. Typically, we charge these companies
licensing and maintenance fees for this service. The licensing and maintenance
fees are initially deferred and recognized ratably over the period of service.
In order to build our subscriber base we have also provided Web site
development and hosting services and fees for catalog building services. We
also charge our members a fee for processing their subscription payments by
electronic funds transfer or credit card.

During the three months ended September 30, 1999, we began generating
transaction fee revenues from transactions consummated by our members with
value added merchandise and service providers. Also, we began generating
advertising fees, which we believe will continue to generate both transaction
fees and advertising revenues in the future, and that these revenue streams
will become a more significant portion of our total revenues. As of November
30, 1999, we believe that there are approximately 16,000 users that have been
provided with the capability to access and use our procurement network. We
cannot assure you that we will be successful in generating any of these
additional revenues and fees. See "Risk Factors--Risks Related to our
Business--The revenue and profit potential of our business model is unproven.
Our success is dependent on our ability to expand our membership base and
expand into new markets and industries."

23
<PAGE>

Since our inception on October 8, 1996, we have incurred significant net
losses. From inception through December 31, 1996, we had a net loss of
$123,000. For the years ended December 31, 1997 and 1998, our net losses
applicable to common stockholders were $3.0 million and $7.1 million,
respectively. For the nine months ended September 30, 1998 and 1999, we had net
losses applicable to common stockholders of $5.2 million and $24.1 million,
respectively. As of September 30, 1999, our accumulated deficit totaled
$31.3 million.

Subsequent to September 30, 1999, we entered into agreements with strategic
partners in which we issued warrants to purchase an aggregate of 3,225,000
shares of our common stock at a weighted average exercise price per share of
$86.31. We will incur a charge of approximately $50 million related to a
portion of the warrants in the fourth quarter of 1999 based on the estimated
fair value of such warrants. Another portion of these warrants are exercisable
only if performance criteria are met. We may incur additional charges if such
performance criteria are met based on the then-fair value of such warrants.

Results of Operations

Comparison of the Nine Months Ended September 30, 1998 and September 30, 1999

Revenues. Our revenues consist primarily of subscription fees, transaction
fees, license fees and advertising for our public and private procurement
networks. Through HPS, we earn transaction fees for providing a service that
consolidates the buying power of its participating members. We also charge
license fees to larger buyer companies for creating and developing their
private procurement networks along with an annual maintenance fee. In addition,
we earn revenues from the sale of Web site development and host services, from
catalog development services and for electronically processing our members'
payments. Our net revenues increased from $1.0 million for the nine months
ended September 30, 1998, to $3.3 million for the nine months ended September
30, 1999. Substantially all of this increase resulted from growth in our
membership, new license arrangements and advertising revenues. Our subscription
revenue increased from $820,000 for the nine months ended September 30, 1998 to
$2.0 million for the nine months ended September 30, 1999. Other revenues,
including license fees, Web site development and hosting fees, catalog fees,
advertising and HPS transactions fees, increased from $212,000 for the nine
months ended September 30, 1998, to $1.4 million for the nine months ended
September 30, 1999. HPS transaction fees increased from $0 for the nine months
ended September 30, 1998 to $231,000 for the nine months ended September 30,
1999.

Cost of Revenues. Our cost of revenues consists primarily of costs for
member support and Web site operations, including fees for independent
contractors, compensation for our member support and site operations personnel
and, to a lesser extent, bank and credit card processing charges. Our cost of
revenues increased from $335,000 for the nine months ended September 30, 1998,
to $568,000 for the nine months ended September 30, 1999. The increase was
primarily the result of the increase in personnel in our member service
department. Expenses related to personnel costs of our member service and web
site operations departments increased from $272,000 for the nine months ended
September 30, 1998 to $476,000 for the nine months ended September 30, 1999. We
expect that our cost of revenues will increase in absolute dollars, but will
remain constant or decrease as a percentage of revenues in future periods, as a
result of an anticipated increase in the efficiency of our member service
department to provide service to our customers and the decrease in the number
of member service calls per member as our members gain experience using the
procurement network. Our gross profit increased from $696,000 for the nine
months ended September 30, 1998 to $2.8 million for the nine months ended
September 30, 1999.

Sales and Marketing Expenses. Our sales and marketing expenses are comprised
primarily of compensation for our sales and marketing personnel, travel and
related costs, and costs associated with our marketing activities, such as
advertising, trade show and other promotional activities. Our sales and
marketing expenses increased from $2.8 million for the nine months ended
September 30, 1998, to $5.4 million for the nine months ended September 30,
1999. This increase is primarily attributable to an increase in the size of our
sales force. Expenses related to personnel costs of sales and marketing
personnel increased from $1.4 million

24
<PAGE>

for the nine months ended September 30, 1998 to $3.2 million for the nine
months ended September 30, 1999. We plan to continue to increase the size of
our sales force and to expand our advertising and marketing activities. Travel
and related costs increased from $298,000 for the nine months ended September
30, 1998, to $621,000 for the nine months ended September 30, 1999. Costs
associated with our marketing activities increased from $249,000 for the nine
months ended September 30, 1998, to $757,000 for the nine months ended
September 30, 1999. In the nine months ended September 30, 1999, we recognized
a non-cash charge of $800,000 related to the issuance of stock options offered
to a strategic marketing partner at an exercise price below fair value. We
expect that our sales and marketing expenditures will increase significantly,
both in absolute dollars and as a percentage of net revenues, as a result of
the anticipated opening of sales offices in new geographic regions, increased
marketing efforts and additional sales commissions.

General and Administrative Expenses. Our general and administrative expenses
consist primarily of compensation for personnel and, to a lesser extent, fees
for professional services, facility costs and communications costs, charges for
doubtful accounts and depreciation and amortization. Our general and
administrative expenses increased from $2.0 million for the nine months ended
September 30, 1998, to $4.6 million for the nine months ended September 30,
1999. The increase is primarily attributable to the increased size of our
executive and administrative staff. Expenses related to personnel costs of our
general and administrative personnel increased from $884,000 for the nine
months ended September 30, 1998, to $1.9 million for the nine months ended
September 30, 1999. Facilities costs increased from $82,000 for the nine months
ended September 30, 1998, to $280,000 for the nine months ended September 30,
1999, as the result of our move into our new corporate location. Our
communications costs increased from $191,000 for the nine months ended
September 30, 1998, to $216,000 for the nine months ended September 30, 1999,
as a result of our expansion into new geographic areas throughout late 1998 and
early 1999. Other general and administrative expenses increased primarily as a
result of a larger amount charged to our reserve for doubtful accounts. The
charge for doubtful accounts totaled $60,000 for the nine months ended
September 30, 1998, as compared to $351,000 for the nine months ended September
30, 1999. Our depreciation and amortization increased from $182,000 for the
nine months ended September 30, 1998, to $403,000 for the nine months ended
September 30, 1999. The increase resulted primarily from the increase in our
revenues in such period, and a better knowledge of the estimated bad debt
percentage based on our collection experience since September 30, 1998. We
believe that our allowance for doubtful accounts will decrease as a percentage
of revenues in future periods as we anticipate implementing more efficient
membership credit reviews and as we expect more members will convert to
electronic fund transfer or credit card payment methods. We expect that our
general and administrative expenses will increase in absolute dollars but
remain relatively constant as a percentage of net revenues, as we anticipate
continuing to expand our operations.

Programming and Development Expenses. Programming and development expenses
consist primarily of compensation for our programming and development staff and
payments to outside contractors. Our programming and development expenses
increased from $687,000 for the nine months ended September 30, 1998, to $1.5
million for the nine months ended September 30, 1999. The increase is primarily
attributable to an increase in our programming staff. Expenses related to
programming and development personnel increased from $589,000 for the nine
months ended September 30, 1998, to $1.4 million for the nine months ended
September 30, 1999. We expect that our programming and development expenses
will increase in absolute dollars but remain relatively constant as a
percentage of revenues as we anticipate continuing to develop and enhance our
service offerings.

Deferred Stock-Based Compensation. During the nine months ended September
30, 1999, we recorded aggregate deferred stock compensation of $9.7 million in
connection with certain stock options granted to employees as additional paid-
in capital. The deferred stock compensation is being amortized over the vesting
periods of the related options. For the nine months ended September 30, 1999,
amortization of deferred stock-based compensation totaled $4.9 million.

Other Income (Expense). Interest expense primarily relates to borrowings
from our Chairman and Chief Executive Officer in 1997, notes payable
outstanding from January 1998 through September 1998 and notes payable
outstanding since September 1998 and December 1998. Interest income relates to
interest earned

25
<PAGE>

on initial public offering proceeds that were invested in short-term
investments. Our net interest expense decreased from $218,000 for the nine
months ended September 30, 1998, to $80,000 for the nine months ended September
30, 1999. The decrease resulted from the repayment of $2.3 million of notes
payable plus interest earned on the proceeds from our initial public offering.
Other expense includes the write-off of debt issuance costs related to $1.5
million of notes payable issued in September 1998 and repaid in June 1999.

Years Ended December 31, 1997 and December 31, 1998

Revenues. Revenues increased from $675,000 for 1997 to $1.7 million for
1998. Substantially all of this increase resulted from growth in our
membership. For the year ended December 31, 1997, $513,000 of our revenues were
from member subscription services and $163,000 were from Web site development
and hosting fees, and other fees. For the year ended December 31, 1998, our
member subscription fees totaled $1.3 million, our revenues from our HPS
subsidiary totaled $154,000, and our revenues from Web site development and
hosting fees totaled $145,000.

Cost of Revenues. Our cost of revenues increased from $214,000 for the year
ended December 31, 1997, to $446,000 for the year ended December 31, 1998. The
increase was primarily the result of the increase in personnel in our member
service department. Expenses related to personnel costs of our member service
and web site operations departments increased from $159,000 for the year ended
December 31, 1997, to $357,000 for the year ended December 31, 1998. Our gross
profit increased from $462,000 for 1997 to $1.2 million for 1998.

Sales and Marketing Expenses. Our sales and marketing expenses increased
from $1.2 million for 1997 to $3.8 million for 1998. This increase was
primarily attributable to expansion of our sales force into several geographic
regions throughout the country, plus expanded marketing activities that
included attendance at numerous trade shows, advertising campaigns and costs of
producing marketing materials. Further, we recognized a non-cash charge of
$720,000 related to the issuance of common stock to a stockholder at a price
below fair value in connection with services provided by a stockholder.
Expenses related to personnel costs of our sales and marketing department
increased from $686,000 for the year ended December 31, 1997, to $2.2 million
for the year ended December 31, 1998. Travel and related costs increased from
$117,000 for the year ended December 31, 1997, to $437,000 for the year ended
December 31, 1998. Costs associated with our marketing activities increased
from $131,000 for the year ended December 31, 1997, to $362,000 for the year
ended December 31, 1998.

General and Administrative Expenses. Our general and administrative expenses
increased from $1.3 million for 1997 to $2.9 million for 1998. This increase
was primarily attributable to increasing the size of our executive and
administrative staffs, legal fees and, to a lesser extent, communication costs
and our reserve for doubtful accounts. Expenses related to personnel costs of
our general and administrative personnel increased from $695,000 for the year
ended December 31, 1997, to $1.3 million for the year ended December 31, 1998.
The increase is primarily attributable to the increased size of our executive
and administrative staff. Our communications costs increased significantly from
$94,000 for the year ended December 31, 1997, to $257,000 for the year ended
December 31, 1998, as a result of our expansion into new geographic areas
throughout 1998. Other general and administrative expenses increased primarily
as a result of a larger amount charged to our reserve for doubtful accounts.
The charge for doubtful accounts totaled $73,000 for the year ended December
31, 1997, as compared to $127,000 for the year ended December 31, 1998. The
increase corresponds to the increase in our revenues between years.

Programming and Development Expenses. Our programming and development
expenses increased from $802,000 for 1997 to $971,000 for 1998. The increase is
primarily attributable to increased salaries, payroll taxes and employee
benefits associated with the development of new versions of our procurement
network during 1998.

Interest Expense. Our interest expense increased from $120,000 for 1997 to
$333,000 for 1998. This increase resulted from the issuance of $2.3 million of
notes payable in January 1998 that were repaid in June 1998, $1.5 million of
notes payable in September 1998 and $350,000 of notes payable in December 1998.

26
<PAGE>

Period from Inception (October 8, 1996) through December 31, 1996 and Year
Ended December 31, 1997

Revenues. We did not have any revenues prior to April 1, 1997. Prior to that
time, we were principally engaged in the development of our basic service. In
April 1997, we released PurchasePro 1.0 and began generating revenues. Our
revenues were $675,000 in 1997.

Cost of Revenues. We did not have any cost of revenues prior to April 1,
1997. After we commenced offering our services, we began to incur cost of
revenues due to the establishment of our customer service department and bank
and credit card processing charges. In 1997, our cost of revenues was $214,000,
and our gross profit was $462,000.

Sales and Marketing Expenses. Sales and marketing expenses increased from
$23,000 for 1996 to $1.2 million for 1997. We began limited marketing of our
service in 1996, and in 1997, we expanded our sales and marketing force,
entered new markets and began various marketing activities.

General and Administrative Expenses. Our general and administrative expenses
increased from $10,000 for 1996 to $1.3 million for 1997. In 1997, we
significantly increased our administrative staff, incurred professional fees
and facilities costs, and established a reserve for estimated doubtful
accounts.

Programming and Development Expenses. Our programming and development
expenses increased from $87,000 for 1996 to $802,000 for 1997. In 1997, we
continued to upgrade our procurement network capacity and functionality.

Interest Expense. Interest expense increased from $4,000 for 1996 to
$120,000 for 1997. In 1997, interest expense was primarily related to a note
payable issued to our principal stockholder.

Quarterly Results of Operations

The following table sets forth our unaudited quarterly results of operations
data for our seven most recent quarters ended September 30, 1999. You should
read the following table in conjunction with our consolidated financial
statements and related notes included elsewhere in this prospectus. We have
prepared this unaudited information on the same basis as the audited
consolidated financial statements. This table includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for the
quarters presented. We have experienced and expect to continue to experience
fluctuations in operating results from quarter to quarter. We incurred net
losses in each of the last seven quarters and expect to continue to incur
losses for the foreseeable future. You should not draw any conclusions about
our future results from the results of operations for any quarter, or for any
period.

<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
----------- ----------- ----------- ----------- ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 236,373 $ 293,492 $ 501,848 $ 638,525 $ 673,907 $ 1,006,001 $ 1,670,090
Cost of revenues........ 97,917 114,308 123,186 110,228 162,870 186,870 217,929
Gross profit............ 138,456 179,184 378,662 528,297 511,037 819,131 1,452,161
Operating expenses...... 1,317,403 2,263,294 1,877,979 2,249,338 2,428,692 5,033,413 9,057,827
Operating loss.......... (1,178,947) (2,084,110) (1,499,317) (1,721,041) (1,917,655) (4,214,282) (7,605,666)
Other income (expense).. (78,896) (138,922) 6,499 (105,276) (118,655) (320,437) 79,938
Net loss................ (1,257,843) (2,223,032) (1,492,818) (1,826,317) (2,036,310) (4,534,719) (7,525,728)
Preferred stock
dividends, accretion of
preferred stock to
redemption value and
value of preferred
stock beneficial
conversion feature..... -- (35,000) (149,981) (150,457) (673,796) (9,108,050) (36,191)
Net loss applicable to
common stockholders.... (1,257,843) (2,258,032) (1,642,799) (1,976,774) (2,710,106) (13,642,769) (7,785,919)
</TABLE>

27
<PAGE>

Liquidity and Capital Resources

Since our inception on October 8, 1996, we have had significant negative
cash flows from our operations. For the period from inception through December
31, 1996, we were in the development stage and used $70,000 of cash for
operations. For the years ended December 31, 1997 and 1998, we used $1.9
million and $6.0 million of cash, respectively, in our operations. For the nine
months ended September 30, 1998 and 1999, we used a total of $4.3 million and
$8.4 million of cash in our operating activities. Cash used in operating
activities in each period resulted primarily from net losses in those periods.
For the year ended December 31, 1998, and for the nine months ended September
30, 1998 and 1999, our cash used in operating activities included increases in
our trade accounts receivable of $324,000, $191,000 and $1.7 million. The
increase is primarily attributable to billings under terms of our license and
advertising contracts entered into during the three months ended September 30,
1999, as well as member receivables that reflect our efforts to expand the
membership base by allowing for payment terms up to 90 days and billings for
our new license and advertising revenues in the third quarter of 1999. For the
nine months ended September 30, 1998 and 1999, we used cash totaling $142,000
and $2.3 million in our investing activities, which have consisted primarily of
expenditures for computer and related equipment, furniture and fixtures,
communication equipment and leasehold improvements as well as deposits on
various equipment leases.

Since inception, we have financed our operations primarily from the issuance
of common stock, proceeds of notes payable, the sale of Series A Preferred and
Series B Preferred Stock and the proceeds of our initial public offering.
During the period from inception through December 31, 1997, Charles E. Johnson,
Jr., our principal stockholder and Chief Executive Officer, contributed
$139,000 in capital and loaned us $2.5 million. In January 1998, we borrowed
$2.3 million from various individuals and used $813,000 of the proceeds to
repay a portion of the previous borrowings from Mr. Johnson. In April 1998, Mr.
Johnson advanced an additional $387,000 to us. In June 1998, we completed our
Series A Preferred Stock offering and received net proceeds of $5.0 million. We
used a portion of the proceeds from the Series A Preferred Stock offering to
repay the $2.3 million notes payable from our January 1998 borrowing and repaid
Mr. Johnson $310,000. In connection with the closing of the Series A Preferred
Stock offering, Mr. Johnson contributed his remaining notes payable totaling
$1.8 million to us as equity. We did not issue any new shares to Mr. Johnson in
exchange for this contribution. Between September and November 1998, we
obtained financing in the form of notes payable totaling $1.5 million,
including $500,000 from Mr. Johnson. In December 1998, Mr. Johnson loaned an
additional $250,000 and in March 1999 he loaned another $200,000 to us. In
December 1998, we commenced our Series B Preferred Stock offering. Through
December 31, 1998, we had received $2.0 million in cash pursuant to
subscription agreements for shares of Series B Preferred Stock. In June 1999,
we completed the Series B Preferred Stock offering and received aggregate
proceeds of $11.6 million. In June 1999, Mr. Johnson was repaid the total
amount of those outstanding loans from the proceeds of the Series B Preferred
Stock offering. See "Certain Transactions."

In September 1999, Mr. Johnson loaned us $550,000 at an interest rate of 10%
per annum, which is payable on March 31, 2000. We repaid the entire amount of
this loan plus accrued interest from the proceeds of our initial public
offering.

Net cash provided by financing activities for the nine months ended
September 30, 1999, was $57.5 million. Funds provided by financing activities
included the completion of our initial public offering, with net proceeds of
approximately $50 million after underwriting discounts and commissions and
other offering costs, and the issuance of Series B Preferred Stock. Funds used
in financing activities related to the repayment of the September 1998 Notes.

As of September 30, 1999, our principal source of liquidity was
approximately $48.5 million of cash and cash equivalents. As of September 30,
1999, we had material commitments for capital expenditures of $1.1 million. We
expect such expenditures to be approximately $1.5 million during the remainder
of 1999. We expect such expenditures will primarily be for computer equipment
to expand and enhance our procurement network. We have also entered into
several non-cancelable lease commitments that will require payments of
approximately $2.3 million over the next five years.

28
<PAGE>

We believe that we have sufficient cash and cash equivalents, including the
proceeds from this offering, to fund our operating and investing activities for
at least the next 18 months. However, we may need to raise additional funds in
future periods through public or private financings, or other arrangements. Any
additional financings, if needed, might not be available on reasonable terms or
at all. Failure to raise capital when needed could harm our business, financial
condition and results of operations.

Recent Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. The FASB recently issued SFAS No. 137, which defers the effective
date of SFAS No. 133. SFAS No. 133 will be effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. We currently do not engage in, nor
do we expect to engage in, derivative or hedging activities, and, therefore, we
do not believe that SFAS No. 133 will have a material impact on our results of
operations or financial position.

29
<PAGE>

BUSINESS

PurchasePro.com, Inc.

PurchasePro.com is a leading provider of Internet business-to-business
electronic commerce services. Our members can buy and sell a wide range of
products and services on our procurement networks in an efficient, competitive
and cost-effective manner. We have designed our procurement networks to meet
the needs of smaller and medium sized businesses and their large business
partners.

We began developing our service in 1996 by closely evaluating the purchasing
process of the hospitality industry that is characterized by high volume,
frequent purchases of a broad range of goods and services by a large number of
geographically distributed buyers. We capitalized on the large-property
purchasing expertise of several Las Vegas-based hotels and resorts to develop,
test and validate our service. These hotels have provided important marketing
references for the expansion of our procurement networks. Since launching our
public procurement network in April 1997, we have continuously upgraded the
functionality of our service. Our most recent enhancement enables the creation
of private procurement network communities for access on an invitation-only
basis.

Industry Overview

Growth of Internet Usage and E-Commerce. The Internet and related
technologies are revolutionizing the way businesses and consumers communicate,
share information and conduct business. As the number of Internet users and the
sophistication of Internet-enabled content and development tools have
increased, the Internet's functionality has expanded from a medium primarily
for publishing information to one that enables more complex business-to-
business communications and commerce. At the same time, businesses across many
industries are facing increasing competitive pressures to lower costs, decrease
inventories and improve sales and marketing productivity. To address these
challenges, businesses are increasingly replacing paper-based transactions with
Internet e-commerce solutions that provide cost-effective and efficient
channels for connecting and transacting with global suppliers, distributors and
customers. Forrester Research estimates that the business-to-business e-
commerce market will grow from $43 billion in 1998 to $1.3 trillion by 2003,
representing a compound annual growth rate of approximately 98%.

Inefficiencies in Corporate Purchasing and Supply. Historically, the
purchasing of supplies and services has involved significant manual processes
and in many industries has been highly fragmented and decentralized.
Decentralized purchasing makes it difficult for businesses to manage employee
purchases, control spending and prevent duplicative or unauthorized orders.
Many companies do not have an efficient and easy-to-use means of executing and
managing purchases of supplies and services. According to the Center of
Advanced Purchasing Studies, corporate purchases of goods and services
represent on average 38% of a company's revenues. Cost-effective purchasing is
an important contributor to improving a company's profitability. Despite the
importance of the purchasing function and the prevalence of information
technology systems in many enterprises, purchasing at many companies remains
heavily paper-based, labor-intensive and decentralized. AMR Research estimates
that the cost per procurement transaction for non-production supplies and
services ranges from $75 to $175. These costs can exceed the cost of the items
being purchased. In addition, these time consuming processes often result in
fulfillment delays to end-users, leading to productivity losses.

Traditional Electronic Purchasing. A number of companies have attempted to
use information technology to reduce the inefficiencies that characterize most
corporate purchasing functions. Although existing electronic purchasing methods
have helped facilitate e-commerce, we believe that these current methods have
limitations that prevent widespread adoption by buyers and sellers:

. Conventional Electronic Data Interchange. Electronic data interchange, or
EDI, systems involve a set of uniform formats for commercial documents
such as invoices and purchase orders that allow computers to exchange
such documents across private networks without human intervention.
Forrester Research estimates that of the 2 million U.S. companies with 10
or more employees, only five percent have deployed conventional EDI
systems. Barriers to implementation include the high cost of

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installation and maintenance as well as significant, on-going transaction
fees. Because EDI systems rely on the execution of pre-defined
transactions, they generally are not well suited for dynamic procurement
environments involving many buyers and suppliers or a wide variety of
goods and services.

. Enterprise Purchasing Software Systems. A number of vendors have
developed purchasing software systems designed to improve the
coordination of the purchasing function across large enterprises. Most of
these systems are expensive to license, with up-front licensing fees that
can exceed $1 million. Users also typically pay ongoing maintenance fees.
Additionally, the complexity of these systems typically requires a
lengthy and expensive implementation process.

Furthermore, most EDI and enterprise purchasing software systems do not
offer a full spectrum of online procurement functions, such as sourcing from
multiple suppliers and placing simultaneous bid requests with multiple
suppliers. Due to the expense and complexity of these systems, they are
generally unsuitable for all but the largest organizations.

The PurchasePro.com Opportunity. Companies recognize the necessity to
establish an electronic platform that can be utilized by business partners of
all sizes cost effectively, with limited hurdles to rapid implementation and
use. The Internet provides a cost-effective medium for businesses, regardless
of size, to link directly to their communities of customers, suppliers and
other business partners. PurchasePro.com takes advantage of the low costs and
community building nature of the Internet to deliver our business-to-business
e-commerce solution.

The PurchasePro.com Solution

PurchasePro.com's business-to-business e-commerce solution is comprised of
public and private procurement networks where businesses can buy and sell a
wide range of products and services over the Internet in an efficient and cost-
effective manner. With a PurchasePro.com membership, companies of all sizes can
participate in an interactive procurement network community of businesses
seeking to expand sales and lower costs. We believe our service enables
companies and their trading partners to quickly realize the benefits of
increased efficiency, faster turnaround and more timely information. Our user-
friendly solution is scalable in its application, provides many features and is
designed to provide the following benefits:

Lower Operating Costs. By eliminating many costly and time-consuming
functions of traditional, paper-based buying and selling, our procurement
networks may allow companies to reduce operating costs and shorten cycle times
in the purchasing and selling processes. Our solution enables members to
rapidly prepare bid requests and simultaneously distribute them electronically
to multiple parties. Responding bids are automatically aggregated and compiled
in line-item comparison reports for easy analysis, enabling purchase orders to
be expedited. Moreover, our service operates as a rapidly deployable outsourced
solution that does not require companies to install expensive enterprise
purchasing software systems and hire costly information technology specialists
to maintain and manage these systems.

Lower Prices. We believe many of our members have realized significant
reductions in the cost of the goods and services they have purchased as members
of our networks. Our procurement networks support competitive bidding in
response to bid requests from buyers. By automating the sourcing process, our
solution allows companies to send out bid requests for smaller quantities more
efficiently and expand the number of suppliers from which they request bids.
Furthermore, buyers can achieve economies of scale by aggregating purchasing
among subsidiaries and divisions and benefit from group buying discounts that
we plan to negotiate with national suppliers participating in our networks.

Improved Management and Control. Our solution allows companies to
proactively manage procurement through user-defined approval procedures.
Procurement managers, for example, can pre-set the level of access and
purchasing authority for each staff member. Utilizing the workflow features of
our service, managers can quickly view, analyze and manage employee activities,
providing improved control and more informed

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purchasing decisions. In addition, our solution automatically generates inquiry
and transaction records facilitating improved documentation and auditing. We
also maintain records of procurement activity by our members that can be used
to verify or validate transactions.

Better Information. Our service provides members with up-to-date pricing,
product and supplier profile information on a 24-hour, 7-day a week basis. Our
solution allows suppliers to maintain real-time control of pricing and other
descriptive information about products and services they offer, helping to
ensure that potential buyers obtain accurate information in a customizable
format.

Greater Access to Business Partners. We believe that our networks enable
members to access new customers and suppliers. With our public procurement
network, members can communicate with and conduct business among a broad array
of companies in a highly efficient manner. In addition, we believe that our
solution enables many of our members to offer, for the first time, their goods
and services for sale over the Internet.

Our Strategies

Our objective is to be the preferred business-to-business e-commerce
solution through our public and private procurement networks. Key strategies to
achieve our objective include:

Expand Our Membership. We intend to expand our membership through the
following:

. Build Upon Our Leadership Position Serving the Hospitality Industry. We
believe we are the leading provider of business-to-business e-commerce
solutions to the hospitality industry and its suppliers. We have grown
our procurement network membership by focusing on major hospitality
buyers with large supplier bases. Through our direct and indirect sales
channels and by using our existing relationships, we plan to develop new
partnerships within the hospitality industry to further increase our
membership base.

. Pursue New Vertical Markets. We are applying our solutions to markets
with similar procurement characteristics to the hospitality industry.
These markets include:

.architecture, engineering and construction
.food services
.colleges and universities .healthcare
.facilities management .janitorial supply distribution

. Enter New Geographic Markets. We are expanding into new geographic
markets by establishing new relationships or leveraging our current
relationships with large buyers or suppliers with operations in those
locations. These business partners provide us access to their business
partners, allowing us to establish a foothold in new major metropolitan
areas. In addition, we recently licensed our procurement network software
to a third party that will market our solution to the hospitality and
travel industry in Asia and the South Pacific.

Encourage Users to Rely on Our Procurement Networks. We believe that as
members increase their usage of our networks, they become more reliant on the
PurchasePro.com solution as an important part of their procurement processes.
Our service often reduces repetitive clerical tasks associated with the
procurement process for both buyers and sellers. Moreover, the benefits of our
service are increased when it is integrated with existing enterprise
information systems. Active buyers have reported significant cost savings
realized from reductions in forms, communication charges and other labor and
materials as well as improved pricing arising from the competitive bidding on
the procurement network.

Develop Multiple Revenue Streams. Substantially all of our current revenues
are derived from member subscription fees paid for access to our public network
However, we are in the process of developing a number of additional revenue
sources including:

. public and private network transaction fees;

. advertising revenues including banners, classified ads and other
electronic promotions;

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. licensing and recurring maintenance fees from larger corporate accounts
that create and sponsor private network communities; and

. procurement network hosting fees and administration charges.

Although the costs associated with developing these revenue sources may be
substantial and the timing of the development of each revenue source is
uncertain, we believe that the revenues from these and other sources will
eventually become a larger part of our overall revenue mix.

Provide Value Added Services. We intend to expand the value-added services
that we offer to our members. We plan to make available products and services
such as reduced rates and fees from long distance telephone carriers, cellular
service providers and worker's compensation insurers. In addition, we intend to
offer discounts on office products and other business consumables through our
sales and marketing partners. We intend to make these discounts available to
all members so that they can realize cost savings associated with participating
in a large buying group.

Pursue Strategic Sales and Marketing Relationships. We intend to continue to
pursue strategic sales and marketing relationships to expand our membership,
extend our marketing reach, provide value-added merchandise or services and
further develop our procurement networks in a rapid and cost-effective manner.
Our current sales and marketing partners include Office Depot, Sprint,
VerticalNet and ZoomTown.com, a subsidiary of Cincinnati Bell, Inc.

Strengthen the PurchasePro.com Brand. We plan to expand and enhance our
marketing initiatives to increase our brand awareness and identity. These
initiatives will include traditional and Internet-based advertising targeted at
selected audiences, interviews and articles in business media and trade
publications and direct sales and telemarketing. We also engage in joint-
marketing and sales efforts with our business partners.

Our Services

Our networks are designed to streamline the procurement cycle for our
members--from sourcing to bidding to order to payment. Our procurement networks
enable each member to participate as both a buyer and a seller. When acting as
buyers, our members can realize a reduction in processing costs, achieve
improved pricing, enforce corporate purchasing policies and maintain an audit
trail for evaluating purchasing programs. When acting as suppliers, our members
can strengthen relationships with existing customers, reach new buyers and
lower sales, marketing and administrative costs. Our networks are online
business-to-business e-commerce communities. With the recent enhancements to
our software, members can create private procurement networks.

Basic Membership Services

Online Buying and Selling. Our procurement network solution enables our
members to interact as buyers and suppliers, streamlining their purchase and
sale process over the Internet. Members using the procurement network's
competitive bidding function send a request for a bid (including requests for
line item price quotes) to suppliers who respond electronically with pricing
and availability information. The request for bids can be "sealed"
electronically so that the buyer cannot view the responses until a specified
date and time. Through our competitive bidding function, we believe that buyers
can achieve cost savings on the prices of products purchased.

Our procurement networks provide members with a marketing tool that enables
them to sell to all the other members of our networks. Smaller and medium sized
suppliers can compete on a more equal footing with larger suppliers. As a
result, we believe our network is an effective tool for suppliers to achieve
deeper marketing and sales penetration in their primary markets and to enter
new geographic markets on a cost-effective basis.

Access to a Broad Electronic Database of Potential Business Partners. Our
procurement networks allow members to query and shop from the offerings of our
members. This provides users with the opportunity to purchase from their
existing suppliers as well as develop new supplier relationships.

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Real-Time Information. Our procurement networks provide for the real-time
updating of database information. After suppliers have responded with bids,
buyers can analyze the responses through line item comparison reports with the
opportunity to select one supplier's bid or to select specific items from
selected suppliers. Since the information provided by the suppliers can be
analyzed quickly, response time on bids can be significantly reduced. After a
bid is accepted, our procurement networks allow buyers to create and send
electronic purchase orders, and to finalize the payment and delivery
instructions to complete the purchase. In addition, suppliers can create online
catalogs that provide real-time dissemination of accurate information in a more
cost efficient manner than with printed materials.

Reporting Services. Procurement network members can review their bids and
purchase orders through keyword, date, supplier or purchase order number
searches. Members can generate comprehensive reports on their activity based on
their search results. Further line-by-line detail can be obtained for each bid
or purchase order by using the analytical tools available on our procurement
networks. For example, the Quick Check Report compares the responses of every
line item for each of the suppliers, calculating the price per unit and
indicating which supplier has the lowest price per item for that particular
item. The report also provides the necessary information for purchasing agents
to make future decisions based on price, service or possible long-term
contracts. The information can be exported via ASCII, EDI, ODBC-compliant
files, or Excel worksheets, so that members can transfer the information to
their enterprise resource planning and accounting systems for further reporting
and data archiving.

Procurement Controls. Members can restrict employee access to the various
levels of our procurement networks. A client password file is checked at each
member login and whenever members access the database. Members can monitor
employee requests for proposals and purchase orders. Members can also select
options that limit employee access to selected suppliers, specific items,
quantities and service features. Through such protocols, control over corporate
purchasing is significantly enhanced without the installation of expensive
enterprise purchasing software systems.

Community. We continue to expand our services to help foster interaction
among procurement network members. Our members currently have access to e-mail
accounts, and we plan to introduce additional features such as industry trade
news, discussion forums, chat rooms and bulletin boards, all of which foster
active community participation among our members. We expect to continue to add
features, content and services that enhance the benefits of membership in the
PurchasePro.com community.

Purchasing Discounts for Members. We intend to negotiate group discounts
with national suppliers for our procurement network members. In return for our
providing electronic access to our large membership base, we expect these
suppliers to provide discounts to our members irrespective of size. As such, we
plan to expand our value proposition to our community, particularly to those
companies that do not normally benefit from the pricing economies of large
companies.

Other Membership Services

Private Networks. With the recent enhancements to our software, members can
create private procurement networks. Private networks allow buyers or suppliers
to sponsor a community of selected business partners on an invitation-only
basis. In these communities, the sponsoring company invites selected trading
partners to participate in customized programs such as special pricing
arrangements and product offerings. We are developing private procurement
networks for Best Western International, Building One Services, Marriott
International and Prime Hospitality.

Procurement Network Catalogs. We create customized electronic catalogs for
our members that enable buyers to browse through a supplier's product and
service offerings and "drag and drop" their desired selections directly into a
purchase order. We also offer a catalog maintenance service.

Web Site Development, Hosting and Maintenance. We construct Web sites for
our members on a trial basis. After the initial trial period, members are
charged a monthly hosting fee. These sites enable members to

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provide additional information on their products and services to other members.
We also market to our members upgrades to these Web sites, which have resulted
in additional fees.

Banner Advertisements. We offer banner advertisements on our procurement
network as a direct marketing tool for our members. When a buyer sources
products, a banner advertisement appears promoting a related product offered by
a particular supplier.

Classified Advertising. Our classified advertising section provides real-
time advertising directly from members. All advertisements can be accessed by
keyword searches and can be posted and terminated in real-time.

Group Buying Services

In addition to our public and private procurement networks, we offer group
buying services to the hospitality industry through our Hospitality Purchasing
Systems subsidiary. This subsidiary consolidates the buying power of the
properties that it represents to obtain volume discounts that might otherwise
only be available to larger buyers. We receive fees from buyers and rebates
from suppliers. We are marketing our PurchasePro.com solution to participants
of this buying group.

Our Revenue Sources

To date, our primary source of revenues has been subscription fees paid by
our members. In order to build our network membership, we have provided free
access to our public procurement network and technical support to large
corporate members. In return we have gained access to and assistance in
recruiting their smaller and medium sized business partners as members of our
procurement network.

We plan to expand our revenue sources over time to include the following:

Transaction Fees. We intend to charge transaction fees on purchases
consummated by our members with our strategic partners and value added
merchandise and service providers. In addition, in certain of our private
procurement networks we intend to derive revenues from transaction fees levied
on sales within the community.

Licensing, Maintenance and Procurement Network Hosting Fees. We charge a
one-time licensing fee and annual maintenance fees for private networks in
place of or in certain cases in addition to transaction fees. We also charge
recurring fees for hosting these private procurement networks.

Other Revenue Sources. Other revenue sources include advertising and Web
site development, hosting and maintenance. As our membership grows, we intend
to charge for banner and classified advertisements that we presently offer as a
free service. We also construct Web sites for our members and charge monthly
hosting and maintenance fees after an initial trial period.

Strategic Relationships

A key element of our strategy is to expand our sales, marketing and
distribution channels through strategic relationships with entities that are
commercial partners, and in some cases, equity investors. We have established,
and will continue to pursue, these strategic relationships in order to grow
revenues, to provide indirect sales and marketing of our networks, and to
enhance our procurement network services. The following are examples of our
strategic relationships:

Sprint. In December 1999, we entered into a strategic e-commerce marketing
setting forth the principal terms of our agreement with Sprint Communications
Company, L.P. A definitive agreement is being negotiated with Sprint. Under the
agreement, we will develop a co-branded website, which will be marketed by
Sprint as the preferred business-to-business e-commerce solution for the
procurement of goods and services to its business customers in long distance,
paging and collaborative services. Sprint will become the preferred

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communications provider of long distance, paging and collaborative services on
the PurchasePro.com procurement network. We will pay Sprint a quarterly sales
commission equal to 25% of net collected revenues from the sales of
subscriptions generated by promoting PurchasePro.com to the Sprint marketplace.
In connection with the strategic e-commerce agreement, we issued to Sprint a
warrant to purchase up to 2,700,000 shares of our common stock at a price per
share of $95.79. One half vested upon issuance and the actual number of shares
issuable upon exercise of the remainder is based on the actual net annualized
revenue that is generated for us under the strategic e-commerce agreement.

Advanstar. In November 1999, we entered into an agreement with Advanstar,
Inc., a leading worldwide business information company with more than 100
business and professional publications and directories, 113 exhibitions and
conferences, numerous web sites and direct marketing, database and reference
products. Under the agreement, we will create twenty web-based industry-
specific business communities for Advanstar. The communities will utilize our
e-commerce solutions and provide access to our procurement network. Advanstar
will pay us development and maintenance fees for these communities. In
addition, we will share subscription fees, transaction fees, and advertising
fees generated from these communities. We have also issued to Advanstar a
warrant to purchase 525,000 shares of our common stock that can be exercised
prior to the six-month anniversary of the signing of the agreement at a price
per share of $37.58.

Workflow Management. In November and December 1999, we entered into
agreements with Workflow Management, Inc., which provides customers with an
innovative electronic outsourcing and facilities management system,
iGetSmart(TM) serving over 30,000 businesses throughout North America. Workflow
Management has designated us as a preferred e-commerce solutions provider to
Workflow Management. We have designated Workflow Management as the preferred
provider of printing needs, including corporate stationery, business cards and
forms. We will receive an annual fee for this preferred provider status. Under
the agreement, we will also create a co-branded private procurement network for
Workflow Management. Workflow Management will prepay supplier subscription fees
and pay us a commission on gross sales to PurchasePro.com procurement network
customers and we will share transaction fees.

Primavera Systems. In September 1999, we formed a strategic relationship
with Primavera Systems, Inc., a developer of integrated, scalable project
management software solutions, to develop a procurement network for
construction companies, subcontractors, project owners and suppliers. This
strategic alliance was formed as part of our efforts to move into the
Architectural, Engineering and Construction vertical. The agreement provides
for Primavera to pay subscription fees per user and for sharing of transaction
fees generated from users of the procurement network.

DigitalWork. In June and July 1999, we entered into agreements with
DigitalWork.com, an online business services portal enabling growing businesses
to complete critical business tasks online. DigitalWork will pay us to create a
co-branded procurement network and prepay subscriptions for their registered
members to access the PurchasePro.com network. We will share subscription,
transaction and advertising fees related to this network. We also agreed to
provide access to DigitalWork's online services to members of our public
procurement network. We will share revenue from transaction and other fees.

Office Depot. In July 1999, we entered into a strategic e-business
relationship and marketing agreement with Office Depot, Inc., the world's
largest seller of office supplies. Under terms of the agreement, we will be a
recommended web-based business-to-business e-commerce solution to be marketed
to the Office Depot customers and clients. Office Depot will be featured as the
exclusive preferred provider for the office supplies and products category in
our business-to-business procurement network. Terms of the agreement provide
that transaction fees of 1% will be shared, with 25% to Office Depot and the
remaining 75% to us.

VerticalNet. In July 1999, we entered into an agreement with VerticalNet,
Inc., an owner and operator of online business-to-business vertical
communities. Under the agreement, we will assist VerticalNet in launching and
promoting hospitality and food service vertical communities. We will provide e-
commerce solutions to VerticalNet and its users will have access to our public
procurement network. We will engage in joint promotional activites and provide
links to each other's Web sites. We will share transaction fees.

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ZoomTown.com. In May 1999, we entered into an agreement with ZoomTown.com, a
subsidiary of Cincinnati Bell, Inc. We have granted to ZoomTown.com, as our
agent and representative, the exclusive right to market and offer access to our
procurement networks in Ohio, a co-exclusive right in Kentucky, and a
nonexclusive right in other domestic markets until April 2001. Under the
agreement ZoomTown.com may co-brand our procurement networks. In addition,
ZoomTown.com can extend its exclusive rights to market and offer access to our
procurement networks under a ZoomTown.com co-brand to include the states
neighboring Ohio and Kentucky. ZoomTown.com receives sales commissions for
members it adds to the co-branded procurement networks.

Our Procurement Network Members

The following is a representative list of our major procurement network
members:

Florida
National Accounts Nevada
Aladdin Hotel and Casino The Breakers Hotel
American Association of Marnell Corrao Carnival Cruise
Franchisees and Dealers Construction Lines
American Hotel Register MGM Grand Loews Hotels
Barton Management Mission Industries Registry Resort
Best Western Nevada Power Company Seaway Hotel
International Rio Hotel and Casino Corporation
Building One Services State of Nevada
Caesars Palace
Handy Source
Mandalay Resort Group Lexington/Louisville,
Marriott International Kentucky Arizona
Memphis Chamber of and Cincinnati, Ohio
Commerce Amtek Electrical America West Arena
MeriStar Management Ball Homes Arizona Diamondbacks
Company Clay Ingels Company Bank One Ballpark
MGC Communications Central Baptist Hospital Embassy Suites
Mirage Resorts Fidelity National Credit Scottdale
National Association of Services ILX Resorts
Women Host Communications, Inc. Greater Phoenix
Business Owners Lodestar Energy Chamber of
National Black Chamber of Montgomery Inn Commerce
Commerce St. Joseph Hospital Phoenix Suns
National Minority University of Louisville Scottsdale Princess
Supplier Hospital
Development Council
1800Wedding.com
Park Place Entertainment
Prime Hospitality
Richfield Hospitality
Sunstone Hotels
Tarsadia Hotels
Travelscape
Tropicana Casino and
Resort

These relationships provide us with access to and assistance in recruiting a
large number of smaller to medium sized companies for our procurement networks.

Sales and Marketing

Sales Strategy

We sell through direct and indirect channels. Our direct sales group targets
buyers, suppliers and their respective business partners. As of September 30,
1999 we had 106 people in our sales and marketing group, and we plan to
significantly expand this group over the next 12 months. Sales offices in the
United States

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currently include Las Vegas, Nevada and Phoenix, Arizona. We also have sales
representatives located in Washington, D.C., Orlando, Florida and Atlantic
City, New Jersey.

The sales forces of our sales and marketing partners offer our services to
their business partners. For example, we have entered into an agreement with
ZoomTown.com, a subsidiary of Cincinnati Bell, Inc., to co-brand our network.
Under this agreement, ZoomTown.com receives sales commissions on revenues from
members added to the procurement network through their efforts. To gain market
presence and exposure to potential new members, we plan to team with large
buyers and suppliers that have strong industry backgrounds and market presence
in their respective markets and geographic regions.

Marketing Strategy

Our marketing strategy focuses on increasing our brand awareness and
identity. We intend to continue to market ourselves through traditional and on-
line business media and trade publications. Co-branded relationships, such as
our ZoomTown.com partnership, and cooperative direct mail initiatives support
our direct marketing efforts. We participate in events, conferences and trade
shows to promote our business-to-business brand presence.

Member Service and Support

We provide member service support on a 24-hour per day, 7-day per week
basis. Our customer support department is responsible for day-to-day contact
with members and responds to questions from members through e-mail and a 24-
hour toll-free number. This department is responsible for retaining and
increasing use by existing members and is an important aspect of member
satisfaction.

Technology and Operations

PurchasePro.com's proprietary network technology serves as the enabling
platform for all of our solutions. This community-oriented, trading procurement
network technology resides centrally on our servers located at our
headquarters. Members access our service using either a standard Web browser or
our proprietary client software. We have designed our technology and operations
with the following key characteristics, many of which are based on our
centralized architecture:

Scalability. Our architecture is scalable, enabling us to accommodate
membership growth. This scalability permits us to quickly add our members'
business partners to our procurement networks without those members incurring
infrastructure costs.

Accuracy. We have designed our system to enable each member to maintain
their information on our databases so that other users can access the most
current data. In addition, by using custom interfaces to our client software,
members can automate the process of maintaining their data.

Reliability. We currently maintain four T1 Internet connections. The client
connections are load balanced over our application servers. Database servers
are configured to be fault-tolerant and their hard drives can be swapped while
the system is operating. These databases are replicated on additional back-up
servers for quick access. Uninterruptible power supplies support all production
servers.

Security. Multiple layers of security, including secure socket layer
technology from Verisign, protect the network and data. Our procurement network
uses up to 128-bit standard encryption technology, along with rigorously
monitored firewalls and other restrictions and physical or electronic
separations to prevent harm to the service. Servers add, update and retrieve
data through procedures designed to prevent improper access to data.
Additionally, our staff has restricted access to our data and procurement
network. All servers are equipped with virus detection and removal software,
including an enhanced version on our mail server.

Recovery. In addition to the redundant database servers, all member data is
backed-up to tape every thirty minutes and removed from the premises on a daily
basis for off-site storage.

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Intellectual Property

We rely on a combination of trademark, copyright and patent law, trade
secret protection and confidentiality and/or license agreements with our
employees, customers and business partners to protect our proprietary rights in
products, services, know-how and information. We have been granted one patent
in the United States and we may seek additional patents in the future. We do
not know if any future patent application will be issued with the scope of the
claims we seek, if at all, or whether any patents we receive will be challenged
or invalidated. Our means of protecting our proprietary rights in the United
States or abroad may not be adequate and competitors may independently develop
similar technology. We cannot be certain that our services do not infringe
patents or other intellectual property rights that may relate to our services.
Like other technology and internet based businesses, we face the risk that we
will be unable to protect our intellectual property and other proprietary
rights, and the risk that we will be found to have infringed the proprietary
rights of others.

Competition

The e-commerce market is new, rapidly evolving and intensely competitive,
and we expect competition to intensify in the future. Barriers to entry are
minimal, and competitors may develop and offer similar services in the future.
Although we believe that there may be opportunities for several providers of
products and services similar to ours, a single provider may dominate the
market. We expect that additional companies will offer competing e-commerce
solutions in the future.

We have encountered and expect to encounter competition from other e-
commerce solutions providers including:

. companies such as Microsoft Corporation, America Online and its Netscape
subsidiary, and Yahoo! that offer a broad array of Internet-related
services and either offer business-to-business e-commerce services
presently or have announced plans to introduce such services in the
future;

. enterprise software purchasing system providers such as Ariba and
Commerce One;

. electronic data interchange providers such as GE Information Services,
Harbinger Corp., IBM and Sterling Commerce;

. enterprise resource planning software developers such as PeopleSoft,
Oracle and SAP;

. e-commerce trade communities; and

. e-commerce Web sites of business retailers.

Virtually all of our current and potential competitors have longer operating
histories, larger customer bases and greater brand recognition in business and
Internet markets and significantly greater financial, marketing, technical and
other resources than PurchasePro.com. In addition, other e-commerce service
providers may be acquired by, receive investments from or enter into other
commercial or strategic relationships with larger, well established and well-
financed companies as use of Internet and other online services increases.
Therefore, certain of our competitors may be able to devote significantly
greater resources to marketing and promotional campaigns, may adopt more
aggressive pricing policies or may try to attract users by offering services
for free and devote substantially more resources to product development than
PurchasePro.com. Increased competition may result in reduced operating margins,
loss of market share and diminished value in our brand, any of which could
materially and adversely affect our business, financial condition and results
of operations. New technologies and the expansion of existing technologies may
increase the competitive pressures on us by enabling our competitors to offer a
similar but lower-cost service. We cannot assure you that we will be able to
compete successfully against current and future competitors. Further, as a
strategic response to changes in the competitive environment or otherwise, we
may, from time to time, make certain pricing, service or marketing decisions or
acquisitions that could materially and adversely affect our business, financial
condition and results of operations. New technologies and the expansion of
existing technologies may increase the competitive pressures on us by enabling
our competitors to offer a similar but lower-cost service.

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Although we have established several strategic relationships, there can be
no assurance that these arrangements will be renewed on commercially reasonable
terms or that they will otherwise continue to result in increased users of the
PurchasePro.com service. In addition, companies that control access to ISP
services used to connect to our procurement network could promote our
competitors or charge our clients substantial fees for Internet access.

Government Regulation

We are subject to various laws and regulations relating to our business. Few
laws or regulations are currently directly applicable to access to the
Internet. However, because of the Internet's popularity and increasing use, new
laws and regulations may be adopted. Such laws and regulations may cover issues
such as:

. user privacy;

. pricing;

. tax;

. content;

. copyrights;

. distribution; and

. characteristics and quality of products and services.

In addition, the growth of the Internet and e-commerce, coupled with
publicity regarding Internet fraud, may lead to the enactment of more stringent
consumer protection laws. These laws may impose additional burdens on our
business. The enactment of any additional laws or regulations may impede the
growth of the Internet, which could decrease our potential revenues from
electronic commerce or otherwise adversely affect our business, financial
condition and operating results.

Laws and regulations directly applicable to e-commerce or Internet
communications are becoming more prevalent. The most recent session of Congress
enacted Internet laws regarding online copyright infringement. Although not yet
enacted, Congress is considering laws regarding Internet taxation. The European
Union recently enacted new privacy regulations. These are all recent
enactments, and there is uncertainty regarding their marketplace impact. In
addition, various jurisdictions already have enacted laws that are not
specifically directed to e-commerce but that could affect our business. The
applicability of many of these laws to the Internet is uncertain and could
expose us to substantial liability.

Any new legislation or regulation regarding the Internet, or the application
of existing laws and regulations to the Internet, could materially adversely
affect us. If we were alleged to violate federal, state or foreign, civil or
criminal law, even if we could successfully defend such claims, it could
materially adversely affect us.

We believe that our use of third-party material on our procurement network
communities is permitted under current provisions of copyright law. However,
because legal rights of certain aspects of Internet content and commerce are
not clearly settled, our ability to rely upon exemptions or defenses under
copyright law is uncertain.

Several telecommunications carriers are seeking to have telecommunications
over the Internet regulated by the Federal Communications Commission in the
same manner as other telecommunications services. Additionally, local telephone
carriers have petitioned the Federal Communications Commission to regulate
Internet providers and online service providers in a manner similar to long
distance telephone carriers and to impose access fees on such providers. If
either of these petitions is granted, the costs of communicating on the
Internet could increase substantially. This, in turn, could slow the growth of
use of the Internet. Any such legislation or regulation could materially
adversely affect our business, financial condition and operating results.

40
<PAGE>

Employees

As of September 30, 1999, we had 227 full time employees. Of these, 54 were
in programming and technical support, 106 in sales and marketing, 20 in
customer support and operations and 47 in finance and administration. None of
our employees is represented by a labor union. We have not experienced any work
stoppages, and we consider our relations with our employees to be good.

Facilities

Our corporate headquarters are located at 3291 North Buffalo Drive, Suite 2,
Las Vegas, Nevada where we lease approximately 15,980 square feet of office
space for a monthly fee of $29,297 under a lease that expires July 31, 2003.
This facility houses significantly all of our operations, including the
executive staff, marketplace operations, customer support and programming and
development. We also maintain sales and office sites in Phoenix, Arizona for a
fee of $2,620 per month on a month-to-month basis.

Legal Proceedings

We are not a party to any material legal proceedings, except as discussed
below.

In December 1999, we received a letter from attorneys representing Ranel
Erickson, PhD, a co-founder, asserting that contracts entered into between him
and Charles E. Johnson Jr., also a co-founder and Chairman and Chief Executive
Officer, that gave Mr. Johnson the right to buy 450,000 shares of our common
stock owned by Dr. Erickson at a price of $8.82 per share, were not enforceable
because of claims the contracts were entered into under duress or based on
statements made that were not true. The letter requests Mr. Johnson's agreement
to rescind these contracts and threatens a lawsuit if these contracts are not
rescinded. In the lawsuit, Dr. Erickson would seek a rescission of the
contracts and a return of intellectual property rights, according to the
letter. We are investigating this threatened claim. While PurchasePro.com
believes it has a right to practice the technology used in its business without
violating the rights of others, if we were forced to return intellectual
property rights to Dr. Erickson our business could be severely harmed.

41
<PAGE>

MANAGEMENT

Executive Officers and Directors

The executive officers and directors of PurchasePro.com and their ages as of
January 21, 2000 are as follows:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Charles E. Johnson, Jr. ...... 38 Chairman and Chief Executive Officer
Christopher P. Carton......... 41 President, Chief Operating Officer, Secretary and Director
James P. Clough............... 49 Executive Vice President--Corporate Development
Richard C. St. Peter.......... 51 Executive Vice President, Chief Financial Officer and Treasurer
Michael L. Ford............... 45 Chief Technical Officer
Jeffrey A. Neppl.............. 38 Senior Vice President--Sales
Richard T. Moskal............. 56 Senior Vice President--Hospitality Purchasing Systems
Robert G. Layne............... 34 Senior Vice President--Strategic Development and e-Commerce
Scott H. Miller............... 41 Vice President--Finance, Chief Accounting Officer
John G. Chiles(1)(2).......... 47 Director
David I. Fuente(2)............ 54 Director
J. Terrence Lanni(1)(2)....... 56 Director
Michael D. O'Brien(1)......... 43 Director
Bradley D. Redmon............. 37 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee

Charles E. Johnson, Jr. Mr. Johnson has served as Chairman and Chief
Executive Officer of PurchasePro.com since its inception in 1996. In 1996, Mr.
Johnson founded and is the chief executive officer of Cart-it & Cabinetry LLC,
a company that manufactures casino carts and cabinetry. Mr. Johnson also
currently owns several video stores in Cincinnati, Ohio. From 1984 to August
1996, Mr. Johnson was the owner and President of Johnson Safety and Security, a
family owned security business located in Lexington, Kentucky.

Christopher P. Carton. Mr. Carton joined PurchasePro.com as President, Chief
Operating Officer and Secretary in November 1996 and was elected to the board
of directors of PurchasePro.com in April 1999. Prior to joining
PurchasePro.com, Mr. Carton was Chief Operating Officer of Wilmington County
Country Club in Wilmington, Delaware from August 1995 to January 1996. From
1987 to August 1995, Mr. Carton was Chief Operating Officer of the Idle Hour
Country Club in Lexington, Kentucky. In addition, Mr. Carton has held the
position of Chief Operating Officer at both West Lake Country Club and Augusta
Country Club in Augusta, Georgia.

James P. Clough. Mr. Clough joined PurchasePro.com in January 2000 as
Executive Vice President-- Corporate Development. Mr. Clough had been a
corporate securities Partner with Pillsbury Madison & Sutro LLP, a leading
national law firm, since December 1992. Mr. Clough specialized in representing
start-ups and emerging companies in venture capital, mergers and acquisitions,
initial public offerings and follow-on public offerings and strategic
relationships. He concentrated on representing Internet and technology
companies and the underwriters that work with these companies. He is admitted
to practice as an attorney in California, New York and the District of
Columbia, and he is a member of the Federal Regulation of Securities Committee
of the Business Law Section of the American Bar Association.

Richard C. St. Peter. Mr. St. Peter has served as Senior Vice President,
Chief Financial Officer and Treasurer from July 1999 to October 1999, and as
Executive Vice President, Chief Financial Officer and Treasurer since October
1999. Since November 1998, Mr. St. Peter has served as a consultant to Petco
Animal Supplies Inc., a retailer of pet supplies. From September 1990 to
October 1998, Mr. St. Peter was the Executive Vice President, Administration
and Chief Financial Officer of Petco. From 1986 to 1990, Mr. St. Peter was

42
<PAGE>

Vice President and Chief Financial Officer at Stor, a furniture retailer. From
1982 to 1986, Mr. St. Peter held various positions at W.R. Grace's Home Centers
West, including Vice President and Chief Financial Officer.

Michael L. Ford. Mr. Ford joined PurchasePro.com as Chief Technology Officer
in July 1999. Prior to joining PurchasePro.com, Mr. Ford was the Chief
Information Officer of Best Western International from August 1995 through May
1999 where he was responsible for coordinating Best Western's technical
businesses initiatives. From 1988 through December 1995, Mr. Ford was a
corporate director of Holiday Inn WorldWide.

Jeffery A. Neppl. Mr. Neppl has served as Vice President--Sales from April
1999 to October 1999, and as Senior Vice President--Sales since October 1999.
Prior to joining PurchasePro.com, Mr. Neppl served as Managing Director of
Field Sales and Marketing for Coca-Cola USA from August 1998 to April 1999.
From July 1996 to August 1998, Mr. Neppl was Vice President of Sales for the
Campbell's Soup Company. From 1983 through June 1996, Mr. Neppl was employed by
Procter & Gamble where he held a number of positions including National
Accounts Managers and Customer Business Development Manager.

Richard T. Moskal. Mr. Moskal has served as Vice President--Hospitality
Purchasing Systems since September 1999 and has served as chief executive
officer of our Hospitality Purchasing Systems subsidiary since joining our
company in January 1999. From March 1997 to January 1999, Mr. Moskal was the
Vice President of Purchasing Management for Promus Hotels and its predecessor
Doubletree Hotels Corporation. From 1986 to March 1997, Mr. Moskal served as
Vice President--Hotel Operations/Services for Prime Hospitality Corp.

Robert G. Layne. Mr. Layne has served as Vice President--Strategic
Development of PurchasePro.com from April 1999 to October 1999, and as Senior
Vice President--Strategic Development and e-Commerce since October 1999. From
December 1996 to April 1999, Mr. Layne was PurchasePro.com's National Sales
Director. From 1988 to December 1996, Mr. Layne was a Regional Sales Manager
with Fisher Scientific, a manufacturer of laboratory supplies, and its
predecessor, Curtin Matheson Scientific.

Scott H. Miller. Mr. Miller has served as Vice President--Finance, Chief
Accounting Officer of PurchasePro.com since July 1999. From April 1999 through
June 1999, Mr. Miller served as our Chief Financial Officer. From October 1998
through April 1999, Mr. Miller served as our Controller. From September 1997
through September 1998, Mr. Miller was the Chief Financial Officer of Max Riggs
Construction Company in Las Vegas, Nevada. From 1984 to September 1997, Mr.
Miller held various management positions at Arthur Andersen LLP in Denver and
Las Vegas, most recently as senior manager.

John G. Chiles. Mr. Chiles has served as a member of the board of directors
of PurchasePro.com since June 1998. Mr. Chiles has served as a Managing
Director in Corporate Finance Department at Jefferies & Company, Inc. since
1993. He is the manager of the firm's Business, Information & Internet Services
Group. For the fifteen years prior to joining Jefferies & Company, Mr. Chiles
held various positions at Dean Witter Reynolds, including Managing Director and
Co-Manager of its Consumer Businesses Group.

David I. Fuente. Mr. Fuente has served as a member of the board of directors
of PurchasePro.com since June 1999. Mr. Fuente has been the Chairman of the
Board and Chief Executive Officer of Office Depot, Inc. since December 1987.
Mr. Fuente is also a director of Vista Eye Care, Inc. and Ryder System, Inc.

J. Terrence Lanni. Mr. Lanni has served as a member of the board of
directors of PurchasePro.com since June 1999. Mr. Lanni has been the Chairman
of MGM Grand, Inc. since July 1995, and Chief Executive Officer of MGM Grand,
Inc. since June 1995. He also served as President of MGM Grand, Inc. from June
1995 to July 1995. Prior thereto, he was President and Chief Operating Officer
of Caesars World, Inc. from April 1981 to February 1995.

Michael D. O'Brien. Mr. O'Brien has served as a member of the board of
directors of PurchasePro.com since June 1999. Mr. O'Brien has served as the
President of ZoomTown.com, a subsidiary of Cincinnati Bell, Inc. since January
1998. From January 1992 through December 1997, Mr. O'Brien served as President
of Europe Chiquita Brands, Inc.

43
<PAGE>

Bradley D. Redmon. Mr. Redmon has served as a member of the board of
directors of PurchasePro.com since August 1998. Mr. Redmon is the Chairman of
E-MarketPro, LLC, an e-commerce service company Mr. Redmon founded in 1999.
Since March 1996, Mr. Redmon has owned and operated three Pretzelmaker
franchises, and since January 1992, Mr. Redmon has owned and operated several
Blockbuster Video franchises. Mr. Redmon is a cousin of Mr. Johnson.

Mr. St. Peter, Petco and some of its other officers have been named as
defendants in class action lawsuits filed in 1998. The complaints allege the
defendants violated various federal securities laws through material
misrepresentations and omissions during the class period and seek unspecified
monetary damages. The lawsuits are in the discovery stage. Petco and
Mr. St. Peter have stated they believe the allegations contained in these
lawsuits are without merit and intend to defend themselves vigorously.

Staggered Board of Directors

Our articles of incorporation and bylaws provide that our board of directors
will be divided into three classes of directors, with the classes to be as
nearly equal in number as possible. Mr. Fuente and Mr. Lanni will serve as
Class I directors, whose terms expire at the 2000 annual meeting of
stockholders. Mr. Chiles and Mr. O'Brien will serve as Class II directors,
whose terms expire at the 2001 annual stockholders meeting. Mr. Johnson,
Mr. Carton and Mr. Redmon will serve as Class III directors, whose terms expire
at the 2002 annual meeting of the stockholders.

Board Committees

We have established an Audit Committee and a Compensation Committee. The
Audit Committee reviews the internal accounting procedures of PurchasePro.com
and consults with and reviews the services provided by our independent
auditors. The Compensation Committee reviews and determines the compensation
and benefits of all officers of PurchasePro.com and establishes and reviews
general policies relating to the compensation and benefits of employees of
PurchasePro.com and administers our Stock Option Plans.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for our directors, officers and
other employees and administering various incentive compensation and benefit
plans. We did not have a Compensation Committee during 1998. Our board of
directors was responsible for these matters for that year. The Compensation
Committee consists of Mr. Chiles, Mr. Fuente and Mr. Lanni. Charles E. Johnson,
Jr., Chairman and Chief Executive Officer, participates in all discussions and
decisions regarding salaries and incentive compensation for all employees and
consultants of PurchasePro.com, except that he is excluded from discussions
regarding his own salary and incentive compensation. No member of the
Compensation Committee has at any time been an officer or employee of
PurchasePro.com or its subsidiary. The Compensation Committee members, however,
own capital stock of PurchasePro.com and have interests in certain transactions
of PurchasePro.com as described in the "Certain Transactions--Transactions with
Management and Others" section of this prospectus. No interlocking relationship
exists between any member of our Compensation Committee and any member of any
other company's board of directors or compensation committee. No interlocking
relationship existed between any member of our board of directors and any
member of any other company's board of directors or compensation committee in
1998.

Director Compensation

We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. Each non-
employee member of our board currently receives $10,000 cash compensation per
year for their service as a member of the board of directors. Under our 1999
Stock Plan, non-employee directors also receive options to purchase 15,000
shares of common stock annually and are eligible to receive additional stock
option grants at the discretion of the Compensation Committee. See "--Stock
Option Plans."

44
<PAGE>

Executive Compensation

The following table summarizes all compensation earned by or paid to
PurchasePro.com's Chief Executive Officer and to each of PurchasePro.com's
three most highly compensated executive officers other than the Chief Executive
Officer whose total annual salary and bonus exceeded $100,000, for services
rendered in all capacities to PurchasePro.com during the fiscal year ended
December 31, 1999.

Summary Compensation Table for Last Fiscal Year

<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation(1) Awards
---------------- ------------
Securities
Underlying
Name and Principal Position Salary Bonus Options (#)
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
Charles E. Johnson, Jr.(2)....................... $240,000 $ -- 487,500
Chairman and Chief Executive Officer
Christopher P. Carton(3)......................... $179,000 -- 300,000
President, Chief Operating Officer and Secretary
Richard T. Moskal(4)............................. $156,410 $25,000 112,500
Vice President--Hospitality Purchasing Systems
Scott H. Miller.................................. $118,125 $25,000 67,500
Vice President--Finance, Chief Accounting
Officer
Robert G. Layne(5) .............................. $114,875 -- 150,000
Senior Vice President--Strategic Development and
e-Commerce
</TABLE>
- --------
(1) Other than the salary described herein, PurchasePro.com did not pay any
executive officer named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in excess of 10% of such
executive officer's salary and bonus during fiscal 1999.

(2) In July 1999, we entered into a new employment agreement with Mr. Johnson
that provides for an annual salary of $240,000 as of May 1999. In May 1999,
Mr. Johnson was granted options to acquire 487,500 shares of common stock
at $2.33 per share. The Compensation Committee accelerated the vesting of
these options to vest in full upon completion of the initial public
offering.

(3) In July 1999, we entered into a new employment agreement with Mr. Carton
that provides for an annual salary of $200,000 as of May 1999. In May 1999,
Mr. Carton was granted options to acquire 300,000 shares of common stock at
$2.33 per share. The Compensation Committee accelerated the vesting of
these options to vest in full upon completion of the initial public
offering.

(4) Mr. Moskal joined PurchasePro.com's subsidiary, Hospitality Purchasing
Systems, in January 1999, and entered into an employment agreement that
provides for an annual salary of $160,000. In August 1999 Mr. Moskal was
granted options to purchase 112,500 shares of common stock at $7.20 per
share.

(5) In July 1999, we entered into an employment agreement with Mr. Layne that
provides for an annual salary of $120,000 and options to purchase 112,500
shares of common stock as of May 1999. Mr. Layne's salary was increased to
$175,000 per year in September 1999. In October 1999, Mr. Layne was granted
options to purchase 75,000 shares of common stock at $21.48 per share. In
January 1998, Mr. Johnson granted to Mr. Layne options to purchase 187,500
shares of Mr. Johnson's common stock at $0.33 per share. Mr. Layne
exercised his option to acquire 187,500 shares from Mr. Johnson in June
1999.

45
<PAGE>

Option Grants in Last Fiscal Year

The following table sets forth information regarding options granted to our
executive officers listed in the Summary Compensation Table during the fiscal
year ended December 31, 1999.

<TABLE>
<CAPTION>
Percentage Potential Realizable
of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise or for Option Term(3)
Options in Fiscal Base Price Expiration ---------------------
Name Granted Year(1) ($/Share)(2) Date 5% 10%
- ---- ---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Johnson, Jr....... 487,500 11.3% $2.33 May 2009 $1,852,868 $2,950,382
Chairman and Chief Executive
Officer
Christopher P. Carton........ 300,000 7.0% 2.33 May 2009 1,140,226 1,815,620
President, Chief Operating
Officer and Secretary
Richard T. Moskal............ 112,500 2.6% 7.20 Aug 2009 1,466,005 2,334,368
Vice President--Hospitality
Purchasing Systems
Scott H. Miller.............. 67,500 1.6% 8.72 Oct 2009 958,767 1,526,677
Vice President--Finance,
Chief Accounting Officer
Robert G. Layne.............. 150,000 3.5% 11.91 Oct 2009 2,910,000 4,633,721
Senior Vice President--
Strategic Development and e-
Commerce
</TABLE>
- --------
(1) Based on options to purchase an aggregate of 4,316,495 shares of common
stock granted during fiscal 1999. Under the terms of PurchasePro.com's 1998
Stock Option and Incentive Plan and 1999 Stock Plan, the committee
designated by the board of directors to administer each stock option plan
retains the discretion, subject to certain limitations within each plan, to
modify, extend or renew outstanding options and to reprice outstanding
options. Options may be repriced by canceling outstanding options and
reissuing new options with an exercise price equal to the fair market value
on the date of reissue, which may be lower than the original exercise price
of such cancelled options. See "Stock Option Plans."

(2) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant as determined by the board of directors.

(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent
PurchasePro.com's estimate or projection of the future common stock price.
There can be no assurance that any of the values reflected in the table
will be achieved.

46
<PAGE>

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year-End at Fiscal Year-End(1)
Acquired Value -------------------------- -------------------------
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Charles E. Johnson, Jr......... -- $ -- 487,500/-- $67,031,250/$ --
Chairman and Chief Executive
Officer
Christopher P. Carton.......... -- -- 300,000/-- $41,250,000/$ --
President, Chief Operating
Officer and Secretary
Richard T. Moskal.............. -- -- --/112,500 $--/$15,468,750
Vice President--Hospitality
Purchasing Systems
Scott H. Miller................ -- -- 15,000/82,500 $2,062,500/$11,343,750
Vice President--Finance, Chief
Accounting Officer
Robert G. Layne................ -- -- 187,500/-- $25,781,250/$ --
Senior Vice President--
Strategic Development and e-
Commerce
</TABLE>
- --------
(1) Assumes a per share fair market value equal to $137.50, the last reported
sale price of our common stock in the Nasdaq National Market on December
31, 1999.

Stock Option Plans

1998 Stock Option and Incentive Plan

Our 1998 Stock Option and Incentive Option Plan was approved by
PurchasePro.com's board of directors and shareholders in August 1998. The 1998
Plan, as amended, provides for grants of incentive stock options and
nonqualified stock options to purchase up to 4,500,000 shares of common stock.
The maximum number of shares of common stock with respect to which options may
be granted to an individual grantee is 1,125,000. Awards may be made to any
employee of PurchasePro.com.

The 1998 Plan is administered by the Compensation Committee of
PurchasePro.com's board of directors, which has the authority to interpret the
1998 Plan and to prescribe, amend and rescind rules and regulations relating to
the 1998 Plan. The Compensation Committee may also determine the amount of and
to whom awards are made under the 1998 Plan. The exercise price of options
granted under the 1998 Plan may not be less than 100% of the fair market value
of a share of common stock on the date of grant. The determination by the
Compensation Committee on all matters relating to the 1998 Plan or any award
agreement will be final and binding.

Our board of directors may authorize the Compensation Committee to modify
any outstanding award so long as this modification does not confer upon any
grantee a right or benefit which could not have been conferred at the time of
such grant or impair the award without the consent of the grantee.

The vesting of options issued to a grantee pursuant to the 1998 Plan will
accelerate upon the grantee's termination within one year following a change in
control.

Our board of directors may from time to time alter, amend or suspend the
1998 Plan or any option granted under the 1998 Plan, except that shareholder
approval is required to increase the number of shares for which options may be
granted under the 1998 Plan or materially modify the class of employees
eligible to receive option grants.

47
<PAGE>

As of September 30, 1999, 179,711 shares had been issued upon exercise of
options granted under the 1998 Plan, options to purchase 4,308,465 shares of
common stock were outstanding and options to purchase 11,824 shares of common
stock were available for future grant. We do not plan to issue any additional
shares of common stock under the 1998 Plan after the consummation of this
offering.

1999 Stock Plan

Our 1999 Stock Plan was adopted by the board of directors on June 2, 1999.
The 1999 Stock Plan provides selected employees, directors, independent
contractors and advisers an opportunity to acquire a proprietary interest in
the success of PurchasePro.com or to increase their interest. The 1999 Stock
Plan is administered by the Compensation Committee of the board of directors.
However, the Chief Executive Officer may grant options up to 37,500 in each
instance under the 1999 Stock Plan to employees. As of September 30, 1999,
2,250,000 shares had been authorized for issuance.

The 1999 Stock Plan provides for the grant of incentive stock options and
nonqualified stock options. However, eligibility for the grant of incentive
stock options is limited to common law employees. Options need not have
identical terms with respect to each optionee. Options shall have such terms
and be exercisable in such manner and at such times as the Compensation
Committee may determine. Each option must expire within 10 years from the grant
date.

In no event will the exercise price for incentive stock options be less than
100% of the fair market value of the stock on the date of grant. The exercise
price of incentive stock options granted an employee who owns 10% or more of
the total combined voting power of all classes of outstanding stock of
PurchasePro.com or any subsidiary of PurchasePro.com must equal at least 110%
of the fair market value of the common stock on the date of grant and the term
of such an incentive stock option may not be greater than five years.

The 1999 Stock Plan defines "fair market value" as:

. the closing price of a share on the principal exchange on which the
shares are trading,

. if the shares are not traded on an exchange but are traded on the Nasdaq
National Market or a successor quotation system, the closing price, or

. if the shares are not traded on an exchange or the Nasdaq National Market
or a successor quotation system, the fair market value of a share, as
determined by the Compensation Committee in good faith.

Upon exercise of an option, payment of the exercise price shall be made in
lawful money of the United States. If an option agreement so provides, payment
may be made by delivery of shares owned by the optionee or his representative
at least 12 months or via an irrevocable direction to a securities broker to
sell shares and to deliver all or part of the sale proceeds to PurchasePro.com.
Each option shall be transferable only by will or the law of descent and
distribution and shall only be exercisable by the optionee during his or her
lifetime.

No person shall be granted options to purchase more than 750,000 shares of
common stock in any calendar year.

The terms of each award or sale of shares are determined by the Compensation
Committee. Such awards or sales may be subject to forfeiture, rights of
repurchase, rights of first refusal or other transfer restrictions, and may not
be transferred. A right to acquire shares shall automatically expire if not
exercised within 30 days after the grant of the right is communicated to the
offeree. The purchase price of any share may be paid in lawful money of the
United States or services previously rendered.

The 1999 Stock Plan shall remain in effect until June 1, 2009 or earlier, if
it is terminated by the board of directors. Any amendment of the 1999 Stock
Plan shall be subject to the approval of the stockholders of PurchasePro.com
only to the extent required by applicable laws, regulations or rules. Rights
and obligations under any option may not be materially altered or impaired
without the optionee's consent.

48
<PAGE>

As of September 30, 1999, no shares had been issued upon exercise of options
granted under the 1999 Stock Plan, options to purchase 609,000 shares were
outstanding and options to purchase 1,641,000 shares of common stock were
available for future grant.

Employment Agreements and Change in Control Agreements

We have entered into the following employment agreements with our executive
officers listed in the Summary Compensation Table:

<TABLE>
<CAPTION>
Officer Term Salary Position
------- ---- ------ --------
<S> <C> <C> <C>
Charles E. Johnson, Jr... May 1999-May 2001 $240,000 Chairman and Chief Executive Officer
Christopher P. Carton.... May 1999-May 2001 $200,000 President, Chief Operating Officer and Secretary
Richard T. Moskal........ August 1999-August 2001 $160,000 Senior Vice President--Hospitality Purchasing Systems
Scott H. Miller.......... None $125,000 Vice President--Finance, Chief Accounting Officer
Robert G. Layne.......... May 1999-May 2001 $175,000 Senior Vice President--Strategic Development and
e-Commerce
</TABLE>

Mr. Johnson's and Mr. Carton's agreements provide for a discretionary annual
bonus as determined by the Compensation Committee of the board of directors. We
provide each of Mr. Johnson and Mr. Carton with a company car. We may terminate
either for cause at any time. If we terminate them without cause or because of
their disability or death, or if they terminate their employment because we
breach the agreements, change their title or duties or relocate their
employment outside of Las Vegas, we must pay, in the case of Mr. Johnson, three
times his annual base salary plus the greater of his last paid bonus or one
half of his annual base salary, and, in the case of Mr. Carton, twice his
annual base salary plus the greater of his last paid bonus or one half of his
annual base salary. We also pay for life insurance for each of them under their
agreements. The agreements contain nonsolicitation and noncompetition
provisions that are intended to survive the termination of their employment for
one year.

We provide Mr. Moskal with a monthly car allowance. Under his agreement, Mr.
Moskal received stock options pursuant to our 1998 Stock Option and Incentive
Plan to purchase in the aggregate 112,500 shares of common stock at an exercise
price of $7.20 per share, of which 75,000 shares will vest on February 29,
2000. Options to purchase 18,750 shares vest on August 31, 2000 and the
remaining shares vest on August 31, 2001. We may terminate him for cause at any
time. The agreement contains noncompetition provisions that are intended to
survive the termination of Mr. Moskal's employment for one year.

Mr. Miller received stock options pursuant to our 1998 Stock Option and
Incentive Plan to purchase an aggregate of 30,000 shares of common stock at an
exercise price of $1.67 per share. We may terminate him for cause at any time.

Mr. Layne's agreement provides for a discretionary, annual bonus up to the
amount of his base salary. We provide Mr. Layne with a monthly car allowance.
We may terminate him for cause at any time. If we terminate him without cause
or if Mr. Layne terminates his agreement for good reason, we must pay Mr. Layne
his salary for 24 months. If we terminate him because of disability or death,
we must pay him or his heirs his salary for 24 months. The agreement contains
noncompetition and nonsolicitation provisions that are intended to survive the
termination of Mr. Layne's employment for one year.

In addition, in July 1999, we entered into an employment agreement with
Richard C. St. Peter. He serves as our Executive Vice President, Chief
Financial Officer and Treasurer and receives an annual salary of $190,000.
Under his agreement, Mr. St. Peter has received stock options pursuant to our
1998 Stock Option and Incentive Plan to purchase an aggregate of 225,000 shares
of common stock at an exercise price of $4.00 per share. These stock options
vest over the two year term of his agreement. We may terminate Mr. St. Peter at
any time. If we terminate him without cause or because of his disability or
death, or we terminate the agreement because we breach the agreement or change
his title or duties, we must pay Mr. St. Peter his accrued salary and bonus,
his vested stock options and one year's base salary. The agreement contains
nonsolicitation and noncompetition provisions that are intended to survive the
termination of Mr. St. Peter's employment for one year.

49
<PAGE>

CERTAIN TRANSACTIONS

Transactions with Management and Others

Since our inception in October 1996, there has not been any transaction or
series of transactions to which we were or are a party in which the amount
involved exceeded or exceeds $60,000 and in which any director, executive
officer, holder of more than 5% of any class of our voting securities or any
member of the immediate family of any of the foregoing persons had or will have
a direct or indirect material interest, other than the transactions described
below.

In October 1996, Charles E. Johnson, Jr., one of our founders and Chairman
and Chief Executive Officer, contributed $139,000 in capital to our
predecessor.

Dr. Ranel Erickson, a founder, provided services in designing our
procurement network. Dr. Erickson was paid $77,000 for his services through
December 31, 1996. For the years ended December 31, 1997, and December 31,
1998, he was paid $105,000 and $72,000, respectively. Through May 31, 1999, we
paid him $30,000 for his services this year.

In January 1998, we sold 9,247,500 shares of common stock to Mr. Johnson, at
$0.007 per share and we sold 1,151,250 shares of common stock to Dr. Erickson
at $0.007 per share.

In January 1998, we purchased all of the assets of our predecessor by
assuming the liabilities of our predecessor in the amount of $2,747,000, of
which $2,518,000 was owed to Mr. Johnson. Mr. Johnson was a director, executive
officer and 5% shareholder of our predecessor, and Dr. Erickson was a 5%
shareholder of our predecessor. When we purchased all of the assets of our
predecessor, Mr. Johnson and Dr. Erickson assigned to us their right, title and
interest to certain intellectual property.

Over the course of 1997, Mr. Johnson loaned an aggregate of $2,518,000 to
our predecessor at an interest rate of prime plus 1% per annum. PurchasePro.com
assumed this liability as part of the asset purchase referenced above. In
January 1998, we repaid Mr. Johnson $813,000. In April 1998, Mr. Johnson
advanced a non-interest bearing loan of $387,000 to us. In June 1998, Mr.
Johnson was repaid $310,000 from the proceeds of the sale of our Series A
Preferred Stock and contributed his remaining notes and advances totaling
$1,782,000 to us as equity. Between September and November 1998, Mr. Johnson
loaned an aggregate of $500,000 at an interest rate of 15% per annum to us. In
December 1998, Mr. Johnson loaned an additional $250,000 and in March 1999 he
loaned another $200,000 to PurchasePro.com, in each case at an interest rate of
10%. In June 1999, Mr. Johnson was repaid the total amount of his outstanding
loans from the proceeds of our Series B Preferred Stock offering.

In January 1998, Bradley D. Redmon loaned $300,000 to us at an interest rate
of 8% per annum and received 450,000 shares of common stock in connection with
this loan. In June 1998, Mr. Redmon purchased 180,000 shares of common stock
held by Mr. Johnson at a sale price of $1.67 per share. In June 1998,
Mr. Redmon was repaid the entire amount of his $300,000 loan plus accrued
interest from the proceeds of our Series A Preferred Stock. Mr. Redmon is a
member of our board of directors and a cousin of our Chief Executive Officer.

In May 1998, Maurice J. Gallagher and Timothy P. Flynn loaned a total of
$200,000 to us at an interest rate of 12% per annum. In June 1998, Mr.
Gallagher and Mr. Flynn were repaid the entire amount plus accrued interest
from the proceeds of our Series A Preferred Stock. Mr. Gallagher and Mr. Flynn
were each members of our board of directors from January 1998 through May 1999.

In June 1998, Mr. Johnson and Dr. Erickson contributed 911,250 and 476,250
shares of common stock, respectively, back to PurchasePro.com in connection
with our Series A Preferred Stock financing. Pursuant to the same agreement,
and in connection with the repayment of the loan he made to us in January 1998,
Mr. Redmon contributed 288,587 shares of common stock back to PurchasePro.com.

50
<PAGE>

In June 1998, John G. Chiles purchased 60,000 shares of common stock from
Mr. Johnson at $1.67 per share. Mr. Chiles is a member of our board of
directors.

In June 1998, we paid $250,000 to Jefferies & Company, Inc., and issued
warrants to Mr. Chiles and Jefferies & Company, Inc. to purchase an aggregate
of 345,000 shares of common stock, for its services as placement agent in
connection with our Series A Preferred Stock financing. See "--Warrants."

In September 1998, Mr. Gallagher and Mr. Flynn each loaned us $167,000 at an
interest rate of 15% per annum. In May 1999, Mr. Gallagher and Mr. Flynn each
converted these loans into 71,429 shares of Series B Preferred Stock. In
December 1998, Mr. Gallagher and Mr. Flynn each subscribed for an additional
$500,000 of Series B Preferred Stock.

In December 1998, Christopher P. Carton, our President and a member of our
board of directors, loaned us $100,000 at an interest rate of 10% per annum. In
June 1999, Mr. Carton was repaid the entire amount of this loan plus accrued
interest from the proceeds of our Series B Preferred Stock.

In September 1999, Mr. Johnson, our Chief Executive Officer and Chairman of
our board of directors, loaned us $550,000 at an interest rate of 10% per
annum. The note matures March 31, 2000. We repayed the entire amount of the
loan plus accrued interest from the proceeds of the initial public offering.

In September 1999, we also entered into loan commitment agreements with
Messrs. Johnson, Redmon, Chiles and Gallagher to provide up to an additional
$2.5 million in debt financing at an interest rate of 15% per annum. We did not
draw down on any of these commitments and the commitments expired upon the
closing of the initial public offering. In connection with Mr. Gallagher's $1.0
million loan commitment we agreed to pay him a commitment fee of $20,000.
Mr. Gallagher holds approximately 4.7% of our outstanding capital stock,
Messrs. Johnson, Redmon and Chiles are members of our board of directors and
Mr. Johnson is our Chairman and Chief Executive Officer.

We lease our headquarters in Las Vegas, Nevada from Cheyenne Investments LLC
for a monthly fee of $29,297. The lease expires in July 2003. Cheyenne
Investments is owned and controlled by Mr. Gallagher and Mr. Flynn. We believe
the terms of the lease are similar to those terms we would have received from
an unaffiliated third party. Mr. Carton has guaranteed PurchasePro.com's
obligations under the lease for which he receives no compensation.

Mr. Johnson stated in a December 3, 1999 article appearing in TheStreet.com
that this offering was "obviously not in my best interest." Mr. Johnson
informed us that in making this statement he was referring solely to the
dilutive effect this offering would have on his stock ownership interest in us.
Mr. Johnson has indicated an interest in purchasing up to $5,000,000 worth of
our common stock in this offering at the public offering price. Based on the
public offering price of $80.00 per share, if Mr. Johnson purchases $5,000,000
of our shares in this offering he will own 23.1% of our stock after this
offering. If Mr. Johnson does not purchase any shares in this offering he will
own 22.9% of our stock after this offering.

In addition, Mr. Johnson has agreed to purchase 75,000 shares of our common
stock from Mr. St. Peter, our Chief Financial Officer, and 12,000 shares of our
common stock from Mr. Neppl, our Senior Vice President--Sales, at a price of
$84.625 per share.

Transactions with E-MarketPro, LLC and ZoomTown.com

In January 1999, we entered into an agreement with E-MarketPro, LLC pursuant
to which we granted E-MarketPro the exclusive right to market our services to
persons and entities located within Ohio and Kentucky and to out-of-state
entities doing business with subscribers within those two states. Mr. Redmon, a
director of our company and cousin of our chief executive officer, is a
principal of E-MarketPro. E-MarketPro was granted a right of first-refusal for
exclusive marketing rights of procurement network subscriptions in all states
contiguous to Kentucky and Ohio, excepting Illinois. This right of first
refusal automatically terminates when Mr. Redmon no longer owns a majority of
the equity interest in and exercises managerial control over E-MarketPro.

51
<PAGE>

The term of this agreement is for one year. However, the rights granted
under the contract are automatically renewed at the end of the first year and
in each subsequent year if E-MarketPro generates specified levels of revenue
from the sale of PurchasePro procurement network subscriptions.

E-MarketPro is compensated based on the volume of sales of our services
generated by E-MarketPro. In addition, E-MarketPro may receive options to
purchase up to a maximum of 100,000 shares of our common stock at the then
current market price based on the number of members E-MarketPro adds to our
procurement networks. In connection with the ZoomTown.com agreement described
below, E-MarketPro has agreed not to market or offer access to the procurement
networks in Ohio.

In May 1999, we entered into an agreement with ZoomTown.com, a subsidiary of
Cincinnati Bell, Inc., and E-MarketPro, LLC. This agreement modified our
agreement with E-MarketPro described above and granted ZoomTown.com, as our
agent and representative, the exclusive right to market and offer access to our
e-marketplaces in Ohio, a co-exclusive right with E-MarketPro in Kentucky, and
a nonexclusive right in other domestic markets until April 2001. Under the
agreement ZoomTown.com may co-brand our procurement networks. Before granting
other parties similar exclusive rights to market and access our public
procurement networks, we must first offer the exclusive rights to ZoomTown.com.
Accordingly, ZoomTown.com can extend its exclusive rights to market and offer
access to our public procurement network under a ZoomTown.com co-brand to
include the states neighboring Ohio and Kentucky. In the event ZoomTown.com
does not elect to expand its exclusive rights, we must offer the same rights of
exclusivity to E-MarketPro prior to entering into exclusive arrangements in
these areas with any third parties.

As reflected in the agreement and in accordance with our commitments to E-
MarketPro described above, we are obligated to pay sales commissions on
revenues generated by ZoomTown.com derived from licenses or sublicenses of our
software. We are obligated to pay E-MarketPro a sales commission of 37.5% of
the revenues generated by ZoomTown.com from customers in Ohio and Kentucky
during the first year after the launch date and a sales commission of 25% of
these revenues in subsequent years. Mr. Redmon may gain significant
compensation from the ZoomTown.com and E-MarketPro agreements. Mr. Redmon, on
behalf of E-MarketPro, assisted us in the negotiation of this agreement with
ZoomTown.com. We do not believe, in light of the circumstances of our company
and our early stage of development, that we could have obtained more favorable
terms if we had negotiated directly with ZoomTown.com or through an independent
third party.

Equity Financings

Between June 1998 and May 1999, we sold and issued 8,100,000 shares of our
preferred stock for an aggregate consideration of $16,800,000. We sold an
aggregate of 3,150,000 shares of our Series A Preferred Stock in June 1998 at a
sale price of $1.67 per share, and we sold an aggregate of 4,950,000 shares of
our Series B Preferred Stock in June 1999 at a sale price of $2.33 per share.
Each share of Series A Preferred Stock and Series B Preferred Stock mandatorily
converted into one share of common stock upon completion of our initial public
offering under the terms of our articles of incorporation. Upon closing of the
Series B Preferred Stock private placement, we issued an aggregate 675,000
shares of common stock to the holders of Series A Preferred Stock in
consideration of these holders' waiver of certain anti-dilution rights
triggered by the issuance of the Series B Preferred Stock.

52
<PAGE>

The following table summarizes purchases, valued in excess of $60,000, of
shares of preferred stock and of common stock by directors, executive officers
and 5% shareholders of PurchasePro and persons and entities associated with
them:
<TABLE>
<CAPTION>
Common Preferred
----------------------- -----------------
Weighted
Directors and Executive Officers Shares Average Price Series A Series B
- -------------------------------- --------- ------------- -------- --------
<S> <C> <C> <C> <C>
Charles E. Johnson, Jr............... 6,083,750 $0.23 -- --
Christopher P. Carton................ 1,071,000 $0.01 -- --
Bradley D. Redmon.................... 383,964 $0.94 23,568 107,144
John G. Chiles....................... 341,357 $0.30 60,000 81,428
David I. Fuente...................... -- -- -- 150,000
J. Terrence Lanni.................... -- -- -- --
Michael D. O'Brien................... -- -- -- --
<CAPTION>
5% Shareholders
- ---------------
<S> <C> <C> <C> <C>
Maurice J. Gallagher................. 323,453 $0.16 720,000 285,714
Timothy P. Flynn..................... 267,738 $0.01 600,000 285,714
Office Depot, Inc. .................. 600,000 $8.00 -- 150,000
</TABLE>

Options

In January 1998, Mr. Johnson granted Robert G. Layne, our Senior Vice
President--Strategic Development and e-Commerce, options to purchase 187,500
shares of common stock held by Mr. Johnson at a purchase price of $0.33 per
share. In June 1999, Mr. Layne exercised those options.

In August 1998, we granted Mr. Redmon nonqualified stock options to purchase
75,000 shares of common stock at a purchase price of $1.67 per share. These
options vest over a two-year period. In September 1999, Mr. Redmon exercised
37,500 of those options.

In November 1998, we granted Mr. Chiles nonqualified stock options to
purchase 37,500 shares of common stock at a purchase price of $1.67 per share.
These options vest over a one-year period. In addition, in May 1999 certain
persons associated with Jefferies & Company, Inc. received options to purchase
an aggregate of 5,250 shares of common stock at a purchase price of $2.33 per
share.

In May 1999, we granted Mr. Johnson incentive stock options to purchase
487,500 shares of common stock at a purchase price of $2.33 per share. These
options vest over an 18-month period. The options when granted vested over an
18-month period; however, in July 1999, the Compensation Committee accelerated
the vesting and the options are currently fully vested.

In May 1999, we granted Mr. Carton incentive stock options to purchase
300,000 shares of common stock at a purchase price of $2.33 per share. The
options, when granted, vested over an 18-month period; however, in July 1999,
the Compensation Committee accelerated the vesting and the options are
currently fully vested.

In June 1999, we granted Mr. Chiles, a member of our board of directors,
nonqualified options to purchase 15,000 shares of common stock at a purchase
price of $2.33 per share. These options vested upon grant.

In June 1999, we granted Michael D. O'Brien, a member of our board of
directors, nonqualified stock options to purchase 15,000 shares of common stock
at a purchase price of $2.33 per share. These options vested upon grant.

In June 1999, we granted J. Terrence Lanni, a member of our board of
directors, nonqualified stock options to purchase 15,000 shares of common stock
at a purchase price of $2.33 per share. These options vested upon grant.

In June 1999, we granted David I. Fuente, a member of our board of
directors, nonqualified stock options to purchase 150,000 shares of common
stock at a purchase price of $2.33 per share. These options vested upon grant.
Mr. Fuente's rights under these options were subsequently assigned to Office
Depot.

53
<PAGE>

In June 1999, we granted Jeffrey A. Neppl, our Senior Vice President--Sales,
incentive stock options to purchase 286,305 shares of common stock at a
purchase price of $2.33 per share, of which 37,500 shares vested upon grant,
113,805 shares vest over a three-year period, and the remaining shares vest
over a five-year period subject to his achievement of performance goals. In
July 1999, Mr. Neppl exercised 37,500 of those options.

In June 1999, we granted Michael L. Ford, our Chief Technical Officer,
incentive stock options to purchase 150,000 shares of common stock at a
purchase price of $2.33 per share, of which 45,000 vested upon grant, and the
remaining shares vest over a three-year period.

In June 1999, Dr. Ranel Erickson, a founder, granted Mr. Johnson options to
purchase 567,000 shares of common stock owned by Dr. Erickson at a purchase
price of $8.82 per share. These options vested upon grant. These options were
to expire on October 29, 1999. On October 28, 1999, Dr. Erikson extended the
term of these options with respect to 450,000 shares at a purchase price of
$8.82 per share. In January 2000, Mr. Johnson exercised these options. These
contracts are under dispute.

In July 1999, we granted Richard C. St. Peter, our Executive Vice President,
Chief Financial Officer and Treasurer, incentive stock options to purchase
225,000 shares of common stock at a purchase price of $4.00 per share, of which
75,000 shares vest after six months from date of grant, with the remaining
shares vesting over a two-year period.

Warrants

In June 1998, we issued warrants to Mr. Chiles at the direction of Jefferies
& Company, Inc., one of our underwriters, and directly to Jefferies & Company,
Inc. to purchase 45,000 and 300,000 shares, respectively, of our common stock
at a per share exercise price of $0.01 for services provided by Jefferies &
Company, Inc. in connection with our Series A Preferred Stock financing. Mr.
Chiles is a director of PurchasePro.com and a Managing Director of Jefferies &
Company, Inc. Mr. Chiles and Jefferies & Company, Inc. each exercised their
warrants in May 1999.

In June 1998, we issued warrants to Mr. Gallagher and Mr. Flynn to purchase
112,500 shares each of our common stock at a per share exercise price of $0.01
in connection with their investment in our Series A Preferred Stock. Mr. Flynn
and Mr. Gallagher were directors of PurchasePro.com from January 1998 through
May 1999. Mr. Gallagher and Mr. Flynn each exercised their warrants in February
1999.

In September 1998, we issued warrants to Mr. Johnson, Mr. Gallagher and Mr.
Flynn to purchase 80,000, 26,667 and 26,667 shares, respectively, of our common
stock at a per share exercise price of $0.01 in connection with a loan made by
Mr. Johnson, Mr. Gallagher and Mr. Flynn to PurchasePro.com. Mr. Johnson
exercised his warrants in June 1999.

On July 22, 1999, we issued a warrant to Office Depot, Inc. to purchase
750,000 shares of our common stock at a per share exercise price of $8.00 in
connection with the ongoing strategic relationship between us and Office Depot,
Inc.

We believe that the foregoing transactions were in our best interests. It is
our current policy that all transactions with officers, directors, 5%
stockholders and their affiliates will be entered into only if such
transactions are approved by a majority of our disinterested independent
directors, are on terms no less favorable to PurchasePro.com than could be
obtained from unaffiliated parties and are reasonably expected to benefit us.

For information concerning indemnification of directors and officers, see
"Description of Capital Stock-- Nevada Law and Articles of Incorporation and
Bylaws Provisions Affecting Stockholders--Indemnification of Directors and
Officers."

54
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of our common stock as of December 31, 1999, on a pro forma basis to
reflect the completion of this offering by:

. each person or group of affiliated persons known by us to own
beneficially more than 5% of our common stock;

. each of our directors;

. each of our Named Executive Officers;

. all of our directors and executive officers as a group; and

. each selling stockholder.

The address for the following stockholders, unless otherwise indicated, is
c/o PurchasePro.com, Inc., 3921 N. Buffalo Drive, Las Vegas 89129, (702) 316-
7000. The percentage of common stock column assumes no exercise of the
underwriters' over-allotment option. Applicable percentage ownership prior to
the offering is based on the shares of common stock outstanding as of
September 30, 1999. Beneficial ownership is determined in accordance with the
rules and regulations of the Securities and Exchange Commission.

In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
held by that person that are currently exercisable or exercisable within
60 days of the date of this prospectus are deemed outstanding, including the
following shares held by the following individuals: Mr. Johnson-487,500
shares; Mr. Carton-300,000 shares; Mr. St. Peter-112,500 shares; Mr. Moskal-
75,000 shares; Mr. Miller-15,000 shares; Mr. Layne-112,500 shares; Mr. Chiles-
52,500 shares; Mr. Lanni-15,000 shares; and Mr. O'Brien-15,000 shares. Options
and warrants to purchase 2,271,750 shares are deemed held by all directors and
officers as a group. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person.
Information about those options is disclosed under "Certain Transactions--
Options." Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each shareholder named in the table has
sole voting and investment power with respect to the shares set forth opposite
such shareholders' name.

<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to the Offering Shares After the Offering
--------------------- Being ---------------------
Name and Address of Beneficial Owner Number Percentage Offered Number Percentage
- ------------------------------------ ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Executive Officers and Directors:
Charles E. Johnson, Jr.(1).............. 7,058,750 24.7% -- 7,121,250 23.1%
Christopher P. Carton................... 1,371,000 4.8% -- 1,371,000 4.5%
Richard St. Peter....................... 112,500 * -- 112,500 *
Richard T. Moskal....................... 75,000 * -- 75,000 *
Scott H. Miller......................... 15,000 * -- 15,000 *
Robert G. Layne......................... 300,000 1.1% -- 300,000 *
Bradley D. Redmon(2).................... 514,676 1.8% -- 514,676 1.7%
John G. Chiles(3)....................... 535,284 1.9% 103,559 431,461 1.4%
David I. Fuente(4)...................... 1,650,000 5.8% 150,000 1,483,334 4.9%
J. Terrence Lanni....................... 15,000 * -- 15,000 *
Michael D. O'Brien(5)................... 15,000 * -- 15,000 *
All directors and executive officers as
a group (14 persons)................... 11,886,459 39.1% 253,823 11,678,470 35.8%

</TABLE>

55
<PAGE>

<TABLE>
<CAPTION>
Beneficial Ownership
Prior to the Beneficial Ownership
Offering Shares After the Offering
-------------------- Being --------------------
Name and Address of Beneficial Owner Number Percentage Offered Number Percentage
- ------------------------------------ --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Principal and Selling Stockholders:
Lexington Investor Group(2)............. 2,187,994 7.8% 76,622 2,111,372 7.0%
c/o Steven Singleton
800 Corporate Drive
Lexington, KY 40503

Office Depot, Inc.(6)................... 1,650,000 5.9% 150,000 1,483,334 4.9%
2200 Old Germantown Road
Delray Beach, FL 33445

Other Selling Stockholders:
Jefferies & Company, Inc.(7)............ 300,000 1.1% 103,559 196,441 *

Mitch Allee............................. 72,856 * 13,193 59,663 *

Robert Alter............................ 60,000 * 6,564 53,436 *

Gary Anderson........................... 4,285 * 1,320 2,965 *

AUSTI LLC............................... 321,427 1.1% 65,967 255,460 *

Angela R. Baldwin Trust................. 45,000 * 19,790 25,210 *

Edward M. Bralower...................... 94,285 * 26,388 67,897 *

Frank P. Cassell........................ 79,952 * 2,846 77,106 *

Cincinnati Bell Holdings, Inc........... 857,143 3.1% 65,967 791,176 2.6%

Harry Cohen............................. 279,376 * 7,256 272,120 1.1%

George Connor........................... 169,285 * 19,790 149,495 *

Daniel O. Conwill, IV................... 115,714 * 50,890 64,824 *

Jonathan Cunningham..................... 28,928 * 7,500 21,428 *

William Q. Derrough..................... 18,214 * 8,010 10,204 *

Michael Falk............................ 72,856 * 9,896 62,960 *

Flynn Investment Corporation............ 728,571 2.6% 49,476 679,095 2.2%

Gallagher Corporation................... 874,285 3.1% 49,476 824,829 2.7%

Eric Heglie............................. 7,287 * 3,206 4,081 *

Chris M. Kanoff......................... 137,141 * 60,032 77,109 *

Wally Langley........................... 382,966 1.1% 32,985 349,981 *

Charles Lisle........................... 35,512 * 1,320 34,192 *

Cornelia Lockstadt...................... 157,049 * 4,617 152,432 *

David J. Losito and the Losito Family
Trust.................................. 39,643 * 15,000 24,643 *

Pat Madden.............................. 154,225 * 8,796 145,429 *

Joseph F. Maly, Jr...................... 26,785 * 7,917 18,868 *

Bill McBeath............................ 30,000 * 13,193 16,807 *

</TABLE>

56
<PAGE>

<TABLE>

<CAPTION>
Beneficial Beneficial
Ownership Prior to Ownership After
the Offering Shares the Offering
------------------ Being ------------------
Name of Beneficial Owner Number Percentage Offered Number Percentage
- ------------------------ ------- ---------- ------- ------- ----------

<S> <C> <C> <C> <C> <C>
Nield Montgomery................ 72,856 * 13,193 59,663 *

Robert O'Sullivan............... 18,214 * 6,267 11,947 *

Tom Padgett..................... 38,470 * 2,309 36,161 *

Keith M. Rosenbloom............. 18,214 * 6,597 11,617 *

Marc Schorr..................... 30,000 * 13,193 16,807 *

Steven Shamion.................. 63,750 * 4,947 58,803 *

Steve Singleton................. 162,628 * 16,493 146,135 *

Turner C. Smith................. 18,214 * 8,010 10,204 *

Tern, Inc....................... 105,643 * 23,231 82,412 *

Vincent L. Turzo................ 11,572 * 5,072 6,500 *

Andrew R. Whittaker............. 39,643 * 17,435 22,208 *

Kenneth R. Wynn Family Trust.... 15,000 * 3,299 11,701 *

Advanstar Communications,
Inc.(8)........................ 525,000 1.9% 75,000 383,558 1.3%
</TABLE>
- --------
* Less than 1%.
(1) Mr. Johnson has indicated an interest in purchasing up to $5,000,000 worth
of our common stock in this offering. Based upon the public offering price
of $80.00 per share the table includes 62,500 shares of our common stock
assuming Mr. Johnson purchases $5,000,000 of our common stock in this
offering. In addition, Mr. Johnson has agreed to purchase 75,000 shares of
our common stock from Mr. St. Peter, our Chief Financial Officer, and
12,000 shares of our common stock from Mr. Neppl, our Senior Vice
President--Sales, at a price of $84.625 per share. These shares are not
included in Mr. Johnson's totals.
(2) Each person in the Lexington Investor Group disclaims beneficial ownership
of the other individuals' shares. The Lexington Investor Group includes the
following persons: Pat Madden, Harry Cohen, Steve Singleton,
Cornelia Lockstadt, John Burrus, Robert Langely, Wally Langely, Frank
Cassell, Ron Gaudiano, Charles Lisle, Tom Padgett, Sara Levy and
Brad Redmon, a member of our board of directors.
(3) Includes 169,500 shares held by Jefferies & Company, Inc., 115,711 shares
of common stock held by the John G. and Cynthia M. Chiles Revocable Trust
and 38,574 shares held by Mr. Chiles' minor children, and options to
purchase 52,500 shares of common stock. Does not include 595,718 shares of
common stock and options to purchase 3,750 shares of common stock held by
persons associated with Jefferies & Company, Inc. Mr. Chiles is a Managing
Director of Jefferies & Company, Inc. Mr. Chiles disclaims beneficial
ownership of these shares.
(4) Includes options to purchase 150,000 shares of common stock, warrants to
purchase 750,000 shares of common stock and 750,000 shares of common stock
owned by Office Depot, Inc., of which Mr. Fuente is the Chairman and Chief
Executive Officer. Mr. Fuente disclaims beneficial ownership of the shares
of common stock and options and warrants to purchase shares of common stock
held by Office Depot, Inc.
(5) Does not include 857,144 shares of common stock held by Cincinnati Bell,
Inc., the parent of ZoomTown.com. Mr. O'Brien disclaims beneficial
ownership of shares held by Cincinnati Bell, Inc.
(6) Includes options to purchase 150,000 shares of common stock and a warrant
to purchase 750,000 shares of common stock owned by Office Depot, Inc. Mr.
Fuente, a director of PurchasePro.com, is the Chairman and Chief Executive
Officer of Office Depot, Inc. The 150,000 shares being offered result from
the net exercise of part of the warrant. Office Depot, Inc. has a strategic
e-business relationship and marketing agreement with us.
(7) Does not include 313,284 shares held by John G. Chiles, the John G. and
Cynthia M. Chiles Revocable Trust and Mr. Chiles' minor children and
options to purchase 52,500 shares held by Mr. Chiles. Also does not include
595,718 shares and options to purchase 3,750 shares held by persons
associated with Jefferies & Company, Inc., some of whom have indicated an
interest in selling shares in the offering. Jefferies disclaims beneficial
ownership of all of these shares.
(8) Consists of a warrant to purchase 525,000 shares. The 75,000 shares being
offered result from the net exercise of part of the warrant. Advanstar has
an agreement with us regarding the creation of web-based industry specific
business communities.

57
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our amended and restated articles of incorporation, authorize the issuance
of up to 40,000,000 shares of common stock, par value $.01 per share, and
5,000,000 shares of preferred stock, par value $.001 per share.

Common Stock

Holders of the common stock are entitled to receive, as, when and if
declared by the board of directors from time to time, such dividends and other
distributions in cash, stock or property from our assets or funds legally
available for such purposes subject to any dividend preferences that may be
attributable to preferred stock that may be authorized. Holders of common stock
are entitled to one vote for each share held of record on all matters on which
stockholders may vote, except with respect to the election of directors in
which case stockholders are entitled to multiply the number of shares held of
record by the number of directors to be elected and distribute such number of
votes for one or among two or more nominees.

There are no preemptive, conversion, redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and non-assessable. In the event of our liquidation, dissolution or
winding up, holders of common stock are entitled to share ratably in the assets
available for distribution.

We intend to seek the approval of our stockholders to increase the amount of
our authorized common shares.

Preferred Stock

Our board of directors, without further action by the stockholders, is
authorized to issue an aggregate of 5,000,000 shares of preferred stock. No
shares of preferred stock are outstanding and we have no plans to issue a new
series of preferred stock. Our board of directors may, without stockholder
approval, issue preferred stock with dividend rates, redemption prices,
preferences on liquidation or dissolution, conversion rights, voting rights and
any other preferences, which rights and preferences could adversely affect the
voting power of the holders of common stock. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions or
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or could discourage or delay a third party from
acquiring, a majority of our outstanding stock. Additionally, the issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to holders of common stock, may have the effect of decreasing the
market price of the common stock, and may adversely affect the voting and other
rights of the holders of common stock.

Common Stock Warrants

As of September 30, 1999 we had warrants outstanding for the purchase of
750,000 shares of common stock with a weighted average exercise price of $8.00
per share. Subsequent to September 30, 1999 we have issued 3,225,000 warrants
to strategic partners at a weighted average exercise price of $86.31.

The exercise price and number of shares of common stock issuable upon the
exercise of each of the warrants may be adjusted upon the occurrence of certain
events, including stock splits, stock dividends, reorganization,
recapitalization, merger, or sale of all or substantially all of our assets.
All warrants and shares of stock issuable upon exercise of all warrants have
certain registration rights as described under "Registration Rights" below. For
purposes of this prospectus, we have assumed all outstanding warrants have been
exercised.

Registration Rights

The holders of 8,100,000 shares of common stock issuable upon conversion of
the Series A and B Preferred Stock, and certain holders of 1,237,500 shares of
common stock have the right to cause us to register such shares under the
Securities Act as follows:

. Demand Registration Rights. On March 13, 2000, the holders of a majority
of the common stock issued upon conversion of the Series A Preferred
Stock and the holders of a majority of the shares

58
<PAGE>

of common stock issued upon conversion of the Series B Preferred Stock may
request PurchasePro.com to register their shares with respect to all or
part of their registerable securities having aggregate proceeds of at
least $10,000,000. The $10,000,000 proceeds threshold was negotiated as
part of the Series A Preferred Stock financing.

. Piggyback Registration Rights. The holders of registerable securities can
request to have their shares registered anytime we file a registration
statement to register any of our securities for our own account or for
the account of others.

. S-2 and S-3 Registration Rights. The holders of a majority of the common
stock issued upon conversion of the Series A Preferred Stock and the
holders of a majority of the common stock issued upon conversion of the
Series B Preferred Stock may request us to register their shares if we
are eligible to use either Form S-2 or Form S-3 and if the aggregate
price is at least $500,000.

Holders of 759,999 shares of common stock and holders of warrants to purchase
80,000 shares of common stock have substantially the same registration rights
as described above, however, the aggregate price of the registerable
securities in demand registrations need only be $500,000. Office Depot, Sprint
and Advanstar which hold warrants to purchase 3,975,000 shares of common stock
have piggyback and S-3 registration rights as described above. Each holder
with piggyback registration rights described above has been given notice of
and an opportunity to participate in this offering.

Registration of shares of common stock pursuant to the exercise of demand
registration rights, piggyback registration rights or S-2 or S-3 registration
rights under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act immediately upon the
effectiveness of such registration. See "Risk Factors--Shares eligible for
future sale by our existing stockholders may adversely affect our stock
price," "Shares Eligible for Future Sale" and "Certain Transactions."

We will pay all registration expenses, other than underwriting discounts
and commissions and other selling expenses, in connection with any
registration. The registration rights terminate in September 2004, or, with
respect to each holder of registerable securities, when the holder can sell
all of its shares in any 90 day period under Rule 144 of the Securities Act.

Nevada Law and Articles and Bylaws Provisions Affecting Stockholders

Articles and Bylaws. Our articles of incorporation and bylaws divide our
board of directors into three classes of directors, with the classes to be as
nearly equal in number as possible. The bylaws provide that Class I is
comprised of directors who shall serve until the annual meeting of
stockholders in 2000 and until their successors shall have been elected and
qualified. Class II is comprised of directors who shall serve until the annual
meeting of stockholders in 2001 and until their successors shall have been
elected and qualified. Class III is comprised of directors who shall serve
until the annual meeting of stockholders in 2002 and until their successors
shall have been elected and qualified.

Our articles of incorporation and bylaws:

. require advance notice for stockholders to submit nominations for the
election of directors,

. require the approval of at least two-thirds of the shares entitled to
vote at an election of directors to amend our articles of incorporation,

. require a majority vote of our board of directors or a two-thirds
stockholders' vote to amend our bylaws,

. allow us to indemnify our directors and officers to the fullest extent
permitted by Nevada law, and

. grant the board of directors the power to authorize the issuance of up to
5,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of
those shares without further vote or action by the stockholders.

59
<PAGE>

Nevada Anti-Takeover Statutes. Nevada law provides that an acquiring person
who acquires a controlling interest in a corporation may only exercise voting
rights on any control shares if these voting rights are conferred by a majority
vote of the corporation's disinterested stockholders at a special meeting held
upon the request of the acquiring person. If the acquiring person is accorded
full voting rights and acquires control shares with at least a majority of all
the voting power, any of our stockholders, who did not vote in favor of
authorizing voting rights for the control shares, are entitled to payment for
the fair value of his shares. A "controlling interest" is an interest that is
sufficient to enable the acquiring person to exercise at least one-fifth of the
voting power of the corporation in the election of directors. "Control shares"
are outstanding voting shares that an acquiring person or associated persons
acquire or offer to acquire in an acquisition and those shares acquired during
the 90-day period before the person involved became an acquiring person.

In addition, Nevada law restricts the ability of a corporation to engage in
any combination with an interested stockholder for three years from when the
interested stockholder acquires shares that cause the stockholder to become an
interested stockholder, unless the combination or the purchase of shares by the
interested stockholder is approved by the board of directors before the
stockholder became an interested stockholder. If the combination was not
previously approved, the interested stockholder may only effect a combination
after the three-year period if the stockholder receives approval from a
majority of the disinterested shares or the offer meets certain fair price
criteria.

An "interested stockholder" is a person who is:

. the beneficial owner, directly or indirectly, of 10% or more of the
voting power of the outstanding voting shares of the corporation or

. an affiliate or associate of the corporation and, at any time within
three years immediately before the date in question, was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the
then outstanding shares of the corporation.

Our articles of incorporation and bylaws do not exclude us from these
restrictions.

These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board and in the policies formulated by the
board and to discourage some types of transactions that may involve actual or
threatened change of control of our company. These provisions are designed to
reduce our vulnerability to an unsolicited proposal for a takeover that does
not contemplate the acquisition of all of our outstanding shares or an
unsolicited proposal for the potential restructuring or sale of all or a part
of our company. However, these provisions could discourage potential
acquisition proposals and could delay or prevent a change in control of our
company. They may also have the effect of preventing changes in our management.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.

60
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.

After this offering, 30,319,710 shares of common stock will be outstanding.
Of these shares, 3,000,000 sold in this offering will be freely tradable
without restriction under the Securities Act except for any shares purchased by
"affiliates" of PurchasePro.com as defined in Rule 144 under the Securities
Act. Of the remaining shares of common stock outstanding after this offering,
20,380,710 shares of common stock are "restricted securities" within the
meaning of Rule 144 under the Securities Act. The restricted securities
generally may not be sold unless they are registered under the Securities Act
or are sold pursuant to an exemption from registration, such as the exemption
provided by Rule 144 under the Securities Act.

Our officers, directors and all stockholders holding shares prior to the
initial public offering, including the selling stockholders, entered into lock-
up agreements in connection with the initial public offering which are still in
effect. Under these lock-up agreements, they have agreed not to offer or sell
any shares of common stock for a period of 180 days following the initial
public offering without the prior written consent of Prudential Securities
Incorporated. These lock-ups expire on March 13, 2000. Prudential Securities
Incorporated may, at any time and without notice, grant an early release for
shares subject to these lock-up agreements.

In connection with this offering, our directors and officers have agreed to
enter into similar lock-up agreements with Credit Suisse First Boston
Corporation for a period of 120 days after the date of this prospectus. In
addition, some of our stockholders have signed similar lock-up agreements with
Credit Suisse First Boston Corporation which expire between April 13, 2000 and
June 9, 2000. Credit Suisse First Boston Corporation may release some or all of
the shares from these lock-up agreements prior to the expiration of these
agreements. Following these lock-up periods, these shares will not be eligible
for sale in the public market without registration under the Securities Act
unless such sales meet the applicable conditions and restrictions of Rule 144
as described below.

1,913,024 April 13, 2000, based on expiration of a lock-up agreement. Credit
Suisse First Boston Corporation can waive this restriction at any
time and without notice.

734,659 May 10, 2000, based on expiration of a 90-day lock-up agreement.
Credit Suisse First Boston Corporation can waive this restriction
at any time and without notice.

4,843,037 June 2, 2000, due to requirements of federal securities law.

9,409,620 June 9, 2000, based on the expiration of a 120-day lock-up
agreement. Credit Suisse First Boston Corporation can waive these
restrictions at any time and without notice.

455,030 At various times thereafter, due to the requirements of federal
securities laws.
</TABLE>

In general, under Rule 144 as currently in effect any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:

. 1% of the then-outstanding shares of common stock, and

. the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of such
sale on Form 144 is filed with the Securities and Exchange Commission.

61
<PAGE>

Sales under Rule 144 are also subject to provisions, relating to notice and
manner of sale and the availability of current public information about us. In
addition, a person (or persons whose shares are aggregated) who has not been an
affiliate of us at any time during the 90 days immediately preceding a sale,
and who has beneficially owned the shares for at least two years, would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitation and other conditions described above. The above summary of Rule 144
is not intended to be a complete description.

In addition, our employees, directors, officers, advisors or consultants who
were issued shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permits affiliates to sell their Rule 701 shares without having
to comply with Rule 144's holding period restrictions.

On November 23, 1999, we filed a registration statement under the Securities
Act to register 6,750,000 shares of common stock issuable upon the exercise of
outstanding stock options or reserved for issuance under our stock option
plans. See "Management--Stock Option Plans." These shares will be available for
sale in the open market subject to the lock-up agreements described above and,
for our affiliates, to the conditions and restrictions of Rule 144.

62
<PAGE>

UNDERWRITING

We and the selling stockholders have entered into an underwriting agreement
with the underwriters named below, for whom Credit Suisse First Boston
Corporation, Bear, Stearns & Co. Inc., Prudential Securities Incorporated,
FleetBoston Robertson Stephens Inc. and Jefferies & Company, Inc. are acting as
representatives. We and the selling stockholders are obligated to sell, and the
underwriters are obligated to purchase, all of the shares of the common stock
offered on the cover page of this prospectus, if any are purchased. Subject to
conditions set forth in the underwriting agreement, each underwriter has
severally agreed to purchase from us the number of shares of common stock set
forth below opposite its name:

<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation............................. 1,122,000
Bear, Stearns & Co. Inc. .......................................... 576,000
Prudential Securities Incorporated................................. 576,000
FleetBoston Robertson Stephens Inc................................. 576,000
Jefferies & Company, Inc. ......................................... 30,000
Adams, Harkness & Hill, Inc. ...................................... 30,000
E*OFFERING Corp. .................................................. 30,000
Invemed Associates LLC............................................. 30,000
TD Securities (USA) Inc. .......................................... 30,000
---------
Total.......................................................... 3,000,000
=========
</TABLE>

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

The selling stockholders have granted the underwriters a 30-day option to
purchase up to 450,000 additional shares at the public offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $2.49 per share. The
underwriters and selling group members may allow a discount of $0.10 per share
on sales to other broker/dealers. After the public offering, the public
offering price and concession and discount to broker/dealer may be changed by
the representatives.

The following table summarizes the compensation and estimated expenses we
and the selling stockholders will pay.

<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-Allotment Over-Allotment Over-Allotment Over-Allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions payable
by PurchasePro.com..... $4.16 $4.16 $8,320,000 $8,320,000
Expenses payable by
PurchasePro.com........ $0.27 $0.23 $ 800,000 $ 800,000
Underwriting discounts
and commissions payable
by selling
stockholders........... $4.16 $4.16 $4,160,000 $6,032,000
</TABLE>

In addition, we estimate that we will spend approximately $800,000 in
expenses for this offering including those of the selling stockholders. We and
the selling stockholders have agreed to indemnify the underwriters against some
liabilities, including liabilities under the Securities Act or contribute to
payments that the underwriters may be required to make in respect of these
liabilities.

63
<PAGE>

Jefferies & Company, Inc. has, from time to time, performed various
investment banking and financial advisory services for us on a fee services
basis. Recently they were engaged by us to complete a valuation of certain
warrants issued by us to Advanstar, Inc. and Sprint Communications Company,
L.P. for a fee of $50,000. A Managing Director of Jefferies & Company, Inc. is
a member of our board of directors. Jefferies & Company, Inc. and associated
persons own 1,075,502 shares of common stock and options to purchase 56,250
shares of common stock. Pursuant to the rules of the National Association of
Securities Dealers, Inc., the interests of persons associated with Jefferies &
Company, Inc. in the 276,429 shares of common stock issued upon conversion of
the Series B Preferred Stock at the initial public offering and options to
purchase 3,750 shares of common stock out of the total 56,250 shares subject to
options held by associated persons of Jefferies & Company, Inc., were presumed
to be underwriting compensation in connection with the initial public offering.
Accordingly, these 276,429 shares of common stock, options to purchase 3,750
shares of common stock and any shares of common stock issued upon the exercise
of these options cannot be sold, transferred, assigned, pledged or hypothecated
by any person for a period of two years until September 2001, except to
officers or partners of the underwriters and members of the selling group and
their officers or partners. The exercise price of the options to purchase 3,750
shares of common stock held by persons associated with Jefferies & Company,
Inc. was the initial public offering price. The calculation of underwriting
compensation by the National Association of Securities Dealers, Inc. took into
account the payment to us by Jefferies & Company, Inc. of $280,065 as
reimbursement for our expenses in our initial public offering. Jefferies &
Company, Inc. and associated persons have indicated their interest in selling
in this offering a portion of the shares owned by them that are not subject to
the lock-up agreements.

We, our directors and our officers have agreed that we and they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under the
Securities Act relating to, any additional shares of our common stock or
securities convertible into or exchangeable or exercisable for any of our
common stock, or publicly disclose the intention to make any such offer, sale,
pledge, disposition or filing, without the prior written consent of Credit
Suisse First Boston Corporation for a period of 120 days after the date of this
offering, except that we can issue shares pursuant to the exercise of employee
stock options outstanding on the date hereof. In addition, some of our
stockholders have signed similar lock-up agreements with Credit Suisse First
Boston Corporation which expire between April 13, 2000 and June 9, 2000.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.

Our common stock is traded on The Nasdaq National Market under the symbol
"PPRO."

The representatives on behalf of the underwriters may engage in over-
allotment, stabilizing transactions, syndicate covering transactions, penalty
bids and "passive" market making in accordance with Regulation M under the
Securities Exchange Act of 1934.

. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.

. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.

. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member are purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.

. In "passive" market making, market makers in the securities who are
underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the securities until the
time, if any, at which a stabilizing bid is made.

64
<PAGE>

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

In October 1999, Prudential Securities Incorporated provided Charles E.
Johnson, Jr. with a line of credit of up to $50 million bearing interest at
prevailing market rates. As security for the loan, Mr. Johnson pledged to
Prudential Securities Incorporated 2.5 million shares of our common stock.
Prudential Securities Incorporated also provided a line of credit of up to $8
million to Christopher P. Carton and a line of credit of up to $500,000 to
Robert G. Layne, each at prevailing interest rates. As security for these
loans, Messrs. Carton and Layne pledged 300,000 shares and 125,000 shares of
our common stock, respectively, to Prudential Securities Incorporated.
Prudential Securities Incorporated also provided a line of credit of up to
$650,000 to other employees at prevailing interest rates, for which such
employees pledged an aggregate of 213,250 shares of our common stock.

Prudential Securities Incorporated may allow clients of Prudential AdvisorSM
to view offering terms and a prospectus online and place orders through their
financial advisors.

LEGAL MATTERS

The validity of the issuance of the common stock offered by us in this
offering will be passed upon for us by Pillsbury Madison & Sutro LLP, San
Francisco, California. Partners of Pillsbury Madison & Sutro LLP and an
investment partnership comprised of partners and former partners of that firm
own in the aggregate 51,430 shares of common stock of PurchasePro.com. Selected
legal matters relating to the shares of common stock offered in this offering
will be passed upon for the underwriters by Orrick, Herrington & Sutcliffe LLP,
Menlo Park, California.

EXPERTS

The consolidated financial statements of PurchasePro.com as of December 31,
1997 and 1998 and for the period from inception (October 8, 1996) through
December 31, 1996 and for each of the two years in the period ended December
31, 1998, included in this prospectus and elsewhere in the registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock offered hereby. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
PurchasePro.com and the common stock, reference is made to the registration
statement and the exhibits and schedules thereto. You may read and copy any
document we file at the SEC's public reference room in Washington, DC. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
room. Our SEC filings are also available to the public from the SEC's website
at http://www.sec.gov.

65
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2

Consolidated Balance Sheets............................................... F-3

Consolidated Statements of Operations..................................... F-5

Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)........................................... F-6

Consolidated Statements of Cash Flows..................................... F-7

Notes to Consolidated Financial Statements................................ F-8

</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of PurchasePro.com, Inc.:

We have audited the accompanying consolidated balance sheets of
PurchasePro.com, Inc. (a Nevada corporation) and subsidiary as of December 31,
1997 and 1998, and the related consolidated statements of operations,
redeemable convertible preferred stock and stockholders' equity (deficit) and
cash flows for the period from inception (October 8, 1996) through December 31,
1996, and for each of the two years in the period ended December 31, 1998.
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 generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the financial position of PurchasePro.com, Inc. and
subsidiary as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the period from inception (October 8, 1996)
through December 31, 1996, and for each of the two years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Las Vegas, Nevada
June 2, 1999

F-2
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1997 1998 1999
--------- ---------- -------------
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets
Cash and cash equivalents............... $ 7,894 $1,689,288 $48,477,852
Trade accounts receivable, net of
allowance for doubtful accounts of
$72,796, $200,000 and $242,000
(unaudited), respectively.............. 18,443 215,234 1,600,012
Other receivables....................... 17,602 99,078 127,130
Prepaid expenses and other.............. 113 20,000 403,488
--------- ---------- -----------
Total current assets.................. 44,052 2,023,600 50,608,482

Property and equipment
Computer equipment...................... 517,057 714,465 3,684,942
Communication equipment................. 47,775 65,160 65,160
Furniture and fixtures.................. 130,536 155,328 262,882
Leasehold improvements.................. 26,666 44,090 52,413
--------- ---------- -----------
722,034 979,043 4,065,397
Less--accumulated depreciation and
amortization........................... (162,424) (415,039) (776,023)
--------- ---------- -----------
559,610 564,004 3,289,374

Other assets.............................. 4,903 157,153 1,108,023
--------- ---------- -----------
Total assets.......................... $ 608,565 $2,744,757 $55,005,879
========= ========== ===========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.

F-3
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)

<S> <C> <C> <C>
Current liabilities
Accounts payable..................... $ 300,347 $ 98,799 $ 1,554,213
Accrued salaries and benefits........ 43,289 207,635 402,600
Accrued payroll taxes................ 285,501 63,167 58,947
Accrued interest..................... 23,645 59,256 --
Other accrued liabilities............ 51,138 147,655 1,271,099
Deferred revenues.................... 46,541 164,812 281,418
Notes payable, current portion....... 1,200,750 375,000 50,000
----------- ----------- ------------
Total current liabilities.......... 1,951,211 1,116,324 3,618,277

Notes payable, net of current portion.. 1,366,250 1,169,939 --

Commitments and contingencies (Note 4)

Redeemable convertible preferred stock
Preferred stock, Series A: $0.001 par
value; 8% convertible; $1.67
liquidation preference; 0 and
3,150,000 shares authorized, issued
and outstanding, mandatorily
converted to common stock in
September 1999 ..................... -- 4,339,438 --
Preferred stock, Series B: $0.001 par
value; 8% convertible; $2.33
liquidation preference; 4,950,000
shares authorized;
0 and 0, issued and outstanding,
mandatorily converted to common
stock in September 1999............. -- 2,000,000 --

Stockholders' equity (deficit)
Common stock: $0.01 par value;
40,000,000 shares authorized;
11,550,000, 11,400,000 and
28,014,710 (unaudited) shares issued
and outstanding, respectively....... 115,500 114,000 280,147
Additional paid-in capital........... 283,882 1,140,504 87,154,900
Deferred stock-based compensation.... -- -- (4,773,203)
Accumulated deficit.................. (3,108,278) (7,135,448) (31,274,242)
----------- ----------- ------------
Total stockholders' equity
(deficit)......................... (2,708,896) (5,880,944) 51,387,602
----------- ----------- ------------
Total liabilities and stockholders'
equity (deficit).................. $ 608,565 $ 2,744,757 $ 55,005,879
=========== =========== ============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.

F-4
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

Operating expenses
Sales and marketing.... 22,592 1,179,327 3,840,776 2,766,137 5,404,783
General and
administrative........ 9,860 1,344,860 2,895,779 2,005,234 4,637,895
Programming and
development........... 86,862 802,175 971,459 687,305 1,530,973
Amortization of stock-
based compensation.... -- -- -- -- 4,946,281
---------- ----------- ----------- ----------- ------------
Total operating
expenses............. 119,314 3,326,362 7,708,014 5,458,676 16,519,932
---------- ----------- ----------- ----------- ------------
Operating loss.......... (119,314) (2,864,829) (6,483,415) (4,762,374) (13,737,603)

Other income (expense)
Interest income
(expense), net........ (3,638) (120,497) (332,895) (218,176) (80,147)
Other.................. -- -- 16,300 6,857 (279,007)
---------- ----------- ----------- ----------- ------------
Total other income
(expense)............ (3,638) (120,497) (316,595) (211,319) (359,154)
---------- ----------- ----------- ----------- ------------
Net loss before benefit
for income taxes....... (122,952) (2,985,326) (6,800,010) (4,973,693) (14,096,757)
Benefit for income
taxes.................. -- -- -- -- --
---------- ----------- ----------- ----------- ------------
Net loss................ (122,952) (2,985,326) (6,800,010) (4,973,693) (14,096,757)
Preferred stock
dividends.............. -- -- (245,000) (140,000) (511,000)
Accretion of preferred
stock to redemption
value.................. -- -- (90,438) (44,981) (131,037)
Value of preferred stock
beneficial conversion
feature................ -- -- -- -- (9,400,000)
---------- ----------- ----------- ----------- ------------
Net loss applicable to
common stockholders.... $ (122,952) $(2,985,326) $(7,135,448) $(5,158,674) $(24,138,794)
========== =========== =========== =========== ============
Loss per share
Basic.................. $ (0.01) $ (0.26) $ (0.55) $ (0.38) $ (1.86)
========== =========== =========== =========== ============
Diluted................ $ (0.01) $ (0.24) $ (0.52) $ (0.36) $ (1.80)
========== =========== =========== =========== ============
Weighted average shares
outstanding
Basic.................. 11,550,000 11,550,000 12,900,000 13,650,000 13,002,895
========== =========== =========== =========== ============
Diluted................ 12,389,999 12,389,999 13,739,999 14,489,999 13,438,329
========== =========== =========== =========== ============
</TABLE>

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

F-5
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Redeemable Convertible Preferred Stock
-------------------------------------------------
Series A Series B
----------------------- ------------------------
Shares Amount Shares Amount
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, October
8, 1996......... -- $ -- -- $ --
Issuance of
common stock.... -- -- -- --
Net loss for the
period.......... -- -- -- --
---------- ----------- ---------- ------------
Balance,
December 31,
1996............ -- -- -- --
Contribution
from
stockholder..... -- -- -- --
Services donated
by stockholder.. -- -- -- --
Net loss........ -- -- -- --
---------- ----------- ---------- ------------
Balance,
December 31,
1997............ -- -- -- --
Effect of
recapitalization.. -- -- -- --
Issuance of
common stock.... -- -- -- --
Redemption and
retirement of
common stock.... -- -- -- --
Contribution by
principal
stockholder..... -- -- -- --
Charge for
services........ -- -- -- --
Issuance of
Series A
preferred stock,
net of issuance
costs and value
of warrants
issued.......... 3,150,000 4,004,000 -- --
Issuance of
warrants to
holders of notes
payable......... -- -- -- --
Issuance of
Series B
preferred stock
pursuant to
subscription
agreements...... -- -- -- 2,000,000
Preferred stock
dividends....... -- 245,000 -- --
Accretion of
preferred stock
to redemption
value........... -- 90,438 -- --
Net loss........ -- -- -- --
---------- ----------- ---------- ------------
Balance,
December 31,
1998............ 3,150,000 4,339,438 -- 2,000,000
<CAPTION>
Stockholders' Equity (Deficit)
----------------------------------------------------------------------------
Common Stock Additional Deferred
--------------------- Paid-in Stock-Based Accumulated
Shares Amount Capital Compensation Deficit Total
----------- --------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October
8, 1996......... -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock.... 11,550,000 115,500 (105,500) -- -- 10,000
Net loss for the
period.......... -- -- -- -- (122,952) (122,952)
----------- --------- ------------ ------------- ------------- -------------
Balance,
December 31,
1996............ 11,550,000 115,500 (105,500) -- (122,952) (112,952)
Contribution
from
stockholder..... -- -- 139,382 -- -- 139,382
Services donated
by stockholder.. -- -- 250,000 -- -- 250,000
Net loss........ -- -- -- -- (2,985,326) (2,985,326)
----------- --------- ------------ ------------- ------------- -------------
Balance,
December 31,
1997............ 11,550,000 115,500 283,882 -- (3,108,278) (2,708,896)
Effect of
recapitalization.. -- -- (3,108,278) -- 3,108,278 --
Issuance of
common stock.... 3,450,000 34,500 32,500 -- -- 67,000
Redemption and
retirement of
common stock.... (3,600,000) (36,000) 36,000 -- -- --
Contribution by
principal
stockholder..... -- -- 1,782,000 -- -- 1,782,000
Charge for
services........ -- -- 720,000 -- -- 720,000
Issuance of
Series A
preferred stock,
net of issuance
costs and value
of warrants
issued.......... -- -- 996,000 -- -- 996,000
Issuance of
warrants to
holders of notes
payable......... -- -- 398,400 -- -- 398,400
Issuance of
Series B
preferred stock
pursuant to
subscription
agreements...... -- -- -- -- -- --
Preferred stock
dividends....... -- -- -- -- (245,000) (245,000)
Accretion of
preferred stock
to redemption
value........... -- -- -- -- (90,438) (90,438)
Net loss........ -- -- -- -- (6,800,010) (6,800,010)
----------- --------- ------------ ------------- ------------- -------------
Balance,
December 31,
1998............ 11,400,000 114,000 1,140,504 -- (7,135,448) (5,880,944)

(Unaudited):
Exercise of
warrants........ -- -- -- --
Exercise of
options......... -- -- -- --
Issuance of
Series B
preferred stock,
net of issuance
costs........... -- -- 4,950,000 --
Issuance of
common stock to
Series A
stockholders.... -- -- -- --
Directors stock
option grant.... -- -- -- --
Deferred stock-
based
compensation.... -- -- -- --
Amortization of
deferred stock-
based
compensation.... -- -- -- --
Mandatory
conversion of
Series A and
Series B
preferred stock
to shares of
common stock.... (3,150,000) (4,743,029) (4,950,000) (11,638,446)
Issuance of
common stock,
net of offering
costs........... -- -- -- --
Preferred stock
dividends....... -- 280,000 -- 231,000
Accretion of
preferred stock
to redemption
value........... -- 123,591 -- 7,446
Value of
preferred stock
beneficial
conversion
feature......... -- -- -- 9,400,000
Net loss........ -- -- -- --
---------- ----------- ---------- ------------
Balance
September 30,
1999............ -- $ -- -- $ --
========== =========== ========== ============
(Unaudited):
Exercise of
warrants........ 759,999 7,600 (2,533) -- -- 5,067
Exercise of
options......... 179,711 1,797 322,720 -- -- 324,517
Issuance of
Series B
preferred stock,
net of issuance
costs........... -- -- 9,400,000 -- -- 9,400,000
Issuance of
common stock to
Series A
stockholders.... 675,000 6,750 (6,750) -- -- --
Directors stock
option grant.... -- -- 800,000 -- -- 800,000
Deferred stock-
based
compensation.... -- -- 9,719,484 (9,719,484) -- --
Amortization of
deferred stock-
based
compensation.... -- -- -- 4,946,281 -- 4,946,281
Mandatory
conversion of
Series A and
Series B
preferred stock
to shares of
common stock.... 8,100,000 81,000 16,300,475 -- -- 16,381,475
Issuance of
common stock,
net of offering
costs........... 6,900,000 69,000 49,481,000 -- -- 49,550,000
Preferred stock
dividends....... -- -- -- -- (511,000) (511,000)
Accretion of
preferred stock
to redemption
value........... -- -- -- -- (131,037) (131,037)
Value of
preferred stock
beneficial
conversion
feature......... -- -- -- -- (9,400,000) (9,400,000)
Net loss........ -- -- -- -- (14,096,757) (14,096,757)
----------- --------- ------------ ------------- ------------- -------------
Balance
September 30,
1999............ 28,014,710 $280,147 $87,154,900 $(4,773,203) $(31,274,242) $ 51,387,602
=========== ========= ============ ============= ============= =============
</TABLE>

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

F-6
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Period From
Inception
(October 8, 1996) Year Ended Nine Months Ended
Through December 31, September 30,
December 31, ------------------------ -------------------------
1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- ------------
Cash flows from operating
activities
<S> <C> <C> <C> <C> <C>
Net loss............... $(122,952) $(2,985,326) $(6,800,010) $(4,973,693) $(14,096,757)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization.......... 2,983 159,441 252,892 181,877 403,042
Amortization of stock-
based compensation.... -- -- -- -- 4,946,281
Imputed interest....... -- -- 67,000 67,000 --
Amortization of debt
discount.............. -- -- 43,339 -- 355,061
Provision for doubtful
accounts.............. -- 72,796 127,204 60,205 351,372
Non-cash services...... -- 250,000 720,000 720,000 800,000
(Increase) decrease in:
Trade accounts
receivable........... -- (91,239) (323,995) (190,509) (1,736,150)
Other receivables..... -- (17,602) (81,476) (48,883) (28,052)
Prepaid expenses and
other................ -- (113) (19,887) -- (383,488)
Increase (decrease) in:
Accounts payable...... 3,500 140,681 (201,548) 47,211 355,414
Accrued liabilities... 46,589 513,150 74,140 (322,630) 513,717
Deferred revenues..... -- 46,541 118,271 197,295 116,606
--------- ----------- ----------- ----------- ------------
Net cash used in
operating
activities.......... (69,880) (1,911,671) (6,024,070) (4,262,127) (8,402,954)
--------- ----------- ----------- ----------- ------------
Cash flows from
investing activities
Purchase of property
and equipment......... (72,417) (649,617) (257,009) (145,672) (1,986,354)
Other assets........... -- (4,903) (102,527) 3,535 (319,178)
--------- ----------- ----------- ----------- ------------
Net cash used in
investing
activities.......... (72,417) (654,520) (359,536) (142,137) (2,305,532)
--------- ----------- ----------- ----------- ------------
Cash flows from
financing activities
Proceeds from notes
payable and advances.. 133,132 2,433,868 4,427,000 3,765,000 200,000
Repayment of notes
payable and advances.. -- -- (3,362,000) (3,362,000) (1,350,000)
Issuance of common
stock, net............ 10,000 -- -- -- 50,620,800
Issuance of preferred
stock and warrants,
net................... -- -- 7,000,000 5,000,000 8,026,250
Contribution from
stockholder........... -- 139,382 -- -- --
--------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities.......... 143,132 2,573,250 8,065,000 5,403,000 57,497,050
--------- ----------- ----------- ----------- ------------
Increase in cash and
cash equivalents....... 835 7,059 1,681,394 998,736 46,788,564
Cash and cash
equivalents
Beginning of period.... -- 835 7,894 7,894 1,689,288
--------- ----------- ----------- ----------- ------------
End of period.......... $ 835 $ 7,894 $ 1,689,288 $ 1,006,630 $ 48,477,852
========= =========== =========== =========== ============
Non-cash investing and
financing activities
Other assets acquired
with note payable..... $ -- $ -- $ 50,000 $ 50,000 $ --
========= =========== =========== =========== ============
Other assets acquired
with preferred stock.. $ -- $ -- $ -- $ -- $ 673,750
========= =========== =========== =========== ============
Conversion of notes
payable to equity..... $ -- $ -- $ 1,782,000 $ 1,782,000 $ 700,000
========= =========== =========== =========== ============
Conversion of preferred
shares to common
stock................. $ -- $ -- $ -- $ -- $ 16,381,475
========= =========== =========== =========== ============
Cash paid for:
Interest............... $ 3,638 $ 96,852 $ 166,424 $ 189,051 $ 124,375
========= =========== =========== =========== ============
</TABLE>

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

F-7
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)

(1) The Company

Organization

Purchase Pro, Inc., a Nevada corporation, was incorporated on October 8,
1996 as an S corporation for federal income tax purposes. On January 12, 1998,
PP International was incorporated in Nevada as a C corporation for federal
income tax purposes. On January 15, 1998, PP International, Inc. changed its
name to Purchase Pro International, Inc., and on June 1, 1999, changed its name
to PurchasePro.com, Inc. (the "Company"). The Company initially authorized the
issuance of 20,000,000 shares, $0.01 par value stock. On January 12, 1998, the
Company issued 11,550,000 shares of common stock to the three stockholders of
Purchase Pro, Inc. The Company's principal and controlling stockholder was the
controlling stockholder of Purchase Pro, Inc. On January 15, 1998, the Company
acquired substantially all of the assets and assumed substantially all of the
liabilities of Purchase Pro, Inc. The purchase has been accounted for as a
reorganization of companies under common control in a manner similar to a
pooling of interests. Accordingly, the financial position and results of
operations of the Company and Purchase Pro, Inc. have been included in the
accompanying consolidated financial statements. In August 1998, the Company
formed its wholly owned subsidiary, Hospitality Purchasing Systems, Inc.,
("HPS"), a Nevada corporation.

Nature of Business

The Company is a provider of Internet business-to-business electronic
commerce services. The Company's e-commerce solution is comprised of public and
private communities called "e-marketplaces" where businesses can buy and sell a
wide range of products and services over the Internet in an efficient,
competitive and cost-effective manner. Subscribers to the Company's e-
marketplaces need only an Internet connection, a Web browser and a
PurchasePro.com membership in order to participate in interactive buying and
selling communities. The e-marketplaces are customizable and scalable,
utilizing an open-architecture platform that can be integrated with members'
existing enterprise resource planning and accounting systems. The Company's
solution leverages the growth, pervasiveness, low costs and community building
nature of the Internet as a basis for e-commerce for the broad business-to-
business market. The Company began developing its service in 1996 by closely
evaluating the purchasing processes of the hospitality industry. The purchasing
process of this industry is characterized by high volume, frequent purchases of
a broad range of goods and services by a large number of geographically
distributed buyers. The Company capitalized on the large-property purchasing
expertise of several Las Vegas-based hotels and resorts to develop, test and
validate its service.

The Company began testing the first working model of its primary software
product in early 1997 and began selling membership subscriptions in April 1997.
Until that time, the Company was considered a development-stage enterprise.
HPS' principal operation is negotiating contracts on behalf of independent
hotels and hotel management companies for which it receives fees and rebates.
In August 1998, HPS acquired the rights to certain contracts previously managed
by General Network Management Services, Inc. for $100,000 in the form of
$50,000 cash and a $50,000 note payable.

In May 1999, the Company acquired substantially all of the assets of a
software development company for $215,000 consisting of $75,000 cash and 60,000
shares of Series B preferred stock valued at $2.33 per share. The company has
developed programs for the architectural, engineering and construction industry
that provide an extension of Company's e-commerce services into that industry.
The Company entered into five-year non-compete agreements with these
individuals in exchange for 165,000 shares of Series B preferred stock (see
Note 5).

F-8
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

From October 1996 to the commercial release of the service in April 1997,
the Company primarily engaged in raising capital and recruiting employees to
develop the e-marketplace software and network infrastructure. In April 1997,
the Company released version 1.0 of its software, enabling members to transact
e-commerce over its network and in late 1997, members were provided network
connectivity over the Internet. In September 1998, the Company released version
3.0 that provides members access to e-marketplace enabling software and in
February 1999, the Company released version 4.0, which allows members the
additional capability of building private e-marketplaces.

From inception to June 30, 1999, substantially all of the Company's revenues
have come from monthly membership subscription fees for access to e-
marketplaces. Most members are companies that sell products and services to
large hotels and resorts in Nevada and Florida. Subscription contracts can be
cancelled by either party on as little as 30 days notice. The Company also
provides Web site hosting services and ISP connectivity services for a fee and
charges members a fee for processing their payments by electronic funds
transfer or by credit card. In August 1998, HPS began generating transaction
fees from group buying services provided to the hospitality industry. In 1999,
the Company has begun generating fees from contracts with larger corporate
customers to create customized, private e-marketplaces and transaction fees
from members. The Company considers its operations to be part of one operating
segment.

The Company is subject to risks common to rapidly growing, technology-based
companies, including rapid technological change, growth and commercial
acceptance of the Internet, dependence on principal products, new product
development, new product introductions and other activities of competitors, and
a limited operating history.

(2) Significant Accounting Policies

Unaudited Interim Financial Information

The unaudited interim consolidated financial statements of the Company for
the nine months ended September 30, 1998 and 1999, included herein, have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the SEC. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. In the opinion of
management, the accompanying unaudited interim consolidated financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the results of the Company's
operations and its cash flows for the nine months ended September 30, 1998 and
1999. The accompanying unaudited interim consolidated financial statements are
not necessarily indicative of full year results.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany balances and transactions have
been eliminated in consolidation.

Management's Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

F-9
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with high credit quality
financial institutions. The Company's accounts receivable are derived from
revenue earned from customers located in the U.S. and are denominated in U.S.
dollars. Portions of the Company's accounts receivable balances are settled
either through customer credit cards or electronic fund transfers. As a result,
the majority of accounts receivable are collected upon processing of those
transactions. The Company maintains an allowance for doubtful accounts based
upon the expected collectibility of accounts receivable. During the years ended
December 31, 1998 and 1997, no customers accounted for more than 10% of net
revenues or net accounts receivable.

Fair Value of Financial Instruments

The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and notes payable are carried at cost,
which approximates their fair value because of the short-term maturity of these
instruments.

Cash and Cash Equivalents

Cash equivalents consist of investments in bank certificates of deposit and
other interest bearing instruments with initial maturities of three months or
less. Such investments are carried at cost which approximates fair value.

Property and Equipment

Property and equipment is stated at cost. Costs incurred for additions,
improvements and betterments are capitalized as incurred. Costs for maintenance
and repairs are charged to expense as incurred. Gains or losses on dispositions
of property and equipment are included in the determination of income.
Depreciation and amortization are computed using the straight-line method over
the following estimated service lives of the related assets:

<TABLE>
<S> <C>
Computer equipment............................................... 3 years
Communication equipment.......................................... 3 years
Furniture and fixtures........................................... 5 years
Leasehold improvements........................................... 3 years
</TABLE>

Revenue Recognition

Revenues are recorded, net of discounts, ratably over the period services
are provided to subscribers and deferred revenues are recognized for amounts
received before services are provided. The Company does not charge initial
sign-up fees to new subscribers. Transaction fees from group buying services
represent fees from buyers and rebates from suppliers and are recorded at the
time the transactions occur. Other revenues include license fees, which are
recognized ratably over the period services are provided. Other services,
primarily website development, are recognized as services are provided.

Research and Development Costs

All costs in the development of the network, which are classified as
research and development, are expensed as incurred. These costs generally
consist of salaries and related benefits of personnel in developing

F-10
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

enhanced or new functionality of the network. These costs are included in
programming and development costs in the accompanying statements of operations.

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price.

Income Taxes

The Company accounts for income taxes according to SFAS No. 109, "Accounting
for Income Taxes." Prior to 1998, PurchasePro, Inc., with the consent of its
stockholders, elected to be taxed under Section 1372 of the Internal Revenue
Code (the "Code") as an S corporation, which provides that, in lieu of
corporate income taxes, the stockholders account for their pro rata share of
the Company's items of income, deductions, losses, and credits. In connection
with the reorganization of the Company in January 1998 (see Note 1), the
Company, with the consent of its stockholders, elected to be taxed under the
provisions of Subchapter C of the Code. As a result, the Company reclassified
its cumulative net losses totaling $3,108,278 through the date of the
reorganization to additional paid-in capital in the accompanying consolidated
balance sheets.

Earnings (Loss) per Share

The Company follows the provisions of SFAS No. 128, "Earnings Per Share." In
accordance with SFAS No. 128, basic earnings per share ("EPS") is computed by
dividing net loss applicable to common stock by the weighted average common
shares outstanding during the period. Pursuant to SEC Staff Accounting Bulletin
No. 98, shares of common stock or convertible preferred stock are considered
outstanding for all periods presented in the computation of basic and diluted
EPS if issued for nominal consideration. Options, warrants or other common
stock equivalents are considered outstanding for all periods presented in the
computation of diluted EPS if issued for nominal consideration. For the period
from inception (October 8, 1996) through December 31, 1996, for the years ended
December 31, 1997 and 1998, and for the nine months ended September 30, 1998
and 1999, the weighted average common shares outstanding used to compute
diluted EPS includes the effect of warrants issued by the Company to acquire
shares of common stock for $0.007 per share.

For those periods in which potentially dilutive securities such as stock
options and convertible preferred stock have a dilutive effect, the weighted
average shares outstanding used for computation of diluted EPS includes the
effect of these potentially dilutive securities.

All share and per share amounts in the accompanying consolidated financial
statements have been restated to give effect to the stock split discussed in
Note 11.

Recently Issued Accounting Standards

F-11
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The FASB recently proposed an amendment to SFAS No. 133,
which would delay the effective date for one year. The Company currently does
not engage in, nor does it expect to engage in, derivative or hedging
activities, and therefore, the Company anticipates there will be no impact to
its consolidated financial statements.

(3) Notes Payable

Principal Stockholder

The Company's principal stockholder and Chief Executive Officer (the
"Principal Stockholder") provided funds to finance development of the Company's
product. As of December 31, 1997, the total obligation to the Principal
Stockholder was $2,518,000. In January 1998, the Company paid $813,000 to the
Principal Stockholder with proceeds from the Lenders' Notes Payable (see
below). The remaining obligation of $1,705,000 was formalized with a note
payable. In April 1998, the Principal Stockholder advanced an additional
$387,000 to the Company. In June 1998, the Company repaid $310,000 from the
proceeds of the Series A Preferred Stock offering (see Note 5), and the
Principal Stockholder contributed his remaining notes payable and advances
totaling $1,782,000 to the Company in consideration for previously issued
shares of common stock. The Company has included the $1,782,000 as additional
paid-in capital in the accompanying consolidated balance sheets.

Lenders' Notes Payable

In January 1998, the Company issued promissory notes totaling $2,300,000
(the "Lenders' Notes Payable") to several individuals (the "Lenders"). Terms of
the Lenders' Notes Payable provided for interest at 8% payable quarterly and 48
monthly principal payments beginning January 1999. In addition, the Lenders
were issued 3,450,000 shares of the Company's common stock; however, if the
Company repaid the Lenders' Notes Payable within 120 days, 1,725,000 of these
shares were to be contributed back to the Company. The Company did not repay
the Lenders' Notes Payable within 120 days; however, the Lenders' Notes Payable
were repaid in June 1998 with proceeds from the Series A Preferred Stock
offering. The Lenders ultimately contributed 2,212,500 shares of common stock
back to the Company (see Note 5).

The Company allocated the $2,300,000 of proceeds between the Lenders' Notes
Payable and the shares issued based on their estimated fair values.
Accordingly, an additional $67,000 of interest expense was recorded with a
corresponding credit to additional paid-in capital.

September 1998 Notes Payable

In September 1998, the Company issued promissory notes to three individuals,
including the Principal Stockholder and a member of the Company's Board of
Directors, totaling $1,500,000 (the "September 1998 Notes"). Terms of the
September 1998 Notes require quarterly payments of interest at 15% and mature
September 2000. In connection with the issuance of these notes, the Company
issued 239,999 warrants to the note holders. Each warrant provides the holder
the right to purchase one share of Company common stock for $0.007 per share
through September 2003. Using the Black-Scholes pricing model, the Company
determined the value of these warrants to be $1.66 per share, or $398,400. The
Company recognized the $398,400 as an original issue discount and is amortizing
the discount to interest expense over the period from grant to maturity.

In June 1999, $700,000 of the notes payable were converted into 300,000
shares of Series B Preferred Stock, and the Company used $800,000 of the Series
B proceeds to repay the remaining amounts outstanding (see Note 5).

F-12
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Other Notes Payable

In January 1998, the Company repaid its obligation to a stockholder in
connection with the sale of that stockholder's common shares to the Principal
Stockholder. In addition to the outstanding principal of $49,000, the Company
agreed to make payments of $60,000 to charities selected by the stockholder
that was charged to interest expense.

In December 1998, the Principal Stockholder and the President of the Company
advanced a total of $350,000 to the Company. In March 1999, the Principal
Stockholder advanced an additional $200,000 to the Company. In connection with
Series B Preferred Stock offering (see Note 5) the Company used proceeds of
$450,000 and $100,000 to repay the Principal Stockholder and the President,
respectively, for their advances.

HPS Note Payable

In connection with HPS' acquisition of certain assets from Network
Management Services, Inc. (see Note 1), HPS issued a note payable for $50,000
that requires two payments of $25,000 each on July 31, 1999 and July 31, 2000.

(4) Commitments and Contingencies

Operating Leases

The Company is party to several non-cancelable lease agreements for certain
equipment as well as its principal administrative offices. Rent expense under
non-cancelable operating leases totaled $0, $148,298, and $279,872 for the
period from inception (October 8, 1996) through December 31, 1996, and for the
years ended December 31, 1997 and 1998, respectively. Minimum future lease
obligations under non-cancelable operating leases in effect at December 31,
1998, are as follows:

<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1999.......................................................... $ 576,657
2000.......................................................... 569,544
2001.......................................................... 505,754
2002.......................................................... 407,370
2003.......................................................... 205,077
----------
Total....................................................... $2,264,402
==========
</TABLE>

(5) Stockholders' Equity

Common Stock

The Company has authorized the issuance of 40,000,000 shares of common
stock. For the period from inception (October 8, 1996) through December
31,1997, the Principal Stockholder contributed cash of $139,382 and services
valued at $250,000 for his shares of common stock. The Principal Stockholder
served as the Company's Chief Executive Officer during 1997 and did not receive
a salary. The Company recognized compensation expense in the amount of $250,000
and a contribution to capital relating to the Principal Stockholder's services.

In connection with the repayment of the Lenders' Notes Payable in June 1998
(see Note 2), the Company and the Lenders entered into an agreement whereby
2,212,500 shares were contributed back to the Company. Accordingly, the number
of shares held by the Lenders was reduced to 1,237,500. In connection with the
same

F-13
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

agreement and in connection with the Series A Preferred Stock offering, two of
the founders of the Company contributed an aggregate of 1,387,500 shares of
common stock to the Company.

In June 1998, the Principal Stockholder sold 450,000 of his shares of common
stock to an unrelated third party for $0.07 per share. The Company recognized a
charge of $720,000 that reflects the difference between the fair value of its
stock on that date of $1.67 per share and the sales price. The third party
provided significant assistance to the Company in obtaining subscriber
contracts and, accordingly, the Company recorded the full amount of the charge
to sales and marketing expense at the time the transaction occurred. During
1998, the Principal Stockholder sold an additional 2,205,000 shares of common
stock that he owned to various individuals at prices that reflected their
estimated fair value at the time of each sale.

In connection with the closing of the Series B Preferred Stock private
placement in June 1999, the holders of Series A Preferred Stock were granted an
aggregate 675,000 shares of common stock pursuant to certain anti-dilution
rights of the holders of Series A Preferred Stock.

On September 13, 1999, the Company completed an initial public offering
("IPO") in which it sold 6,900,000 shares of common stock, including 900,000
shares in connection with the exercise of the underwriters' over-allotment
option, at $8.00 per share. The Company received approximately $50 million in
cash, net of underwriting discounts, commissions and other offering costs. At
September 30, 1999, the net proceeds were predominately held in short-term
investments. Upon the closing of the IPO, all of the Company's Series A
preferred stock and Series B preferred stock automatically converted into an
aggregate of 8,100,000 shares of common stock (see below).

Preferred Stock

In June 1998, the Company issued 3,150,000 shares of 8% Series A Convertible
Preferred Stock, par value $0.001 ("Series A"). In June 1998, the Company sold
the 3,150,000 Series A shares at $1.67 per share. Net proceeds from the
offering totaled $5,000,000, net of offering costs of $250,000, which were paid
to a company that employs a member of the Company's Board of Directors. In
connection with the issuance of the Series A, the Company granted warrants to
purchase a total of 600,000 shares of common stock, including warrants to
purchase 570,000 shares of common stock to three members of the Company's Board
of Directors and a company which employs one such director. Each warrant
provides for the holder to purchase one share of Company common stock for
$0.007 per share through June 1, 2003. Using the Black-Scholes pricing model,
the Company determined that the value of the warrants was $996,000, as of the
date of issuance. The value of the warrants has been recognized as a cost of
issuance of the Series A shares.

In May 1999, the Company issued 4,950,000 shares of 8% Series B Convertible
Preferred Stock, par value $0.001 ("Series B") for $2.33 per share and received
aggregate proceeds of $11,400,000, net of offering costs of $150,000.

Prior to the completion of the Series B offering, the Company had received
cash totaling $3,140,000 pursuant to Series B subscription agreements. Of this
amount, $2,000,000 was received in December 1998, $500,000 was received in
March 1999, and the remaining $640,000 was received in April 1999. The Series B
shares subscribed and issued after December 1998 have a beneficial conversion
feature totaling $9.4 million, measured as the difference between the
conversion price of $2.33 per share and the fair value of the underlying common
stock at the time of issuance. The beneficial conversion feature has been
recorded as additional paid-in capital. The value of the beneficial conversion
feature was recognized immediately because the Series B shares are convertible
at the option of the holder.

F-14
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Of the 4,950,000 Series B shares issued, 300,000 shares were issued to
holders of the September 1998 Notes, including a former member of the Company's
Board of Directors (see Note 2). The Company used cash proceeds from the Series
B offering to repay $800,000 of the September 1998 Notes, including $500,000 to
the Principal Stockholder, and to repay $450,000 and $100,000 of advances made
by the Company's Principal Stockholder and President, respectively.

The Company issued 225,000 shares of Series B to acquire the assets of a
software development company and for non-compete agreements with the owners of
the company. In May 1999, the Company issued 63,750 shares of Series B to an
individual in exchange for his rescission of a future right to acquire up to
35% of HPS.

On September 13, 1999, the date of the IPO, all shares of preferred stock
were mandatorily converted to shares of common stock and all amounts included
in the preferred stock accounts, including cumulative unpaid dividends and
associated accretion totaling $642,000, were converted to common stock and
additional paid-in capital.

(6) Deferred Stock-Based Compensation

The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is recognized
for any of its stock options when the exercise price of each option equals or
exceeds the fair value of the underlying common stock as of the grant date for
each stock option. With respect to the stock options granted since inception
through September 30, 1999, the Company recorded deferred stock-based
compensation of $9.7 million for the difference at the grant date between the
exercise price and the fair value of the common stock underlying the options.
This amount is being amortized over the vesting period of the individual
options.

(7) Stock Option Plans

1998 Stock Option Plan--In 1998, the Company adopted an incentive stock
option plan, the 1998 Plan, that provides for the granting of stock options
pursuant to the applicable provisions of the Internal Revenue Code and
regulations. The aggregate options available under the 1998 Plan are 4,500,000.
As of December 31, 1998 and September 30, 1999, the Company had granted options
totaling 1,064,775 and 3,933,176, respectively, to employees under the 1998
Plan. Generally, the options have five year terms and are exercisable as
follows: Class A options, 50% at the end of each of the first two years after
grant; Class B options, 33% at the end of each of the first three years after
grant; and Class C options, 25% at the end of each of the first four years
after the date of grant. Through December 31, 1998, and September 30, 1999, the
Company had issued a total of 216,000 and 555,000 options, respectively to non-
employees, including 112,500 and 307,500, respectively, issued to members of
the Board of Directors. Options were issued with exercise prices ranging from
$1.67 to $3.33. For the year ended December 31, 1998, the value of these
options was determined to have a de minimis value using the Black-Scholes
pricing model. For the nine months ended September 30, 1999, the value of these
options was determined to be approximately $1,100,000, of which $800,000 was
charged to sales and marketing expense for options granted primarily to a
strategic marketing partner. The remaining amount will be amortized over the
vesting periods of the options.

1999 Stock Option Plan--The 1999 Stock Plan was adopted by the Company's
Board of Directors in June 1999, subject to approval by the Company's
stockholders. The 1999 Stock Plan provides for the issuance of 2,250,000 shares
of common stock, incentive stock options ("ISOs"), or non-statutory stock
options to employees, directors, independent contractors and advisers. The
number of shares eligible for issuance increases each year by 3.25% of the
number of shares of common stock outstanding at the prior calendar

F-15
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

year-end. At September 30, 1999, the Company had granted a total of 609,000
options to employees under the 1999 Stock Plan.

The exercise price for ISOs is generally at least 100% of the fair market
value of the stock on the date of grant, and 110% for stockholders with 10% or
more ownership of the Company. Vesting provisions are determined at the time of
grant. The Company's Chairman and Chief Executive Officer is authorized to
grant up to 37,500 options in each instance to employees, with the exercise
price to be approved by the compensation committee of the Company's Board of
Directors.

A summary of the options granted to employees under the Company's plans as
of December 31, 1998 and September 30, 1999 is presented below (this does not
include 216,000 and 517,500 options granted to non-employees as of December 31,
1998 and September 30, 1999, respectively):

<TABLE>
<CAPTION>
December 31, 1998 September 30, 1999
------------------ -------------------
(Unaudited)
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Options Outstanding, Beginning of
period............................ -- $ -- 1,064,775 $1.67
Granted............................ 1,064,775 1.67 3,647,895 $3.44
Exercised.......................... -- -- (142,210) $1.84
Cancelled.......................... -- -- (170,495) $1.71
--------- ----- ---------
Options Outstanding, End of
period............................ 1,064,775 $1.67 4,399,965 $3.13
========= ===== =========
</TABLE>

The following table summarizes information about the options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Range Weighted Average
of Number Remaining Weighted Average Number Weighted Average
Prices Outstanding Contract Life Exercise Price Exercisable Exercise Price
------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.67 1,064,775 1.8 $1.67 -- $ --
</TABLE>

F-16
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

For stock options granted to employees from January through September 1999,
the Company recorded deferred stock-based compensation of $8,800,000 for the
difference at the grant date between the exercise price and the fair value of
the Company's common stock. This amount is being amortized to operating expense
over the vesting period of the individual options in accordance with FASB
Interpretation 28. The Company applies the provisions of APB No. 25 and its
related interpretations in accounting for its stock option plans. Accordingly,
compensation expense recognized was different than what would have been
otherwise recognized under the fair value based method defined in SFAS No. 123.
Had the Company accounted for these plans under SFAS No. 123, the Company's net
loss applicable to common stock and loss per share would have been reduced to
the following pro forma amounts:

<TABLE>
<CAPTION>
Year Ended
December
31, 1998
-----------
<S> <C>
Net Loss Applicable to Common Stockholders
As Reported.................................................. $(7,135,448)
===========
Pro Forma.................................................... $(7,204,634)
===========
Basic Loss per Share
As Reported.................................................. $ (0.55)
===========
Pro Forma.................................................... $ (0.56)
===========
Diluted Loss per Share
As Reported.................................................. $ (0.52)
===========
Pro Forma.................................................... $ (0.52)
===========
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants for the years ended December 31, 1998: risk-free
interest rate of 7%; no expected dividend yield; expected life of 1.5 years for
Class A options, 2.0 years for Class B options, and 2.5 years for Class C
options; and, an expected volatility of 0%.

F-17
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(8) Earnings Per Share

The computations of basic and diluted earnings per share for each period
were as follows:

<TABLE>
<CAPTION>
For the Nine
Inception For the Year Ended Months Ended
(October 8, 1996) December 31, September 30,
Through ------------------------ -------------------------
December 31, 1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Loss (Numerator)
Net loss................ $ (122,952) $(2,985,326) $(6,800,010) $(4,973,693) $(14,096,757)
Preferred stock
dividends.............. -- -- (245,000) (140,000) (511,000)
Accretion of preferred
stock to redemption
value.................. -- -- (90,438) (44,981) (131,037)
Value of preferred stock
beneficial conversion
feature................ -- -- -- -- (9,400,000)
---------- ----------- ----------- ----------- ------------
Basic EPS
Net loss applicable to
common stockholders.... $ (122,952) $(2,985,326) $(7,135,448) $(5,158,674) $(24,138,794)
========== =========== =========== =========== ============
Diluted EPS
Net loss applicable to
common stockholders
after assumed
conversions............ $ (122,952) $(2,985,326) $(7,135,448) $(5,158,674) $(24,138,794)
========== =========== =========== =========== ============
Shares (Denominator)
Basic EPS
Net loss applicable to
common stockholders.... 11,500,000 11,500,000 12,900,000 13,650,000 13,002,895
Effect of Dilutive
Securities
Warrants................ 839,999 839,999 839,999 839,999 839,999
Exercise of Warrants.... -- -- -- -- (404,565)
---------- ----------- ----------- ----------- ------------
Diluted EPS
Net loss applicable to
common stockholders
after assumed
conversions............ 12,389,999 12,389,999 13,739,999 14,489,999 13,438,329
========== =========== =========== =========== ============
Per Share Amount
Basic EPS............... $ (0.01) $ (0.26) $ (0.55) $ (0.38) $ (1.86)
========== =========== =========== =========== ============
Diluted EPS............. $ (0.01) $ (0.24) $ (0.52) $ (0.36) $ (1.80)
========== =========== =========== =========== ============
</TABLE>

Options to purchase 0, 0, and 1,274,775 shares of common stock were
outstanding as of December 31, 1996, 1997, and 1998, respectively, and options
to purchase 982,275 and 4,917,465, respectively, shares of common stock were
outstanding as of September 30, 1998 and 1999, respectively but were not
included in the computation of diluted earnings per share because the Company
incurred a loss in each of the periods presented and the effect would have been
antidilutive.

F-18
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(9) Income Taxes

SFAS No. 109 requires the recognition of deferred tax assets, net of
applicable reserves, related to net operating loss carryforwards and certain
temporary differences. The standard requires recognition of a future tax
benefit to the extent that realization of such benefit is more likely than not.
Otherwise, a valuation allowance is applied. At December 31, 1998, the Company
believes that the "more likely than not" criteria have not been met, and
accordingly, a valuation allowance has been recognized. The Company did not
record any provision (benefit) for income taxes for the year ended December 31,
1998, because it experienced a net loss and generated a net operating loss of
approximately $6,500,000, which expires in 2018. The Company's utilization of
its net operating loss carryforward will be limited pursuant to Internal
Revenue Code Section 382 due to cumulative changes in ownership in excess of
50% within a three-year period. Prior to 1998, Purchase Pro, Inc. was not
subject to Federal or state income taxes.

A reconciliation of income tax benefit provided at the Federal statutory
rate (35%) to income tax benefit is as follows:

<TABLE>
<CAPTION>
Year Ended
December
31, 1998
-----------
<S> <C>
Income tax benefit computed at Federal statutory rate.......... $(2,380,000)
Permanent and other items...................................... 10,600
Change in valuation allowance.................................. 2,369,400
-----------
$ --
===========
</TABLE>

The major tax effected components of the Company's net deferred tax
liability are as follows:

<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Deferred Tax Assets
Net operating loss carryforward.............................. $ 2,278,000
Trade accounts receivable.................................... 70,000
Deferred revenue............................................. 57,700
Accruals and reserves........................................ 36,300
-----------
2,442,000
Less--valuation allowance.................................... (2,369,400)
-----------
Total deferred tax assets.................................. 72,600
Deferred Tax Liabilities
Depreciation and amortization................................ (72,600)
-----------
Total deferred tax liability, net.......................... $ --
===========
</TABLE>

(10) Related Party Transactions

Contract Services

One of the founding stockholders of the Company provided significant
services designing the Company's service. The Company pays the stockholder for
his continued services. Payments totaling $77,200, $105,380 and $72,000 are
included in programming and development expense for the period from inception
(October 8, 1996) through December 31, 1996, and for the years ended December
31, 1997 and 1998, respectively. There were no amounts owed to the stockholder
as of December 31, 1998. In January 1998, concurrent with the

F-19
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

acquisition of assets from Purchase Pro, Inc. (see Note 1), the stockholder and
the Principal Stockholder transferred their rights in the technology to the
Company.

Due from Other Companies

The Company has paid certain costs on behalf of a company owned by the
Principal Stockholder. The Company then bills the other company for amounts
owed. At December 31, 1998, there was $15,400 due to the Company, which is
included in other receivables in the accompanying consolidated balance sheets.
At December 31, 1997, there were no amounts due from the other company.

Office Space Rent

In 1998, the Company entered into an agreement to lease its corporate office
space from a company owned by members of the Company's Board of Directors (see
Note 4). Terms of the lease require monthly base payments of $29,297, which is
adjusted on an annual basis, but in no case is the adjustment greater than 5%.
During the year ended December 31, 1998, the Company did not pay any amounts
under terms of the lease agreement and expense related to the lease totaled
approximately $20,000. In management's opinion, the terms of the lease are
comparable to terms that the Company would receive from a third party.

(11) Subsequent Event (Unaudited)

On November 18, 1999, the Company's Board of Directors authorized a three-
for-two stock split effected in the form of a stock dividend payable December
13, 1999 to stockholders of record on December 1, 1999. All share and per share
amounts in the accompanying consolidated financial statements have been
restated to give effect to the stock split.

F-20
<PAGE>

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