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                                 UNITED STATES
                        SECURITIES & EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

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   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
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                      FOR THE YEAR ENDED DECEMBER 31, 2000

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<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
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        FOR THE TRANSITION PERIOD FROM ______________ TO ______________.

                        COMMISSION FILE NUMBER 000-26465

                             PURCHASEPRO.COM, INC.
             (Exact name of registrant as specified in its charter)

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                     NEVADA                                         88-0385401
        (State or other jurisdiction of                          (I.R.S. Employer
         incorporation or organization)                        Identification No.)
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           3291 NORTH BUFFALO DRIVE, SUITE 2, LAS VEGAS, NEVADA 89129
              (Address of principal executive offices) (Zip Code)

                                 (702) 316-7000
              (Registrant's telephone number, including area code)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR
                                  VALUE $0.01.

    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 or Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/

    The number of outstanding shares of the Registrant's Common Stock, $0.01 par
value, was 69,533,589 as of March 23, 2001.

    The aggregate market value of the voting common stock held by non-affiliates
of the Registrant as of March 23, 2001 was $458 million. For the purposes of
this calculation, shares owned by officers, directors (and their affiliates) and
10% or greater shareholders known to the registrant have been excluded. This
exclusion is not intended, nor shall it be deemed, to be an admission that such
persons are affiliates of the Registrant.

    The information called for by Part III is incorporated by reference to
specified portions of the Registrant's definitive Proxy Statement to be issued
in conjunction with the Registrant's 2001 Annual Meeting of Stockholders which
is expected to be filed not later than 120 days after the Registrant's fiscal
year ended December 31, 2000.

    Certain exhibits filed with the Registrant's prior registration statements
and Forms 10-K and 10-Q are incorporated in Part IV.

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                             PURCHASEPRO.COM, INC.
                                   FORM 10-K
                               DECEMBER 31, 2000
                               TABLE OF CONTENTS

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                                                                       PAGE
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                                   PART I
ITEM

 1.    Business....................................................      3

 2.    Properties..................................................     10

 3.    Legal Proceedings...........................................     11

 4.    Submission of Matters to a Vote of Security Holders.........     11

                                   PART II

 5.    Market for Registrant's Common Equity and Related
       Stockholder Matters.........................................     12

 6.    Selected Consolidated Financial Data........................     13

 7.    Management's Discussion and Analysis of Financial Condition
       and
       Results of Operations.......................................     14

7a.    Quantitative and Qualitative Disclosures about Market
       Risk........................................................     33

 8.    Financial Statements and Supplementary Data.................     34

 9.    Changes in and Disagreements with Accountants on Accounting
       and
       Financial Disclosure........................................     64

                                  PART III

10.    Directors and Executive Officers of the Registrant..........     64

11.    Executive Compensation......................................     64

12.    Security Ownership of Certain Beneficial Owners and
       Management..................................................     64

13.    Certain Relationships and Related Transactions..............     64

                                   PART IV

14.    Exhibits, Financial Statement Schedules and Reports on Form
       8-K.........................................................     64

       Signatures..................................................     67
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                                     PART I

ITEM 1: BUSINESS

    The discussion of our business contained in this annual report on Form 10-K
may contain certain projections, estimates and other forward-looking statements
that involve a number of risks and uncertainties, including those discussed
below in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risks and Uncertainties." While this outlook represents
management's current judgment on the future direction of the business, such
risks and uncertainties could cause actual results to differ materially from any
future performance suggested below. We undertake no obligation to release
publicly the results of any revisions to these forward-looking statements to
reflect events or circumstances arising after the date of this annual report.

PURCHASEPRO.COM, INC.

    PurchasePro.com, Inc. is a leading provider of Internet business-to-business
electronic commerce products and services. Our products and services enable
customers to establish and operate on-line marketplaces utilizing our "powered
by PurchasePro" brand that empower businesses of all sizes to easily buy and
sell products and services, enhancing sales opportunities and reducing
procurement costs. Our marketplace solutions respond to the most common
corporate transactional needs: e-Procurement for corporate procurement,
v-Distributor for online and off-line distributors, and e-MarketMaker for
Internet market makers. At December 31, 2000, our global marketplace was
comprised of hundreds of marketplaces and more than 140,000 businesses in more
than 100 different vertical industries.

    Our marketplace owners are provided with a flexible design process during
the start-up phase of their marketplace, enabling them to set business rules,
determine which features of the marketplace products they want to use, and
determine who will ultimately populate their marketplace. A unique feature of
our product set is that, if the owner desires, every member of their marketplace
is instantly interconnected with the members of every other marketplace. This
instant marketplace-to-marketplace, or M2M, connectivity is a highly desirable
feature among marketplace owners. The feature increases the liquidity of any one
marketplace through the access to businesses in other marketplaces.

    Our suite of products and services provide solutions for both the "buy-side"
and the "sell-side." We have always believed this dual focus is critical to
marketplace success. On the buy-side, buyers must have a simple, easy to use
system that can be implemented with potentially thousands of buyers per
marketplace. This ease-of-use encourages end-user adoption and drives
transactions through the system. On the sell-side, it must be simple and
scalable for suppliers to add content to the system, such as product listings,
catalogs, classified ads and other methods. In addition to simple content,
PurchasePro gives suppliers a variety of means to promote their products and
services widely throughout the PurchasePro interconnected marketplaces. These
include at the lowest level a deep supplier profile and keyword list. At the
highest levels this includes a continued program of advertising and promotion to
make supplier products visible to the most number of potential buyers.

    Using our suite of products and services, companies of all sizes can
streamline their purchasing and sourcing activities. Buyers can source new
suppliers and electronically purchase from catalogs that include contracted
pricing with vendors. Buyers can locate products via a powerful search engine
using keywords, product classifications or company names, and issue requests for
quotes ("RFQs") to multiple suppliers instantly to ensure competitive pricing
and comparison shop suppliers' electronic catalogs. Buyer members save time and
money by eliminating wasted hours on the phone, fax and communications. Finally,
the system records all activity, generating an electronic audit trail of all
purchases that can be accessed through a variety of reports run on demand.

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INDUSTRY OVERVIEW

    GROWTH OF INTERNET USAGE AND E-COMMERCE.  The Internet and related
technologies are changing 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 United States business-to-business
e-commerce market will grow to $2.7 trillion by 2004.

    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 percent of a company's revenues. Cost-effective purchasing is
therefore 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 predominantly 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 procurement processes also result in missed revenue
opportunities and additional costs to suppliers. When buyers are unable to
channel purchases to preferred suppliers, these suppliers lose revenue. Also,
the time-consuming and manual process of sourcing new vendors often causes
buyers to miss potential qualified suppliers. Suppliers also suffer from
inefficient, error-prone and manual order fulfillment processes. Many suppliers
dedicate significant resources to the manual entry of information from faxed or
phoned-in purchase orders and the manual processing of paper checks, invoices
and shipping notices. Suppliers also spend significant resources on customer
acquisition and sales costs, including the production and distribution of paper
catalogs. Without fully automated and integrated electronic commerce
technologies, both buyers and suppliers incur substantial extraneous costs in
conducting commerce.

    TRADITIONAL APPROACHES TO ELECTRONIC COMMERCE.  Electronic data interchange
("EDI") represented the first major phase of improving the purchasing process.
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. While this approach
significantly reduced some processing times, it was very costly, complex and
inflexible. In addition, because EDI systems rely on the execution of predefined
transactions, they generally are not well suited for dynamic procurement
environments involving many buyers and suppliers or a wide variety of goods and
services. For these reasons, EDI systems have faced significant barriers to
adoption and have received low penetration into the tens of millions of small
and medium-sized businesses operating today.

    Several companies offer enterprise software focused on improving the process
of employee purchasing of supplies across a large organization. In addition,
several companies offer software focused on improving the coordination of a
company's supply chain. Typically, both systems involve

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lengthy and expensive implementation processes. The significant expense
associated with licensing and implementing these systems has made them
unsuitable for all but the largest companies and their large trading partners.

THE PURCHASEPRO SOLUTION

    Our business-to-business e-commerce products and services enable businesses
to establish marketplaces for communities of customers, suppliers and other
business partners to buy and sell products and services over the Internet in an
efficient and cost-effective manner. We believe our products and services offer
significant advantages to alternative solutions, enabling our customers and
their business partners to take advantage of the low costs and community
building nature of the Internet and presenting an opportunity to much more
rapidly implement and use our solutions. We offer three types of marketplace
solutions: e-Procurement for corporate procurement, v-Distributor for online
distributors, and e-MarketMaker for Internet market makers.

        E-PROCUREMENT.  Our e-Procurement solution enables organizations to
    connect buyers to their contract suppliers, controlling and automating the
    entire purchasing process. The e-Procurement solution allows customers to
    control and aggregate purchases to take advantage of contracts; establish a
    network of preferred vendors; eliminate "maverick" spending; automate the
    RFQ and ordering processes; and establish and monitor the scalable corporate
    purchasing hierarchy.

        V-DISTRIBUTOR.  Our v-Distributor solution easily and efficiently links
    distributors with a large number of their buyers. Our private label
    v-Distributor solution allows those companies that serve primarily as a
    distributor to invite their preferred buyers into the private marketplace.
    By proxy, the buyer is able to place orders directly with the manufacturer
    while the distributor appears to be the sole provider of all the products
    offered in the marketplace. The distributor, who is the sole point of
    contact for the buyer, captures the transaction markup, while maintaining
    and negotiating all pricing and products in the marketplace. Distributors
    can increase sales, improve customer service and reduce their inventory
    costs. In addition, by offering the buy-side capabilities to customers, the
    v-Distributor provides a value-added service that facilitates easier online
    ordering.

        E-MARKETMAKER.  Our e-MarketMaker solution enables marketplace owners to
    brand their own community for buyers and suppliers, allowing all members to
    buy from and sell to each other in a real-time, virtual marketplace. The
    nature of the e-MarketMaker solution allows buyer members to link directly
    to other members to take advantage of better pricing, simplified product
    sourcing, streamlined processes and expanded product offerings. Members who
    sell through the marketplace further benefit from reduced collateral
    production costs and increased exposure to potential buyers.

    With membership in a marketplace powered by PurchasePro, companies of all
sizes can participate in an interactive procurement network community of
businesses seeking to expand sales and lower costs, allowing members to quickly
realize the benefits of increased efficiency, faster turnaround and more timely
information. Our user-friendly, browser-based solutions are easily scalable and
provide businesses the following benefits:

        LOWER OPERATING COSTS.  By eliminating many costly and time-consuming
    functions of traditional, paper-based buying and selling, our products and
    services allow companies to reduce operating costs and shorten cycle times
    in the purchasing and selling processes. Marketplace members 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, we provide a rapidly deployable outsourced solution
    that does not require companies to install expensive enterprise purchasing
    software systems or hire costly information technology specialists.

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        LOWER PRICES.  Members may realize reductions in the cost of the goods
    and services they purchase. Our solutions support competitive bidding in
    response to bid requests from buyers. By automating the sourcing process,
    companies may 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.

        IMPROVED MANAGEMENT AND CONTROL.  We allow marketplace members to
    proactively manage procurement through user-defined approval procedures.
    Procurement managers, for example, can predetermine the level of access and
    purchasing authority for each staff member. Utilizing the workflow features
    of our marketplaces, managers can quickly view, analyze and manage employee
    activities, providing improved control and more informed purchasing
    decisions. In addition, marketplace members may access automatically
    generated 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.  Marketplace members are provided 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 marketplace members are
    able to access new customers and suppliers. With our global marketplace,
    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 PRODUCTS AND SERVICES

    PRODUCTS AND SERVICES FOR MARKETPLACE OWNERS.  Our marketplace solutions are
comprised of our proprietary marketplace software product supported by a
platform with database software and other software components. We offer hosting,
maintenance, project management, training and other professional services along
with its marketplace software product. Customers may acquire our software
products alone and operate their own private labeled marketplace, or in
conjunction with one or more of the complementary services we offer, which
together with our software, provides our customers with a complete marketplace
solution.

    MEMBERSHIP SERVICES.  In addition to the products and services offered to
private labeled marketplace owners, through both our global marketplace and
through the private labeled marketplaces we power, we offer members the ability
to streamline their procurement--from sourcing to bidding to order to payment.
Members on our marketplaces may 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.

    Unlike other solutions within our industry, our marketplace solutions enable
each member to be a buyer, supplier or both. The following are key features of
our solutions:

    - ON-LINE CATALOG CREATION. Sell-side members have access to a full array of
      self-service and full-service catalog creation tools. Members can use
      these tools to create, maintain or update their presence on a customer's
      marketplace or our global marketplace. Catalogs are the primary method of
      listing products on a marketplace. Sellers also have the option of listing
      themselves generically in a product, services or supplier directory.

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    - SOURCING. Buy-side members have access to a large database of
      electronically enabled suppliers. Buyers can use this database to search
      for new suppliers or buy goods from existing suppliers. The on-line
      database automates the process of sourcing new products or services.

    - REQUEST FOR QUOTES/INFORMATION. As part of the sourcing process, many
      buyers send out requests for quotes or requests for information to
      suppliers who are candidates to supply goods or services to them. This
      tool enables buyers to request information and analyze supplier responses
      in terms of price, delivery terms, availability and other parameters set
      by the buyer.

    - WORKFLOW MANAGEMENT. A key element of our purchasing solution is the
      management of procurement operations across a buyer's enterprise. Workflow
      management enables a buyer's management to set the parameters for
      purchasing expenditure at all levels of the organization. This management
      feature allows for the aggregation of corporate spending and tight
      management of company expenses.

    - ONLINE ORDERING (PURCHASE ORDERS). The final step of the on-line
      purchasing process is the actual completion of the order from buyer to
      supplier through an on-line purchase order. The purchase order serves as
      the buyer's record of what was purchased and the input document for the
      supplier's order management system. For many small suppliers, our
      solutions can be used as their order management system.

    - ANALYTICS/REPORTING. The analysis and reporting of activity is a critical
      element for many businesses. Our solutions can be the source for records
      of on-line buying and selling activities, providing insight on what was
      bought, at what price and from whom, a critical element in business
      management.

    CUSTOMER SUPPORT.  We provide in-house 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 focused on
proactively contacting marketplace members and driving usage and adoption of the
system.

    BANNER ADVERTISING.  We offer banner advertisements on our marketplaces 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.

    CLASSIFIEDS.  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.

    PREFERRED SUPPLIER SLOTTING.  Suppliers also have the opportunity to enhance
their presence on the system through a series of Preferred Supplier offerings.
These can be as specific as for a single marketplace, or can apply globally to
all marketplaces we power and our global marketplace.

STRATEGIC RELATIONSHIPS

    We have entered into strategic relationships in five key industries:
hardware, software, Internet service provider, telecommunications and office
supplies. We have positioned our company with leaders in industries which we
believe will be the first and fastest to adopt Internet-based e-commerce
solutions. Our strategy is to leverage the customer bases and vendor
relationships of our strategic partners for both software sales and increased
membership on marketplaces we power.

    We have granted certain of our strategic partners warrants to purchase our
common stock. Although the structure of these warrants vary, they generally
require the performance by our strategic partner of services on our behalf in
order to earn vesting on all or a portion of the shares which may

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be purchased under the warrant. For example, our warrant agreement with America
Online allows AOL to earn vesting on shares of our common stock through the
generation of revenue on our behalf through referrals of marketplace license
sales and advertising, and also through recurring revenue we generate through
the Netscape Netbusiness Marketplace. Other warrants we have issued to our
strategic partners require our partners to provide services such as training for
mass users of marketplaces we power, marketing materials aimed at potential
marketplace users and sales incentives for partners.

    During the year ended December 31, 1999, no customer accounted for more than
10 percent of net revenues. During the year ended December 31, 2000, AOL and
Office Depot, Inc., each accounted for 18 percent of our net revenues.

SALES AND MARKETING

    SALES STRATEGY.  We sell through direct and indirect channels. Our
direct-sales group targets potential marketplace owners. As of December 31,
2000, we had 236 people in our sales and marketing group. Sales offices in the
United States currently include Las Vegas, Nevada; Chicago, Illinois; Detroit,
Michigan; Alpharetta, Georgia; Dallas, Texas and St. Paul, Minnesota. We also
have sales representatives located in Washington, D.C.; Orlando, Florida;
Atlantic City, New Jersey; and New York, New York.

    CHANNEL PARTNER PROGRAM.  Our indirect sales program allows channel partners
to introduce their valued business partners to a new way of increasing sales and
decreasing the cost of purchasing products through e-commerce. We offer both a
reseller program and a referral program to allow channel partners to leverage
their existing customers and product/service offerings to provide a complete
end-to-end e-commerce solution.

    MARKETING STRATEGY.  Our marketing strategy focuses on driving awareness of
our solutions to increase the sales of marketplaces and increase the speed of
member adoption and use. We intend to continue to market ourselves through
traditional and on-line business media and trade publications. Co-branded
relationships 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.

TECHNOLOGY AND OPERATIONS

    The computer equipment located at our headquarters in Las Vegas, Nevada host
our enabling platform, comprised of database schemas and code, search engine
code, middle-tier objects, support libraries, user interface code, and
integration programs. Customers of our marketplace software product may elect to
host with us on this enabling platform. Members access their respective
marketplace using a standard Web browser. We have designed our technology and
operations with the following key characteristics, many of which are based on
our ability to offer a centralized architecture for licensees of our software:

        RELIABILITY. We currently maintain four DS3 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, protect our network and data stored in our database. Our 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 our platform and the software applications
    that we host.

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    Servers add, update and retrieve data through procedures designed to prevent
    improper access to data. All of our 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. We maintain a disaster recovery site in
    the Eastern United States to achieve geographic diversity and further
    protect our data.

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 market for our solution is intensely competitive, evolving and subject
to rapid technological change. The intensity of competition has increased and is
expected to further increase in the future. This increased competition is likely
to result in price reductions, reduced gross margins and loss of market share,
any one of which could seriously harm our business. Competitors vary in size and
in the scope and breadth of the products and services offered. We have also
increasingly encountered competition with respect to different aspects of our
solution from a variety of vendors including Ariba, Commerce One and Oracle. We
also encounter competition in the procurement software arena from several major
enterprise software manufacturers. In addition, because there are relatively low
barriers to entry in our market, we expect additional competition from other
established and emerging companies, as our market continues to develop and
expand.

    We believe that the principal competitive factors affecting our market
include product quality and performance, speed of implementation, supplier
adoption expertise, critical mass of buyers and suppliers, breadth and depth of
solution, a significant base of reference customers, core technology, ability to
implement solutions and value of solution. Although we believe that our
solutions currently compete favorably with respect to these factors, our market
is relatively new and is evolving rapidly. We may not be able to maintain our
competitive position against current and potential competitors, especially those
with significantly greater financial, marketing, service, support, technical and
other resources.

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:

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    - 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. Laws and regulations directly applicable to e-commerce
or Internet communications are becoming more prevalent. As Internet commerce
evolves, we expect that federal, state or foreign agencies will adopt
regulations covering issues such as user privacy, pricing, content and quality
of products and services. One or more states may seek to impose sales tax
collection obligations on out-of-state companies that engage in or facilitate
electronic commerce. A number of proposals have been made at the state and local
level that would impose additional taxes on the sale of goods and services over
the Internet.

    Legislation limiting the ability of the states to impose taxes on
Internet-based transactions has been proposed in the U.S. Congress. This
legislation could ultimately be enacted into law or this legislation could
contain a limited time period in which this tax moratorium will apply. In the
event that the tax moratorium is imposed for a limited time period, legislation
could be renewed at the end of this period.

    In addition, various jurisdictions already have enacted laws that are not
specifically directed to e-commerce but that could affect our business.

EMPLOYEES

    As of December 31, 2000, we had 542 full-time equivalent employees. Of
these, 105 were in programming and technical support, 236 in sales and
marketing, 110 in customer support and operations and 91 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.

ITEM 2: PROPERTIES

    Our principal executive, sales, marketing, research, development, training,
and administrative offices occupy approximately 66,000 square feet in five
buildings located at our corporate headquarters at the Buffalo campus in
northwest Las Vegas. Our leases for these buildings will expire at various dates
between 2008 and 2010. We have committed to lease an additional 74,900 square
foot corporate center for the executive and marketing offices and a 30,000
square foot technical center at the corporate headquarters. The lease for these
two buildings is for a period of ten years commencing upon their completions
projected for April 2001 and August 2001, respectively.

    Regional sales and support offices are located in Alpharetta, GA; Chicago,
IL; Dallas, TX; Detroit, MI; and St. Paul, MN. These locations are under leases
scheduled to terminate at varying dates between 2001 and 2005. Previously, we
had sales offices in Phoenix, AZ and San Rafael, CA that are now closed. We are
currently subleasing this space to other businesses.

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<PAGE>
ITEM 3: LEGAL PROCEEDINGS

    We are involved in various routine legal proceedings incidental to our
normal course of business. We do not believe that any of these legal proceedings
will have a material adverse effect on our financial condition, results of
operations or cash flows.

    In February, 2001, All Creative Technologies, Inc. filed a lawsuit in the
Eighth Judical District Court, Clark County, Nevada, Case No. A43337, against
us, Charles E. Johnson, Jr., our Chairman and CEO, and Ranel Erickson, our
former VP of Research and Development. The complaint alleges violations of the
Nevada Racketeering, Influence and Corruption Act (RICO) and misappropriation of
trade secrets by Mr. Johnson and Mr. Erickson, unlawful acquisition of trade
secrets by us, and breach of contract by Mr. Johnson. The complaint seeks
compensatory damages in excess of $10,000 for each of the four causes of action,
treble damages with respect to the civil RICO claim, and exemplary damages with
respect to the unlawful acquisition of trade secrets, as well as costs and
attorney fees. The exact monetary amount being sought is unknown at this time.
We believe there is no merit to the suit and intend to vigorously defend this
action.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None

                                       11
<PAGE>
                                    PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Our common stock is traded on the Nasdaq National Market under the symbol
"PPRO." The price range per share reflected in the table below, is the highest
and lowest sale price for our stock as reported by the Nasdaq National Market
during each quarter the stock has been publicly traded.

<TABLE>
<CAPTION>
                                                                FOR THE THREE MONTHS ENDED
                                                    ---------------------------------------------------
                                                    MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                                    ---------   --------   -------------   ------------
<S>                                                 <C>         <C>        <C>             <C>
1999
  High............................................       --          --       $15.92          $87.50
  Low.............................................       --          --       $ 7.33          $ 9.17
2000
  High............................................   $82.00      $37.69       $47.75          $47.44
  Low.............................................   $34.00      $ 9.19       $16.50          $11.00
</TABLE>

    The above information has been restated to reflect a two-for-one stock
split, effected in the form of a stock dividend to each stockholder, which
occurred on October 12, 2000.

    Our present policy is to retain earnings, if any, to finance future growth.
We have never paid cash dividends and have no present intention to pay cash
dividends. At March 23, 2001, there were approximately 346 stockholders of
record and the price per share of our common stock was $6.59.

    In March 2000, we issued to AOL warrants to purchase up to 4,000,000 shares
of our common stock at an exercise price of $63.26 (adjusted after one year, as
to any unvested warrants, to the then-current market price of our common stock).
The warrants are exercisable from the time they vest until March 2003 as
follows: (i) 1,000,000 warrants vest immediately; and (ii) 3,000,000 warrants
vest as revenue is earned by us under the terms of the agreement. Vesting begins
when annualized revenue reaches $25 million for the quarter and vests one share
per $80 of revenue received by us.

    In November 2000, we entered into an amended and restated AOL warrant
agreement, amending the March 2000 warrant agreement. For the 3,000,000
performance-based warrants that had not been earned as of the date of the
amendment, the strike price was adjusted to $0.01 per share. In exchange for the
reduced strike price, the defined revenue for which AOL can vest the
performance-based warrants was expanded to include software licenses recognized
by us that resulted from referrals from AOL. The formula for vesting warrants on
referral revenue is that for each $1 of revenue generated from the referrals
during a fiscal quarter, AOL is able to earn a number of warrants calculated as
three times the revenue recognized divided by the estimated fair value, as
defined. The agreement limits the total recognized revenue allowed in the
calculation to $10.0 million in the quarter ended December 31, 2000,
$15.0 million in the quarter ending March 31, 2001 and $20.0 million in the
quarter ending June 30, 2001. For the quarter ended December 31, 2000, AOL
earned approximately $1.8 million warrants under the amended agreement, and in
January 2001, AOL exercised the warrant with respect to such shares.

    In September 2000, as consideration for training and marketing services to
be rendered by Gateway Companies, Inc., we issued three separate warrants to
purchase an aggregate of 3,000,000 shares of our common stock at an exercise
price of $29.75 per share. Of the warrants issued to Gateway, 1,000,000 vested
and were exercisable immediately and another 1,000,000 vested and became
exercisable on October 31, 2000. The remaining 1,000,000 warrants may vest and
become exercisable over a period of eighteen months, with one share vesting for
each $40 in revenue generated from transaction fees charged for transactions
executed over marketplaces Gateway purchased from us during the third quarter.
The value of these warrants, using the Black Scholes model, totaled
$38.2 million and was recorded in intangibles.

                                       12
<PAGE>
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to the
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which are included elsewhere in
this report. The consolidated statement of operations data presented for each of
the five years in the period ended December 31, 2000 are derived from our
audited statements of operations. Activity for the period from October 8, 1996
(inception) to December 31, 1996, consisted of sales and marketing activities,
and general and administrative expenditures that were paid for from owner
contributions. The consolidated balance sheet data at December 31, 1998, 1999
and 2000, are derived from our audited consolidated balance sheets.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                    ----------------------------------------------------
                                                      1996       1997       1998       1999       2000
                                                    --------   --------   --------   --------   --------
                                                          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                 <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  Software licenses...............................  $    --    $    --    $    --    $     --   $ 34,860
  Network access and service fees.................       --        513      1,308       4,092     23,546
  Advertising.....................................       --         --         --       1,142      3,219
  Other...........................................       --        162        362         783      3,366
                                                    -------    -------    -------    --------   --------
    Total revenues................................       --        675      1,670       6,017     64,991
Cost of revenues..................................       --        214        445         836      4,487
                                                    -------    -------    -------    --------   --------
Gross profit......................................       --        461      1,225       5,181     60,504
Operating expenses:
  Sales and marketing.............................       22      1,179      3,841      60,142     75,986
  Programming and development.....................       87        802        971       2,366      8,850
  General and administrative......................       10      1,345      2,896       9,026     26,416
  Amortization of stock-based compensation........       --         --         --       5,778     17,114
  Impairment of assets............................       --         --         --          --     12,112
                                                    -------    -------    -------    --------   --------
    Total operating expenses......................      119      3,326      7,708      77,312    140,478
                                                    -------    -------    -------    --------   --------
Operating loss....................................     (119)    (2,865)    (6,483)    (72,131)   (79,974)
Other income (expense):
  Interest income (expense), net..................       (4)      (120)      (317)        469      4,507
  Other...........................................       --         --         --        (279)     2,656
                                                    -------    -------    -------    --------   --------
    Total other income (expense)..................       (4)      (120)      (317)        190      7,163
                                                    -------    -------    -------    --------   --------
Net loss before benefit for income taxes..........     (123)    (2,985)    (6,800)    (71,941)   (72,811)
Benefit for income taxes..........................       --         --         --          --         --
                                                    -------    -------    -------    --------   --------
Net loss..........................................     (123)    (2,985)    (6,800)    (71,941)   (72,811)
Preferred stock dividends.........................       --         --       (245)       (511)        --
Accretion of preferred stock to redemption
  value...........................................       --         --        (90)       (131)        --
Value of preferred stock beneficial conversion
  feature.........................................       --         --         --      (9,400)        --
                                                    -------    -------    -------    --------   --------
Net loss applicable to common stockholders........  $  (123)   $(2,985)   $(7,135)   $(81,983)  $(72,811)
                                                    =======    =======    =======    ========   ========
Loss per share:
  Basic...........................................  $ (0.01)   $ (0.13)   $ (0.28)   $  (2.44)  $  (1.15)
                                                    =======    =======    =======    ========   ========
  Diluted.........................................  $ (0.01)   $ (0.12)   $ (0.26)   $  (2.39)  $  (1.15)
                                                    =======    =======    =======    ========   ========
Weighted average shares outstanding:
  Basic...........................................   23,100     23,100     25,800      33,598     63,399
                                                    =======    =======    =======    ========   ========
  Diluted.........................................   24,780     24,780     27,480      34,273     63,399
                                                    =======    =======    =======    ========   ========
</TABLE>

                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                      ----------------------------------------------------
                                                        1996       1997       1998       1999       2000
                                                      --------   --------   --------   --------   --------
                                                                         (IN THOUSANDS)
<S>                                                   <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents...........................    $  1      $    8     $1,690    $30,356    $86,335
Working capital (deficit)...........................     (49)     (1,907)       907     28,439     70,789
Total assets........................................      70         609      2,745     66,477    320,222
Notes payable.......................................     133       2,567      1,545         25         --
Long-term liabilities, net of current portion.......      --          --         --         --     10,348
Redeemable convertible preferred stock..............      --          --      6,339         --         --
Total stockholders' equity (deficit)................    (113)     (2,709)    (5,881)    61,854    260,920
</TABLE>

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

    This annual report may contain predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties,
including those discussed at "Quantitative and Qualitative Disclosures About
Market Risk" below. This outlook represents our current judgment on the future
direction of our business. Such risks and uncertainties could cause actual
results to differ materially from any future performance suggested. We undertake
no obligation to release publicly the results of any revisions to these
forward-looking statements to reflect events or circumstances arising after the
date of this annual report.

    OVERVIEW

    We are a provider of business-to-business electronic commerce products and
services. We license our software products to businesses that own and operate
their own on-line marketplaces for conducting electronic commerce. We also
operate an on-line global marketplace that provides 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. We also develop and host private
labeled on-line marketplaces using our products and services that can connect to
our public global marketplace. There are approximately 140,000 businesses with
the capability to access and use marketplaces we power and our global
marketplace.

    Our predecessor company was incorporated in October 1996 and 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, Inc., dba
ProPurchasing Systems ("PPS"). Our initial service, PurchasePro version 1.0,
enabled our members to transact e-commerce in our global marketplace. Our next
release provided this capability over the Internet. In September 1998, we
released PurchasePro 3.0, our marketplace enabling software. In February 1999,
we released PurchasePro 4.0, which allows members the additional capability of
building private labeled marketplaces. In December 1999, the Company released
PurchasePro 5.0, a browser-based version that allows members to access the
global marketplace and private labeled marketplaces with a user identification
and password over the Internet. In May 2000, we launched our suite of on-line
marketplace software solutions.

    From inception through early 1999, substantially all of our revenues were
derived from monthly membership subscription fees for access to our global
marketplace and from application service fees for private-labeled marketplaces.
In early 1999, with the release of version 4.0, we began contracting with
business customers to set up private labeled marketplaces tailored to the needs
of our customers. We began charging these customers an application service
provider fee for a fully operational marketplace solution hosted and maintained
by us during the period of service. In general, we recognize revenues as an
application service provider over the period of service.

                                       14
<PAGE>
    In September 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
generate additional transaction fees in the future.

    In May 2000, we launched a suite of marketplace solutions designed for three
large classes of businesses and began licensing our software. In
September 2000, we began selling software licenses for these private labeled
marketplace solutions through value added resellers. We have adopted the method
of deferring revenue recognition until the time the reseller delivers the
software to the end user. After delivery to the reseller, we cannot be assured
of when the resellers will actually deliver the software.

    For our software license revenue, we apply the provisions of American
Institute of Certified Public Accountants' Statement of Position ("SOP") 97-2,
SOFTWARE REVENUE RECOGNITION, and SOP 98-9, MODIFICATION OF SOP 97-2, SOFTWARE
REVENUE RECOGNITION WITH RESPECT TO CERTAIN TRANSACTIONS, which amends SOP 97-2.
SOP 97-2 and 98-9, as amended, generally require revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair values of the elements. The fair value of an element must
be based on the evidence that is specific to the vendor. License revenue
allocated to software products generally is recognized upon delivery of the
products or deferred and recognized in future periods to the extent that an
arrangement includes one or more elements that are to be delivered at a future
date and for which fair values have not been established. Revenue allocated to
maintenance is recognized ratably over the maintenance term. Revenue allocated
to training and other service elements is recognized as the services are
performed. If evidence of fair value does not exist for all elements of a
license agreement and professional consulting services are the only undelivered
element, then all revenue for the license arrangement is recognized ratably over
the term of the agreement as license revenue. If evidence of fair value of all
undelivered elements exists but evidence does not exist for one or more
delivered elements, then revenue is recognized using the residual method. Under
the residual method, the fair value of the undelivered elements is deferred and
the remaining portion of the arrangement fee is recognized as revenue. For
software licenses sold to resellers, we defer revenue recognition until the time
the reseller delivers the software to the end user. Under our standard reseller
program, we have no obligation of future performance under licenses sold to
resellers. If we provide other services that are considered essential to the
functionality of the software products, both the software product revenue and
service revenue are recognized at the time the services are completed. Such
contracts typically consist of professional services and are generally completed
within 45 days of the software sale. For software licensees who contract with us
to host their marketplaces, we recognize hosting revenue over the period the
hosting services are provided. Hosting contracts generally are terminable on
30-day notice and do not impact the license and maintenance agreement.

    We have issued warrants to several of our strategic marketing partners. In
1999, we issued 1,050,000 warrants to a strategic marketing partner in exchange
for a license to business-to-business editorial content valued at approximately
$10.7 million. The editorial content was amortized to operating expense until
the fourth quarter of 2000, at which time we concluded that changes in estimated
future cash flows from the editorial content asset were less than the carrying
value, and we recognized an impairment loss of approximately $9.8 million. In
1999, we issued 2,700,000 warrants to a strategic partner valued at
$50.1 million, which was charged to sales and marketing expense at the date of
issuance. In 2000, we issued 4,000,000 warrants to a strategic marketing
partner, of which 1,000,000 warrants that vested immediately were valued at
$25.8 million and were recorded as an intangible asset. The remaining 3,000,000
warrants can be earned based on the strategic marketing partner's performance
under the warrant agreement. The portion of the warrant agreement that related
to the performance-based warrants was amended in late-2000 to reduce the strike
price to $0.01 per share in exchange for additional revenues streams marketed by
this partner. We recognize sales and marketing expense during periods that the
warrants are earned. During the year ended December 31, 2000, we recognized
$30.0 million of sales and marketing expense related to approximately
1.8 million warrants

                                       15
<PAGE>
earned under the agreement. In 2000, we issued 3,000,000 warrants to another
strategic marketing partner in exchange for certain marketing services valued at
approximately $38.2 million. We amortize the value of these services to sales
and marketing expense during the periods that the services are provided.

    Although revenues have consistently increased from quarter to quarter, we
have incurred significant costs to develop our technology, products and
services; to recruit and train personnel for our technology, sales, marketing,
professional services and administration departments; for the amortization of
our intangible assets and for our strategic marketing warrants. As a result, we
have incurred significant losses since inception, and as of December 31, 2000,
had an accumulated deficit of $151.6 million. We believe our success is
contingent on increasing our customer base and developing our products and
services. We intend to continue to invest heavily in sales, marketing, and, to a
lesser extent, support infrastructure. We also will have significant expenses
going forward related to the amortization of our intangible assets, and we may
continue to have substantial non-cash expenses related to the issuance of
warrants to purchase our common stock. These warrant-related expenses will not
be recognized until the warrants are earned and will fluctuate depending on the
market value of our common stock. See Note 7 of the Notes to Consolidated
Financial Statements for more detailed information.

    We had 592 employees as of March 23, 2000 and intend to hire a significant
number of employees in the future. This expansion places significant demands on
our management and operational resources. To manage this rapid growth and
increased demand, we must invest in and implement scalable operational systems,
procedures and controls. We must also be able to recruit qualified candidates to
manage our expanding operations. We expect future expansion to continue to
challenge our ability to hire, train, manage and retain our employees.

    In connection with the granting of stock options to our employees we
recorded deferred stock-based compensation totaling approximately $27.3 million
from inception through December 31, 2000. This amount represents the difference
between the exercise price and the deemed fair value of our common stock for
accounting purposes on the date these stock options were granted. This amount is
included as a component of stockholders' equity and is being amortized by
charges to operations over the vesting period of the options, consistent with
the method described in Financial Accounting Standards Board Interpretation
No. 44. During fiscal 2000 and 1999, we recorded $17.1 million and
$5.8 million, respectively, of related stock-based compensation amortization
expense. As of December 31, 2000, we had an aggregate of $4.4 million of related
deferred compensation remaining to be amortized. The amortization of the
remaining deferred stock-based compensation will result in additional charges to
operations through fiscal 2003. The amortization of stock-based compensation is
presented as a separate component of operating expenses in our consolidated
statements of operations.

                                       16
<PAGE>
    RESULTS OF OPERATIONS

    The following table sets forth certain statements of operations data as a
percentage of revenues for the periods indicated. The data has been derived from
the consolidated financial statements contained in this Form 10-K.

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                              ------------------------------------
                                                                1998          1999          2000
                                                              --------      --------      --------
<S>                                                           <C>           <C>           <C>
Revenues
  Software licenses.........................................       --%            --%        53.6%
  Network access and service fees...........................     78.3           68.0         36.2
  Advertising...............................................       --           19.0          5.0
  Other.....................................................     21.7           13.0          5.2
                                                               ------       --------       ------
                                                                100.0          100.0        100.0
Cost of revenues............................................     26.6           13.9          6.9
                                                               ------       --------       ------
Gross profit................................................     73.4           86.1         93.1
Operating expenses
  Sales and marketing.......................................    230.0          999.6        116.9
  Programming and development...............................     58.2           39.3         13.6
  General and administrative................................    173.4          150.0         40.7
  Amortization of stock-based compensation..................       --           96.0         26.3
  Impairment of assets......................................       --             --         18.6
                                                               ------       --------       ------
    Total operating expenses................................    461.6        1,284.9        216.1
                                                               ------       --------       ------
Operating loss..............................................   (388.2)      (1,198.8)      (123.0)
Other income (expense)......................................    (19.0)           3.2         11.0
                                                               ------       --------       ------
Net loss....................................................   (407.2)      (1,195.6)      (112.0)
Preferred stock dividends, accretion of preferred stock to
  redemption value and value of preferred stock beneficial
  conversion feature........................................    (20.0)        (166.9)          --
                                                               ------       --------       ------
Net loss applicable to common stockholders..................   (427.2)%     (1,362.5)%     (112.0)%
                                                               ======       ========       ======
</TABLE>

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 2000

    REVENUES.  Our revenues are grouped into four categories. Software licenses
are for marketplace licenses sold by us. Network access and service fees include
subscription fees and transaction fees charged to individual subscribers for
access to our global marketplace and application service fees for labeled
marketplaces we power for our customers, maintenance fees for on-going software
license maintenance, hosting fees for those customers who have licensed our
software products and have contracted our hosting capabilities, services for
setting up marketplaces, and our share of subscription fees. Advertising fees
include fees for advertising on our global marketplace. Other revenues include
fees generated by our purchasing aggregator subsidiary, PPS, and other ancillary
services.

    Our net revenues increased from $6.0 million for the year ended
December 31, 1999, to $65.0 million for the year ended December 31, 2000.
Substantially all of this increase resulted from growth in our software license
and network access and service fees. Software license revenue increased from $0
to $34.9 million for the year ended December 31, 1999 and December 31, 2000,
respectively. Our network access and service fee revenue increased from
$4.1 million for the year ended December 31, 1999, to $23.5 million for the year
ended December 31, 2000. Of the increase, $11 million relates to a sales
agreement with Office Depot, Inc., whereby Office Depot paid the network access
fees for 100,000 subscribers for a one-year period through January 2001. Also
contributing to the increase is $4.9 million paid by AOL for 100,000
subscribers. AOL paid these

                                       17
<PAGE>
subscription fees on behalf of 100,000 of its subscribers as a one-month
promotional subscription offer for the month of December 2000. In addition, we
depend on AOL for a substantial portion of our revenues. During the year ended
December 31, 2000 AOL referred $10.5 million of revenue to us and resold
$2.0 million of software licenses. We anticipate that future revenues from our
AOL relationship will constitute a substantial portion of our revenues for the
foreseeable future. Advertising revenues increased from $1.1 million to
$3.2 million for the years ended December 31, 1999 and 2000, respectively. Other
revenues, which include transaction fees and participation fees of our
purchasing aggregator subsidiary, PPS, and other ancillary services, increased
from $783,000 for the year ended December 31, 1999, to $3.4 million for the year
ended December 31, 2000, of which $2.3 million related to a one-time contract to
build network access web sites for one customer. During the year ended
December 31, 1999, no customers accounted for more than 10 percent of net
revenues. During the year ended December 31, 2000, two customers each accounted
for 18 percent of net revenues.

    During the year ended December 31, 2000, we acquired certain software
technology from third-parties to which we also sold our own software products.
The acquired technology is used by us in a hosted environment and will only be
available to customers who pay for such services. The acquired technology is not
part of the software products sold by us. In accordance with the provisions of
Accounting Principles Board Opinion No. 29, ACCOUNTING FOR NONMONETARY
TRANSACTIONS, and EITF No. 00-3, APPLICATION OF AICPA STATEMENT OF POSITION 97-2
TO ARRANGEMENTS THAT INCLUDE THE RIGHT TO USE SOFTWARE STORED ON ANOTHER
ENTITY'S HARDWARE, we determined the acquired technology was to be used as
internal use software, and therefore recorded the acquired assets at their fair
value of approximately $14.2 million as computer equipment and software. We also
recognized revenue from the sale of our software at fair value based on our own
vendor specific objective evidence. Total revenue for the year ended
December 31, 2000 from these software sales totaled approximately $6.8 million,
and no individual transaction was in excess of 10 percent of total revenues.

    COST OF REVENUES.  Our cost of revenues consists primarily of costs for
operating the public and private marketplace network and costs to develop
private marketplaces, including fees for independent contractors and
compensation for our personnel. Our cost of revenues increased from $836,000 for
the year ended December 31, 1999, to $4.5 million for the year ended
December 31, 2000. The increase was primarily the result of the increase in
personnel in our customer service and project development departments. Expenses
related to personnel costs increased from $699,000 for the year ended
December 31, 1999, to $3.1 million for the year ended December 31, 2000. Other
items also contributing to the increase between years were software/hardware
maintenance. We expect that our cost of revenues will increase in absolute
dollars, but will remain relatively constant as a percentage of revenues in
future periods.

    SALES AND MARKETING EXPENSES.  Our sales and marketing expenses are
comprised of primarily strategic non-cash marketing costs, compensation for our
sales and marketing personnel, travel and related costs, and costs associated
with our marketing activities such as advertising and other promotional
activities. During the year ended December 31, 1999, we recognized non-cash
charges of $50.9 million related to the issuance of stock options and warrants
issued to strategic marketing partners. During the year ended December 31, 2000,
we recognized non-cash charges of $2.7 million and $30.0 million related to the
issuance of common stock and warrants, respectively. We issued common stock to
re-acquire certain geographic marketing rights that, in 1999, we had sold to a
then-member of our board of directors. The warrants were issued in connection
with revenue generated by one of our strategic marketing partners. Sales and
marketing expenses for the year ended December 31, 2000, also included $895,000
for amortization of editorial content, until the asset was determined to be
impaired in the fourth quarter of 2000. Exclusive of the non-cash charges, sales
and marketing expenses increased from $9.2 million for the year ended
December 31, 1999, to $42.3 million for the year ended December 31, 2000. This
increase is primarily attributable to an increase in our marketing, promotional
and branding efforts. Expenses related to our sales and marketing personnel

                                       18
<PAGE>
increased from $5.9 million for the year ended December 31, 1999 to
$19.3 million for the year ended December 31, 2000. Expenses associated with our
marketing activities increased from $2.0 million for the year ended
December 31, 1999, to $19.1 million for the year ended December 31, 2000. Travel
and related costs increased from $1.1 million for the year ended December 31,
1999, to $1.8 million for the year ended December 31, 2000. We expect that our
sales and marketing expenses will continue to increase, both in absolute dollars
and as a percentage of net revenues, a result of charges under strategic
marketing partner agreements (See Note 7 of the Notes to Consolidated Financial
Statements) and other increased marketing efforts.

    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 $2.4 million for the year ended December 31, 1999, to
$8.9 million for the year ended December 31, 2000. The increase is primarily
attributable to an increase in our programming staff. Expenses related to
programming and development personnel increased from $2.0 million for the year
ended December 31, 1999, to $5.8 million for the year ended December 31, 2000. A
portion of the personnel costs was capitalized and will be amortized over the
life of the software asset. Amortization of software assets totaled $521,000 for
2000. Contract labor and consulting costs increased from $53,000 to
$1.1 million during the year ended December 31, 1999 and 2000, respectively. We
expect that our programming and development expenses will increase in absolute
dollars as we anticipate continuing to develop and enhance our network
capabilities, but remain relatively constant as a percentage of net revenues.

    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 and communications costs. Our
general and administrative expenses increased from $9.0 million for the year
ended December 31, 1999, to $26.4 million for the year ended December 31, 2000.
The increase is primarily attributable to the increased size of our executive
and administrative staff and operating facilities, and increased depreciation.
Expenses related to our general and administrative staff increased from $2.9 for
the year ended December 31, 1999, to $5.9 million for the year ended
December 31, 2000. Professional fees and outside services incurred increased
from $1.5 million to $3.7 million between years. Facilities costs increased from
$1.6 million for the year ended December 31, 1999, to $4.2 million for the year
ended December 31, 2000, as the result of the expansion of our corporate
location. 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 $1.1 million for the year ended
December 31, 1999, as compared to $3.4 million for the year ended December 31,
2000. The increase corresponds primarily to the increase in our revenues.
Depreciation and amortization also increased over the same periods from $895,000
to $7.0 million, respectively. This increase is mainly related to the addition
of computer equipment and leasehold improvements. We expect that our general and
administrative expenses will increase in absolute dollars but remain relatively
constant as a percentage of net revenues.

    AMORTIZATION OF STOCK-BASED COMPENSATION.  During the year ended
December 31, 1999 and 2000, we charged $9.7 million and $17.6 million,
respectively, of deferred stock-based compensation to stockholder's equity in
connection with certain stock options granted to employees. The deferred stock-
based compensation is being amortized over the vesting periods of the related
options. Amortization of deferred stock-based compensation totaled $5.8 million
and $17.1 million, respectively, during the same periods.

    IMPAIRMENT OF ASSETS.  We recorded an impairment of asset charge of
$12.1 million during 2000. A $9.8 million charge was related to our editorial
content agreement with a strategic marketing partner, whereby the partner would
supply us content for our global marketplace product. The value of this asset
was originally based on projected future cash flows. We began using the content
in 2000, but by

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the fourth quarter of 2000, we concluded that the asset would not be realized as
originally contemplated. Therefore, we recorded the impairment charge in
accordance with generally accepted accounting principles. The Company still
retains the right to use the content as outlined in the license agreement. In
addition, a $2.3 million impairment of asset charge reflects the results of the
Company's assessment of its strategic investments. After reviewing all of its
investments, we recorded a charge to reflect the net realizable value of certain
investments.

    OTHER INCOME (EXPENSE).  Interest income increased from $656,000 to
$6.1 million for the year ended December 31, 1999 and 2000, respectively. The
increase relates to interest earned on public offering proceeds that were
invested in short- and long-term investments. Our interest expense increased
from $187,000 for the year ended December 31, 1999, to $1.6 million for the year
ended December 31, 2000. The increase resulted primarily from imputed interest
on long-term payment obligations to a strategic marketing partner. Interest
expense in 1999 primarily related to borrowings from our Chairman and Chief
Executive Officer on notes payable outstanding since September 1998 and
December 1998. We also recognized a $2.7 million gain on the sale of certain
marketable securities during the fourth quarter of 2000.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1999

    REVENUES.  Our net revenues increased from $1.7 million for the year ended
December 31, 1998, to $6.0 million for the year ended December 31, 1999.
Substantially all of this increase resulted from growth in our membership, new
license arrangements to develop and host private procurement networks and
advertising revenues. Our network access revenue increased from $1.3 million for
the year ended December 31, 1998 to $4.1 million for the year ended
December 31, 1999. Advertising revenue increased from $0 to $1.1 million due to
contracts with Office Depot, Workflow Management and American Hotel Register.
Other revenues increased from $362,000 for the year ended December 31, 1998, to
$783,000 for the year ended December 31, 1999, including an increase in PPS
revenues from $154,000 to $475,000.

    COST OF REVENUES.  Our cost of revenues increased from $445,000 for the year
ended December 31, 1998, to $836,000 for the year ended December 31, 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 $357,000 for the year ended
December 31, 1998 to $699,000 for the year ended December 31, 1999.

    SALES AND MARKETING EXPENSES.  Our sales and marketing expenses increased
from $3.8 million for the year ended December 31, 1998 to $60.1 million for the
year ended December 31, 1999. During the year ended December 31, 1999, we
recognized non-cash charges of $800,000 and $50.1 million related to the
issuance of stock options and warrants, respectively, issued to strategic
marketing partners. Excluding non-cash charges, the increase in sales and
marketing expenses was primarily attributable to an increase in the size of our
sales force. Expenses that related to personnel costs of sales and marketing
personnel increased from $2.2 million for the year ended December 31, 1998 to
$5.9 million for the year ended December 31, 1999. Travel and related costs
increased from $437,000 for the year ended December 31, 1998, to $1.1 million
for the year ended December 31, 1999. Costs associated with our marketing
activities increased from $362,000 for the year ended December 31, 1998, to
$2.0 million for the year ended December 31, 1999.

    PROGRAMMING AND DEVELOPMENT EXPENSES.  Our programming and development
expenses increased from $971,000 for the year ended December 31, 1998, to
$2.4 million for the year ended December 31, 1999. The increase is primarily
attributable to an increase in our programming staff. Expenses related to
programming and development personnel increased from $851,000 for the year ended
December 31, 1998, to $2.0 million for the year ended December 31, 1999. In
1999, we capitalized $396,000 of internal expenses related to programming and
development personnel who worked directly on the

                                       20
<PAGE>
development of new services on the network or on private network development.
These costs are being amortized over a 24-month period.

    GENERAL AND ADMINISTRATIVE EXPENSES.  Our general and administrative
expenses increased from $2.9 million for the year ended December 31, 1998, to
$9.0 million for the year ended December 31, 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 $1.3 million for the year ended December 31, 1998, to
$2.9 million for the year ended December 31, 1999. Professional fees increased
from $222,000 to $1.5 million for the year ended December 31, 1998 and 1999,
respectively, due to recruiting fees and legal fees related to items not
associated with the initial public offering. Facilities costs increased from
$723,000 for the year ended December 31, 1998 to $1.6 million for the year ended
December 31, 1999, as the result of our move into our new corporate location and
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 $127,000 for the year ended December 31, 1998, as
compared to $1.1 million for the year ended December 31, 1999. The increase
resulted primarily from the increase in our revenues, and a better knowledge of
the estimated bad debt percentage based on our collection experience. Our
depreciation increased from $253,000 for the year ended December 31, 1998, to
$847,000 for the year ended December 31, 1999. The increase is due to the
addition of computer hardware and software used to enhance the capabilities of
the network.

    AMORTIZATION OF STOCK-BASED COMPENSATION.  During the year ended
December 31, 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 year ended
December 31, 1999, amortization of deferred stock-based compensation totaled
$5.8 million.

    OTHER INCOME (EXPENSE).  Interest income increased from $16,000 to $656,000
for the years ended December 31, 1998 and 1999, respectively. The increase
relates to interest earned on initial public offering proceeds that were
invested in short-term investments. Our interest expense decreased from $333,000
for the year ended December 31, 1998, to $187,000 for the year ended
December 31, 1999. The decrease resulted from the repayment of $2.3 million of
notes payable. 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. Other expense includes the write-off of debt
issuance costs of $279,000 related to $1.5 million of notes payable issued in
September 1998 and repaid in June 1999.

    LIQUIDITY AND CAPITAL RESOURCES

    Since our inception on October 8, 1996, we have had significant negative
cash flows from our operations. For the years ended December 31, 1998, 1999 and
2000, we used $6.0 million, $12.6 million and $21.4 million of cash,
respectively, in our operations. Cash used in operating activities in each
period resulted primarily from net losses in those periods, offset by non-cash
charges and changes in current assets and liabilities. For the year ended
December 31, 2000 our cash used in operating activities included an increase in
our trade accounts receivable of $24.6 million. The increase is primarily
attributable to billings under terms of our software license contracts entered
into during the fourth quarter of 2000.

    For the years ended December 31, 1998, 1999 and 2000, we used cash totaling
$360,000, $15.6 million, and $67.9 million, respectively, in our investing
activities. The increase in 2000 consisted of $30.5 million for computers and
related equipment purchases and $13.1 million for investments in other
companies.

                                       21
<PAGE>
    Net cash provided by financing activities for the years ended December 31,
1998, 1999 and 2000, was $8.1 million, $56.9 million and $145.3 million,
respectively. Since inception, we have financed our operations primarily from
the issuance of common stock, proceeds of notes payable, the sale of Series A
Preferred Stock and Series B Preferred Stock and the proceeds of our initial
public offering and follow-on offering. Funds provided by financing in 1998
consisted primarily of the issuance of preferred stock of $7.0 million. In
addition, we borrowed $2.3 million from various individuals in January 1998 and
$1.5 million from various individuals, including our chairman and CEO, in
September 1998. Our chairman and CEO also advanced us an additional $637,000.
During 1998, we repaid $1.1 million of the loans from our chairman and CEO and
the loans of $2.3 million. Funds provided by financing activities in 1999
included the completion of our initial public offering, with net proceeds of
approximately $50.0 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.
Funds provided by financing activities in 2000 included the completion of a
follow-on offering in February 2000. We completed a public offering of 6,000,000
shares of common stock for $40 per share. We sold 4,000,000 of the shares, with
the remaining 2,000,000 shares being sold by then existing stockholders. Net
proceeds to us from the follow-on offering were $150.7 million.

    As of December 31, 2000, our principal source of liquidity was approximately
$86 million of cash and cash equivalents. As of December 31, 2000, we had
material commitments for capital expenditures of $15.9 million for
computer-related equipment. We have also entered into several non-cancelable
lease commitments that will require payments of approximately $16.5 million over
the next five years.

    We believe that we have sufficient cash and cash equivalents to fund our
operating and investing activities for at least the next 12 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 ACQUISITIONS

    STRATTON WARREN SOFTWARE, INC.

    On January 16, 2001, we completed the acquisition of all the outstanding
stock of Stratton Warren Software, Inc. ("Stratton Warren"), a Georgia
corporation that designs and markets software for hotels, resorts, casinos, and
other food service operations with purchasing, inventory and materials
management requirements. Stratton Warren's principal assets include its
intellectual property and software, in addition to numerous license and
maintenance agreements with companies that license and use Stratton Warren's
software. The total consideration for the acquisition consisted of:

    1.  $1.5 million in cash, payable on October 30, 2000, plus $3.5 million
       used by Stratton Warren to redeem certain of its shares held by a
       shareholder prior to completion of the acquisition;

    2.  $9.0 million in shares of common stock of the Company (which totaled
       541,353 shares based on the closing price of our common stock on
       January 16, 2001); and

    3.  $500,000 in cash deposited in escrow to secure indemnification
       obligations of Stratton Warren's sole remaining shareholder to be
       distributed ninety days after the closing date.

    The consideration for the outstanding stock of Stratton Warren was
determined through arms-length negotiations. The cash portion of the purchase
price for the shares of Stratton Warren was provided from the Company's working
capital.

                                       22
<PAGE>
    BAYBUILDER

    In March 2001, the Company announced it had signed a definitive agreement to
acquire Net Research, Inc., dba BayBuilder, a provider of self-service strategic
sourcing technology for Fortune 1000 corporations. The Company will pay
$15 million in stock and cash for BayBuilder. Completion of the acquisition is
subject to customary conditions and is expected to close during the second
quarter of 2001.

    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 and SFAS No. 138, which defers
the effective date of SFAS No. 133 and amends certain provisions. SFAS No. 133,
as amended, 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.

    In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. We believe that we have followed the guidelines set forth
in SAB No. 101 as it relates to revenue recognition in our financial statements.

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, ("FIN 44"), ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING
STOCK COMPENSATION--AN INTERPRETATION OF APB 25. This Interpretation clarifies
(a) the definition of employee for purposes of applying APB 25, (b) the criteria
for determining whether a plan qualifies as a non-compensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 became effective July 1,
2000, but certain conclusions in FIN 44 cover specific events that occurred
after either December 15, 1998, or January 12, 2000. The adoption of FIN 44 does
not have a material effect on the Company's financial statements.

                             RISK AND UNCERTAINTIES

    The following is a summary description of some of the many risks we face in
our business. You should carefully review these risks in evaluating our
business, including the businesses of our subsidiaries. You should also consider
the other information described in this report.

OUR QUARTERLY OPERATING RESULTS MAY BE VOLATILE AND DIFFICULT TO PREDICT. IF WE
  FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE
  MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.

    Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations may not be meaningful and should not be
relied upon as indicators of future performance. Our quarterly operating results
may fluctuate significantly due to the following factors, many of which are
outside our control:

    - demand for and market acceptance of our products and services;

    - inconsistent growth, if any, of our member base;

    - loss of key customers or strategic partners;

    - timing of the recognition of revenue for large contracts;

                                       23
<PAGE>
    - intense and increased competition;

    - introductions of new products, services or enhancements;

    - our ability to control costs;

    - ability to develop, introduce and market new products and enhancements to
      our existing products on a timely basis;

    - changes in our pricing policies and business model or those of our
      competitors;

    - integration of our recent and any future acquisitions;

    - success in maintaining and enhancing existing relationships and developing
      new relationships with strategic partners;

    - customer budget cycles and changes in these budget cycles; and

    - general economic factors, including an economic slowdown or recession.

    Furthermore, our quarterly revenues may be affected significantly by other
revenue recognition policies and procedures. These policies and procedures may
evolve or change over time based on applicable accounting standards and how
these standards are interpreted. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Due to these and other factors,
our operating results could be below market analysts' expectations in future
quarters, which would most likely cause the market price of our stock to
decline.

    We expect to increase our operating expenses to expand our sales and
marketing operations, fund greater levels of research, programming and
development, develop new partnerships, make tenant improvements to our
facilities, increase our professional services and support capabilities and
improve our operational and financial systems. Also our amortization of
stock-based compensation and amortization of goodwill and other intangible
assets will fluctuate based on our acquisition activity. Moreover, any non-cash
expenses related to the issuance of warrants to purchase our common stock could
fluctuate significantly as a result of fluctuations in the fair market value of
our common stock. If our revenues do not increase along with these expenses or
if we experience significant fluctuations in non-cash expenses related to these
warrants, our business, operating results and financial condition could be
seriously harmed and net losses in a given quarter could be even larger than
expected.

WE DEPEND HEAVILY ON OUR STRATEGIC RELATIONSHIPS WITH OUR PARTNERS, INCLUDING
  AMERICA ONLINE.

    We have formed strategic relationships with several companies with a
strategy to leverage the customer bases and vendor relationships of our
strategic partners for both software sales and increased membership on
marketplaces we power. There is no guarantee that these alliances will be
successful in creating a larger market for our product and services offerings.
If these alliances are not successful, our business, operating results and
financial position could be seriously harmed.

    We depend on America Online ("AOL"), both directly and as a source of
referrals and other indirect sales to customers, for a substantial portion of
our revenues and we anticipate that revenues from our AOL relationship will
constitute a substantial portion of our revenues for the foreseeable future.
During the year ended December 31, 2000, AOL accounted for 18 percent of our net
revenues. If AOL is unable to generate substantial revenues for us in the future
or if our relationship with AOL proves unsuccessful or deteriorates, our
business, operating results and financial position would be seriously harmed.
For a discussion of the business terms of our relationship with AOL, see Note 3
of the Notes to Consolidated Financial Statements.

                                       24
<PAGE>
CHANGES IN ACCOUNTING STANDARDS COULD ADVERSELY AFFECT THE CALCULATION OF OUR
  FUTURE OPERATING RESULTS.

    The e-commerce software industry is new, and we anticipate the e-commerce
software business model is likely to evolve over time. As a result, the
application of accounting standards to the e-commerce software industry may
change. The impact of changes in the application of accounting standards can not
be determined given that accounting standards are continually modified as
changes occur in the business environment. We have engaged in transactions with
some of our strategic partners comprising more than one element, such as sales
of our products and the issuance of equity instruments such as warrants to
purchase our common stock. The Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board is currently addressing a number of issues
surrounding the accounting for multiple-element arrangements. If changes in
existing accounting practices result from the conclusions reached by the EITF,
these changes could affect our future operating results.

OUR STOCK PRICE IS HIGHLY VOLATILE, WHICH MAY GIVE RISE TO SECURITIES CLASS
  ACTION LITIGATION.

    Our stock price has fluctuated dramatically. The market price of the common
stock may decrease significantly in the future in response to the following
factors, some of which are beyond our control:

    - variations in our quarterly operating results;

    - announcements that our revenue or income are below analysts' expectations;

    - changes in analysts' estimates of our performance or industry performance;

    - changes in market valuations of similar companies;

    - sales of large blocks of our common stock;

    - announcements by us or our competitors of significant contracts,
      acquisitions, strategic partnerships, joint ventures or capital
      commitments;

    - loss of a major customer or failure to complete significant license
      transactions;

    - loss of a major strategic partner;

    - additions or departures of key personnel; and

    - fluctuations in stock market price and volume, which are particularly
      common among highly volatile securities of software and Internet-based
      companies.

    Futhermore, 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 damaging publicity and may
divert management's attention and resources, which could seriously harm our
business.

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR FUTURE
  PROSPECTS.

    We began operations in October 1996, and our business model is new and our
ability to generate revenue or profits is unproven. We have entered into the
majority of our contracts and significant relationships only within the last
28 months. Our 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, including risks associated
with our recent acquisitions. 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.

                                       25
<PAGE>
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE CONTINUED LOSSES, AND WE MAY BE
  UNABLE TO ACHIEVE PROFITABILITY.

    We have never been profitable over a quarterly period. 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, and as of
December 31, 2000, we had an accumulated deficit of $151.6 million. Moreover, 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 to achieve profitability. If revenues grow more
slowly than we anticipate, or if operating expenses exceed our expectations, our
business would be severely harmed.

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 the intensity of competition has increased and is
expected to further increase in the future. This increased competition may
result in price reductions, reduced gross margins and loss of market share, any
one of which could seriously harm our business. In addition to competition from
several e-commerce trade communities, we also encounter competition from
software providers such as Ariba and Commerce One. Further, we expect that
additional companies will offer competing e-commerce products and services in
the future. Barriers to entry are minimal, and competitors may develop and begin
offering similar services. In the future, we may encounter competition from
companies such as Peoplesoft, Oracle and SAP, as well as from our current
customers, members and partners. Many 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. As a result, 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 may devote substantially more
resources to product development. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties to increase the ability of their products to address customer
needs. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. We also
expect that competition will increase as a result of industry consolidations.
Our business could be severely harmed if we are not able to compete successfully
against current or future competitors.

WE MAY NOT BE ABLE TO CONTINUOUSLY ENHANCE OUR PRODUCTS AND SERVICES.

    Our future success will depend on our ability to enhance our software
products, and to continue to develop and introduce new products and 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 products and services unmarketable or obsolete. We may
not be successful in developing and marketing quickly and effectively future
versions or upgrades of our software, or offer new products or services that
respond to technological advances or new market requirements. In developing new
products and services, we may:

    - fail to develop and market products that respond to technological changes
      or evolving industry standards in a timely or cost-effective manner;

                                       26
<PAGE>
    - encounter products, capabilities or technologies developed by others that
      render our products and services obsolete or noncompetitive or that
      shorten the life cycles of our existing products and services;

    - experience difficulties that could delay or prevent the successful
      development, introduction and marketing of these new products and
      services;

    - experience deferrals in orders in anticipation of new products or releases
      of our marketplace software; or

    - fail to develop new products and services that adequately meet the needs
      of the marketplace or achieve market acceptance.

    As a result of the foregoing factors, we could experience a delay or loss of
revenues and customer dissatisfaction when introducing new and enhanced products
and services.

WE ARE DEPENDENT UPON THE GROWTH OF THE INTERNET AS AN ACCEPTABLE MEANS OF
  COMMERCE, AND SECURITY RISKS OF ELECTRONIC COMMERCE OVER THE INTERNET MAY
  DETER USE OF THE INTERNET AND USE OF OUR PRODUCTS AND SERVICES.

    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 software applications;

    - 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 products and services, particularly by companies that have relied on
traditional means of procurement, will require broad acceptance of a 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 products and servicess. Furthermore,
our global marketplace 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 members of our customers'
marketplaces and our global marketplace 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.

    A fundamental requirement to conduct business-to-business e-commerce is the
secure transmission of information over public networks. If members are not
confident in the security of e-commerce, they may not effect transactions on our
customers' marketplaces or our public marketplace 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 customers' marketplaces and our
global marketplace or proprietary information in our databases. Anyone who is

                                       27
<PAGE>
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.

OUR CURRENT SALES AND MARKETING STRATEGIES MAY NOT BE SUCCESSFUL.

    We have recently implemented several indirect sales channel programs,
including referral and reseller programs. Many of these relationships are new
and our indirect sales channel strategy is unproven. Furthermore, because we
elect to defer revenue recognition until the time the reseller delivers our
software to an end user, we cannot be assured if or when we will recognize
revenue from our reseller relationships. If our current or future indirect sales
channel partners are not able to successfully sell or resell our products, our
business could be seriously harmed.

WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR GROWTH AND EXPANSION, AND IN ORDER
  TO MANAGE OUR GROWTH AND EXPANSION WE WILL NEED TO IMPROVE AND IMPLEMENT NEW
  SYSTEMS, PROCEDURES AND CONTROLS.

    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 to continue to expand, train and manage our workforce, all of
which may be inadequate to support future operations. 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 592 employees as of March 23, 2001. 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.

IF WE ACQUIRE NEW AND COMPLEMENTARY BUSINESSES, PRODUCTS AND TECHNOLOGIES TO
  GROW OUR BUSINESS, SUCH ACQUISITIONS MAY NOT BE SUCCESSFUL.

    We recently acquired Stratton Warren and signed a definitive agreement to
acquire BayBuilder, and we may acquire additional businesses, products and
technologies that complement or augment our existing businesses, services and
technologies. We currently are integrating our recent acquisition of Stratton
Warren, which could prove unsuccessful, as could our proposed acquisition of
BayBuilder. Moreover, if we identify an appropriate acquisition candidate, we
may not be able to negotiate the terms of the acquisition successfully, finance
the acquisition, or integrate the acquired business, products or technologies
into our existing business and operations. 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. If we consummate one or more significant
future acquisitions in which the consideration consists of stock or other
securities, our equity could be significantly diluted. If we were to proceed
with one or more significant future acquisitions in which the consideration
included cash, we could be required to use a substantial portion of our
available cash to consummate any acquisition. To finance any acquisitions, we
may need to raise additional funds through public or private financing. Any
equity or debt financing, if available at all, may be on terms that are not
favorable to us and, in the case of equity financing, may result in dilution to
our stockholders. We may not be able to operate any acquired businesses
profitably

                                       28
<PAGE>
or otherwise implement our business strategy successfully. For a discussion of
our recent acquisition of Stratton Warren Software, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Recent
Acquisitions."

IF WE ENCOUNTER SYSTEM FAILURE, SERVICE TO OUR CUSTOMERS COULD BE DELAYED OR
  INTERRUPTED, WHICH COULD SEVERELY HARM OUR BUSINESS AND RESULT IN A LOSS OF
  CUSTOMERS.

    Our ability to provide acceptable levels of customer service largely depends
on the efficient and uninterrupted operation of our computer and communications
hardware and marketplace systems. Any interruptions could severely harm our
business and result in a loss of customers. Our computer and communications
systems are located primarily in Las Vegas, Nevada. 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 in the past experienced delays and
interruptions in our telephone and Internet access, which have prevented members
from accessing our customer's marketplaces, our global marketplace and our
customer service department. Furthermore, we may 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.

UNKNOWN DEFECTS IN OUR SOFTWARE COULD RESULT IN SERVICE AND DEVELOPMENT DELAYS.

    Our products and services, including the operation of our customers'
marketplaces and our global marketplace, 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
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.

FAILURE TO MAINTAIN ACCURATE DATABASES COULD SERIOUSLY HARM OUR BUSINESS AND
  REPUTATION.

    We update and maintain extensive databases of member's products and services
and records of transactions executed by 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 CONTINUE LICENSING THIRD-PARTY TECHNOLOGIES, WHICH COULD
  DELAY PRODUCT DEVELOPMENT AND 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

                                       29
<PAGE>
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 SALES CYCLE FOR OUR MARKETPLACE SOLUTIONS COULD CAUSE DELAYS IN REVENUE
  GROWTH.

    Our sales cycle for a complete marketplace solution typically takes three to
six months to complete and varies from contract to contract, but can be even
longer for some contracts. Lengthy sales cycles could delay our generation of
revenues from other services we provide to operate marketplaces for customers,
including hosting and maintaining services. Our sales cycle for our marketplace
products and services 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, the potential customer's concern about establishing business
practices and conducting business in new ways, and the level of competition that
we encounter in our selling activities. Additionally, because the market for
business-to-business 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 addition, we believe that the purchase
of our products by a marketplace owner is often discretionary and generally
involves a significant commitment of capital and other resources by the
customer. It frequently takes several months to finalize a sale and requires
approval at a number of management levels within the customer organization. Our
sales cycle can be further extended for product sales made through third
parties, including our resellers.

IF OUR INTELLECTUAL PROPERTY PROTECTION IS INADEQUATE, COMPETITORS MAY GAIN
  ACCESS TO OUR TECHNOLOGY AND UNDERMINE OUR COMPETITIVE POSITION, CAUSING US TO
  LOSE MEMBERS.

    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. We cannot assure you that any of our proprietary
rights will be viable or of value in the future because the validity,
enforceability and type of protection of proprietary rights in Internet-related
industries are uncertain and evolving. 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.

                                       30
<PAGE>
IF A THIRD PARTY WERE TO ALLEGE THAT WE INFRINGE ON THE INTELLECTUAL PROPERTY
  RIGHTS OF OTHERS, WE COULD BE EXPOSED TO SUBSTANTIAL LIABILITIES THAT WOULD
  SEVERELY HARM OUR BUSINESS.

    Third 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 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 become
time-consuming, result in the expenditure of significant financial and
managerial resources and in costly litigation and injunctions preventing us from
distributing these services, or require us to enter into royalty or license
agreements. Royalty or license agreements, if required, may not be available on
terms acceptable to us or at all, which could seriously harm our business.

WE DEPEND UPON OUR CURRENT KEY PERSONNEL, WHO MAY BE DIFFICULT TO REPLACE, AND
  ON ATTRACTING ADDITIONAL KEY PERSONNEL IN THE FUTURE.

    We believe that our success will depend on the continued employment of our
senior management team and key personnel. We do not carry key person life
insurance on any of these people. 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.
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 and skilled personnel.

WE MAY NOT BE ABLE TO RAISE ADDITIONAL CAPITAL ON ACCEPTABLE TERMS, IF AT ALL.

    We believe that our existing cash and cash equivalents and our anticipated
cash flow from operations will be sufficient to meet our working capital and
operating resource expenditure requirements for at least the next year. However,
there can be no assurance that we will be able to meet our capital needs in the
future, in which case we may need to raise additional funds and we cannot be
certain that we will be able to obtain additional financing on favorable terms,
if at all. If we cannot raise funds on acceptable terms, if and when needed, we
may not be able to develop or enhance our products and services, take advantage
of future opportunities, grow our business or respond to competitive pressures
or unanticipated requirements, which could seriously harm our business.

WE MAY NOT BE ABLE TO ACCURATELY PREDICT THE RATE OF INCREASE IN THE USAGE OF
  PRODUCTS AND SERVICES, WHICH MAY AFFECT OUR TIMING AND ABILITY TO EXPAND AND
  UPGRADE OUR INFRASTRUCTURE.

    Usage of our products and services continues to increase, which will require
us to expand and upgrade some of our infrastructure, including hardware and
software and other systems. We may not be able to accurately predict the rate of
increase in the usage of our products and services, which may affect our timing
and ability to provide expansions and upgrades to our infrastructure to
accommodate increased use of our products and services. If we do not upgrade our
systems and hardware and software infrastructure appropriately, we may
experience downgraded service, which could damage our business reputation,
relationship with customers and members and our operating results.

                                       31
<PAGE>
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 software and
in marketing, selling and distributing our products and services
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;

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

    - tariffs, export controls and other trade barriers.

WE MAY BE SUBJECT TO LEGAL LIABILITY FOR COMMUNICATION ON OUR CUSTOMER'S
  MARKETPLACES AND ON OUR GLOBAL MARKETPLACE.

    We may be subject to legal claims relating to the content in our customer's
marketplaces and on our global marketplace, 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.

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 OUR 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 that 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.

                                       32
<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.

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. The cost of compliance with any newly adopted laws and regulations
could severely harm our business and the failure to comply could expose us to
significant liabilities.

ITEM 7A: QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    At December 31, 2000, we held approximately $74.7 million cash equivalents
that included various short-term marketable securities. We held only $3 million
in convertible notes. Given the nature of our investments, an immediate 10
percent change in interest rates would have no material impact on our financial
condition, results of operations or cash flows.

    We generally conduct business, including sales to foreign customers, in U.S.
dollars and as a result we have very limited foreign currency exchange rate
risk. The effect of an immediate 10 percent change in foreign exchange rates
would have no material impact on our financial condition, results of operations
or cashflows.

                                       33
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                      REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To PurchasePro.com, Inc.:

    We have audited the accompanying consolidated balance sheets of
PurchasePro.com, Inc. (a Nevada corporation) and subsidiary as of December 31,
1999 and 2000, and the related consolidated statements of operations, redeemable
convertible preferred stock and stockholders' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1999 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 12, 2001

                                       34
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1999       2000
                                                              --------   ---------
<S>                                                           <C>        <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 30,356   $  86,335
  Trade accounts receivable, net of allowance for doubtful
    accounts
    of $594 and $2,471, respectively........................     1,950      23,171
  Other receivables.........................................       205         859
  Prepaid expenses and other current assets.................       551       9,378
                                                              --------   ---------
    Total current assets....................................    33,062     119,743
Property and equipment:
  Computer equipment and software...........................     8,650      49,620
  Furniture and fixtures....................................       890       2,327
  Leasehold improvements....................................        58       6,244
                                                              --------   ---------
                                                                 9,598      58,191
  Less -- accumulated depreciation and amortization.........    (1,262)     (7,940)
                                                              --------   ---------
    Net property and equipment..............................     8,336      50,251
Other assets:
  Intangibles, net (Note 3).................................       927     128,926
  Investments in other companies (Note 4)...................    12,587      15,718
  Editorial content rights..................................    10,747          --
  Deposits and other........................................       818       5,584
                                                              --------   ---------
  Total other assets, net...................................    25,079     150,228
                                                              --------   ---------
    Total assets............................................  $ 66,477   $ 320,222
                                                              ========   =========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $  2,847   $  20,248
  Accrued and other current liabilities.....................     1,526       3,421
  Deferred revenues.........................................       250       3,030
  Current portion of long-term liabilities..................        --      22,255
                                                              --------   ---------
    Total current liabilities...............................     4,623      48,954
Long-term liabilities.......................................        --      10,348
                                                              --------   ---------
    Total liabilities.......................................     4,623      59,302
Commitments and contingencies (Note 6)
Stockholders' equity:
  Common stock: $0.01 par value; 190,000,000 shares
    authorized; 56,367,360 and 66,686,238 shares issued and
    outstanding, respectively...............................       564         667
  Additional paid-in capital................................   137,488     414,667
  Deferred stock-based compensation.........................    (3,941)     (4,390)
  Accumulated deficit.......................................   (78,741)   (151,552)
  Accumulated other comprehensive income....................     6,484       1,528
                                                              --------   ---------
    Total stockholders' equity..............................    61,854     260,920
                                                              --------   ---------
    Total liabilities and stockholders' equity..............  $ 66,477   $ 320,222
                                                              ========   =========
</TABLE>

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

                                       35
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
                                                                  (IN THOUSANDS, EXCEPT
                                                                    PER SHARE AMOUNTS)
<S>                                                           <C>        <C>        <C>
Revenues:
  Software licenses.........................................  $    --    $     --   $ 34,860
  Network access and service fees...........................    1,308       4,092     23,546
  Advertising...............................................       --       1,142      3,219
  Other.....................................................      362         783      3,366
                                                              -------    --------   --------
    Total revenues..........................................    1,670       6,017     64,991
Cost of revenues............................................      445         836      4,487
                                                              -------    --------   --------
Gross profit................................................    1,225       5,181     60,504
Operating expenses:
  Sales and marketing.......................................    3,841      60,142     75,986
  Programming and development...............................      971       2,366      8,850
  General and administrative................................    2,896       9,026     26,416
  Amortization of stock-based compensation..................       --       5,778     17,114
  Impairment of assets......................................       --          --     12,112
                                                              -------    --------   --------
    Total operating expenses................................    7,708      77,312    140,478
                                                              -------    --------   --------
Operating loss..............................................   (6,483)    (72,131)   (79,974)
Other income (expense):
  Interest income (expense), net............................     (317)        469      4,507
  Other.....................................................       --        (279)     2,656
                                                              -------    --------   --------
    Total other income (expense)............................     (317)        190      7,163
                                                              -------    --------   --------
Net loss before benefit for income taxes....................   (6,800)    (71,941)   (72,811)
Benefit for income taxes....................................       --          --         --
                                                              -------    --------   --------
Net loss....................................................   (6,800)    (71,941)   (72,811)
Preferred stock dividends...................................     (245)       (511)        --
Accretion of preferred stock to redemption value............      (90)       (131)        --
Value of preferred stock beneficial conversion feature......       --      (9,400)        --
                                                              -------    --------   --------
Net loss applicable to common stockholders..................  $(7,135)   $(81,983)  $(72,811)
                                                              =======    ========   ========
Loss per share:
  Basic.....................................................  $ (0.28)   $  (2.44)  $  (1.15)
                                                              =======    ========   ========
  Diluted...................................................  $ (0.26)   $  (2.39)  $  (1.15)
                                                              =======    ========   ========
Weighted average shares outstanding:
  Basic.....................................................   25,800      33,598     63,399
                                                              =======    ========   ========
  Diluted...................................................   27,480      34,273     63,399
                                                              =======    ========   ========
</TABLE>

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

                                       36
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY
     CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
                         STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                          STOCKHOLDERS' EQUITY (DEFICIT)
                                              REDEEMABLE CONVERTIBLE             ------------------------------------------------
                                                  PREFERRED STOCK
                                     -----------------------------------------
                                          SERIES A              SERIES B            COMMON STOCK       ADDITIONAL     DEFERRED
                                     -------------------   -------------------   -------------------    PAID-IN      STOCK-BASED
                                      SHARES     AMOUNT     SHARES     AMOUNT     SHARES     AMOUNT     CAPITAL     COMPENSATION
                                     --------   --------   --------   --------   --------   --------   ----------   -------------
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>        <C>          <C>
Balance, December 31, 1997........        --    $    --         --    $     --    23,100      $231      $    168       $    --
Effect of recapitalization........        --         --         --          --        --        --        (3,108)           --
Issuance of common stock..........        --         --         --          --     6,900        69            (2)           --
Redemption and retirement of
  common stock....................        --         --         --          --    (7,200)      (72)           72            --
Contribution by principal
  stockholder.....................        --         --         --          --        --        --         1,782            --
Charge for services...............        --         --         --          --        --        --           720            --
Issuance of Series A preferred
  stock, net of issuance costs and
  value of warrants issued........     6,300      4,004         --          --        --        --           996            --
Issuance of warrants to holders of
  notes payable...................        --         --         --          --        --        --           398            --
Issuance of Series B preferred
  stock pursuant to subscription
  agreements......................        --         --         --       2,000        --        --            --            --
Preferred stock dividends.........        --        245         --          --        --        --          (245)           --
Accretion of preferred stock to
  redemption value................        --         90         --          --        --        --           (90)           --
Net loss..........................        --         --         --          --        --        --            --            --
                                      ------    -------     ------    --------    ------      ----      --------       -------
Balance, December 31, 1998........     6,300      4,339         --       2,000    22,800       228           691            --
Issuance of common stock, net of
  offering costs..................        --         --         --          --    13,800       138        49,376            --
Issuance of common stock to Series
  A stockholders..................        --         --         --          --     1,350        14           (14)           --
Issuance of Series B preferred
  stock, net of issuance costs....        --         --      9,900          --        --        --         9,400            --
Mandatory conversion of Series A
  and Series B preferred stock to
  shares of common stock..........    (6,300)    (4,743)    (9,900)    (11,638)   16,200       162        16,219            --
Issuance of warrants to strategic
  marketing partners..............        --         --         --          --        --        --        60,872            --
Strategic partner option grant....        --         --         --          --        --        --           800            --
Exercise of warrants..............        --         --         --          --     1,680        17           (11)           --
Exercise of options...............        --         --         --          --       537         5           478            --
Deferred stock-based
  compensation....................        --         --         --          --        --        --         9,719        (9,719)
Amortization of deferred
  stock-based compensation........        --         --         --          --        --        --            --         5,778
Preferred stock dividends.........        --        280         --         231        --        --          (511)           --
Accretion of preferred stock to
  redemption value................        --        124         --           7        --        --          (131)           --
Value of preferred stock
  beneficial conversion feature...        --         --         --       9,400        --        --        (9,400)           --
Net loss..........................        --         --         --          --        --        --            --            --
Unrealized gain on marketable
  securities......................        --         --         --          --        --        --            --            --
                                      ------    -------     ------    --------    ------      ----      --------       -------
Balance, December 31, 1999........        --         --         --          --    56,367       564       137,488        (3,941)
Issuance of common stock, net of
  offering costs..................        --         --         --          --     4,000        40       150,619            --
Issuance of common stock to
  marketing partner...............        --         --         --          --       100         1         2,768            --
Issuance of warrants to strategic
  marketing partners..............        --         --         --          --        --        --        94,360            --
Exercise of warrants..............        --         --         --          --     1,187        12            (6)           --
Exercise of options...............        --         --         --          --     5,032        50        11,875            --
Deferred stock-based
  compensation....................        --         --         --          --        --        --        17,563       (17,563)
Amortization of deferred
  stock-based compensation........        --         --         --          --        --        --            --        17,114
Net loss..........................        --         --         --          --        --        --            --            --
Change in unrealized gain on
  marketable securities...........        --         --         --          --        --        --            --            --
                                      ------    -------     ------    --------    ------      ----      --------       -------
Balance, December 31, 2000........        --    $    --         --    $     --    66,686      $667      $414,667       $(4,390)
                                      ======    =======     ======    ========    ======      ====      ========       =======

<CAPTION>
                                         STOCKHOLDERS' EQUITY (DEFICIT)
                                    ----------------------------------------

                                                    ACCUMULATED
                                                       OTHER
                                    ACCUMULATED    COMPREHENSIVE
                                      DEFICIT          INCOME        TOTAL
                                    ------------   --------------   --------
<S>                                 <C>            <C>              <C>
Balance, December 31, 1997........   $  (3,108)        $   --       $ (2,709)
Effect of recapitalization........       3,108             --             --
Issuance of common stock..........          --             --             67
Redemption and retirement of
  common stock....................          --             --             --
Contribution by principal
  stockholder.....................          --             --          1,782
Charge for services...............          --             --            720
Issuance of Series A preferred
  stock, net of issuance costs and
  value of warrants issued........          --             --            996
Issuance of warrants to holders of
  notes payable...................          --             --            398
Issuance of Series B preferred
  stock pursuant to subscription
  agreements......................          --             --             --
Preferred stock dividends.........          --             --           (245)
Accretion of preferred stock to
  redemption value................          --             --            (90)
Net loss..........................      (6,800)            --         (6,800)
                                     ---------         ------       --------
Balance, December 31, 1998........      (6,800)            --         (5,881)
Issuance of common stock, net of
  offering costs..................          --             --         49,514
Issuance of common stock to Series
  A stockholders..................          --             --             --
Issuance of Series B preferred
  stock, net of issuance costs....          --             --          9,400
Mandatory conversion of Series A
  and Series B preferred stock to
  shares of common stock..........          --             --         16,381
Issuance of warrants to strategic
  marketing partners..............          --             --         60,872
Strategic partner option grant....          --             --            800
Exercise of warrants..............          --             --              6
Exercise of options...............          --             --            483
Deferred stock-based
  compensation....................          --             --             --
Amortization of deferred
  stock-based compensation........          --             --          5,778
Preferred stock dividends.........          --             --           (511)
Accretion of preferred stock to
  redemption value................          --             --           (131)
Value of preferred stock
  beneficial conversion feature...          --             --         (9,400)
Net loss..........................     (71,941)            --        (71,941)
Unrealized gain on marketable
  securities......................          --          6,484          6,484
                                     ---------         ------       --------
Balance, December 31, 1999........     (78,741)         6,484         61,854
Issuance of common stock, net of
  offering costs..................          --             --        150,659
Issuance of common stock to
  marketing partner...............          --             --          2,769
Issuance of warrants to strategic
  marketing partners..............          --             --         94,360
Exercise of warrants..............          --             --              6
Exercise of options...............          --             --         11,925
Deferred stock-based
  compensation....................          --             --             --
Amortization of deferred
  stock-based compensation........          --             --         17,114
Net loss..........................     (72,811)            --        (72,811)
Change in unrealized gain on
  marketable securities...........          --         (4,956)        (4,956)
                                     ---------         ------       --------
Balance, December 31, 2000........   $(151,552)        $1,528       $260,920
                                     =========         ======       ========
</TABLE>

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

                                       37
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net loss..................................................  $(6,800)   $(71,941)  $(72,811)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization...........................      253         847     16,437
    Amortization of stock-based compensation................       --       5,778     17,114
    Non-cash sales and marketing expense....................      720      50,925     32,770
    Imputed interest........................................       67          --      1,575
    Amortization of debt discount...........................       43         356         --
    Provision for doubtful accounts.........................      127       1,078      3,393
    Impairment of assets....................................       --          --     12,112
    Gain on sale of marketable securities...................       --          --     (2,658)
    (Increase) decrease in:
      Trade accounts receivable.............................     (323)     (2,813)   (24,613)
      Other receivables.....................................      (81)       (105)      (654)
      Prepaid expenses and other current assets.............      (20)       (531)    (8,828)
    Increase (decrease) in:
      Accounts payable......................................     (201)      2,748         37
      Accrued and other current liabilities.................       74       1,023      1,920
      Deferred revenues.....................................      118          85      2,780
                                                              -------    --------   --------
        Net cash used in operating activities...............   (6,023)    (12,550)   (21,426)
                                                              -------    --------   --------
Cash flows from investing activities:
  Purchase of property and equipment........................     (257)     (8,619)   (30,539)
  Investments in other companies............................       --      (6,104)   (13,050)
  Proceeds from sale of investment..........................       --          --      5,262
  Marketing and technology development agreement............       --          --    (25,000)
  Other assets..............................................     (103)       (914)    (4,551)
                                                              -------    --------   --------
        Net cash used in investing activities...............     (360)    (15,637)   (67,878)
                                                              -------    --------   --------
Cash flows from financing activities:
  Proceeds from notes payable and advances..................    4,427         200         --
  Repayment of notes payable and advances...................   (3,362)     (1,375)       (25)
  Issuance of common stock, net.............................       --      50,002    162,159
  Issuance of preferred stock and warrants, net.............    7,000       8,026        400
  Payments under marketing and technology agreements........       --          --    (17,251)
                                                              -------    --------   --------
        Net cash provided by financing activities...........    8,065      56,853    145,283
                                                              -------    --------   --------
Increase in cash and cash equivalents.......................    1,682      28,666     55,979
Cash and cash equivalents:
  Beginning of year.........................................        8       1,690     30,356
                                                              -------    --------   --------
  End of year...............................................  $ 1,690    $ 30,356   $ 86,335
                                                              =======    ========   ========
</TABLE>

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

                                       38
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 2000

(1) THE COMPANY

ORGANIZATION AND NATURE OF BUSINESS

    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, Inc. 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 40,000,000 shares, $0.01 par value stock. On January 12, 1998, the
Company issued 23,100,000 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 was 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., a Nevada corporation, dba ProPurchasing Systems
("PPS"). PPS's principal business is negotiating contracts on behalf of
independent hotels and hotel management companies for which it receives fees and
rebates.

    The Company is a provider of business-to-business electronic commerce
products and services. The Company licenses its software products to businesses
that own and operate their own marketplaces. The Company operates a global
marketplace that provides 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. The Company also develops and hosts private labeled
marketplaces that, at the option of the marketplace owner, can connect to the
global marketplace.

    PurchasePro version 1.0 enabled members to transact e-commerce in the global
marketplace. The Company's next release provided this capability over the
Internet. In September 1998, the Company released PurchasePro 3.0, an
marketplace enabling software. In February 1999, the Company released
PurchasePro 4.0, which allows members the additional capability of building
private labeled marketplaces. In December 1999, the Company released PurchasePro
5.0, a browser-based version that allows members to access the global
marketplace and private labeled marketplaces with a user identification and
password over the Internet. In May 2000, the Company launched a new suite of
private-labeled marketplace software solutions.

    In September 1999, the Company began generating transaction fee revenues
from transactions consummated by members with value added merchandise and
service providers. Also, the Company began generating advertising fees.

    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 and strategic
partners, new product development, new product introductions and other
activities of competitors, and a limited operating history.

                                       39
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) SIGNIFICANT ACCOUNTING POLICIES

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.

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 that approximates fair value.

TRADE ACCOUNTS RECEIVABLE

    Unbilled revenue of $525,000, which represents amounts earned but not yet
billed, was included in accounts receivable at December 31, 1999 in the
accompanying consolidated balance sheets. There was no unbilled revenue at
December 31, 2000.

PROPERTY AND EQUIPMENT

    Property and equipment is stated at cost, including costs of software
purchased from third parties. Costs incurred for additions, improvements and
betterments are capitalized as incurred. Costs incurred to acquire or develop
software for internal use are accounted for in accordance with American
Institute of Certified Public Accountants Statement of Position ("SOP") 98-1,
ACCOUNTING FOR COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL
USE. 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 and software.............................  3 years
Furniture and fixtures......................................  5 years
Leasehold improvements......................................  3 years
</TABLE>

INTANGIBLES

    Identifiable intangible assets primarily include intellectual property,
business partner agreements, agreements not-to-compete, trademarks, and core
technology. The Company regularly performs reviews to determine if the carrying
value of intangible assets is impaired. The purpose for the review is to
identify any facts or circumstances, either internal or external, which indicate
that the carrying value of the asset cannot be recovered. No such impairment has
been indicated to date. Intangible assets are stated net of accumulated
amortization and are amortized on a straight-line basis over their expected
useful lives of three to six years.

INVESTMENTS IN OTHER COMPANIES

    Investments in other companies consist of debt and equity securities. The
Company has classified all investments in common stock with a readily
determinable fair value as available-for-sale. Available-for-sale securities are
recorded at market value, if determinable. Investments in private

                                       40
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
companies are not marked to market, as exempted by SFAS No. 115, ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. However, the Company performs
a periodic review for impairment as required by SFAS No. 115. Unrealized holding
gains and losses on available-for-sale securities are excluded from earnings and
are reported as a separate component of other comprehensive income. Dividend and
interest income are recognized when earned. Realized gains and losses for
securities classified as available-for-sale are included in earnings and are
derived using the specific identification method for determining the cost of
securities sold. Investments in preferred stock are carried at cost.

OTHER ASSETS

    The Company capitalizes certain network development costs, which are
amortized by the straight-line method over the estimated life of the asset,
which is generally three years or less. The capitalized costs are payroll and
payroll-related costs for employees who are directly associated with the
enhancement or new functionality of the network or the development of private
networks. At December 31, 1999 and 2000, unamortized network development costs
were $296,000 and $590,000, net of accumulated amortization of $99,000 and
$575,000, respectively. The amortization of these costs is included in
programming and development costs in the accompanying consolidated statements of
operations. The Company has also capitalized $4.9 million in costs associated
with development of new functionality that has not been placed in service.
Amortization of the capitalized costs will begin as the functionality is placed
in service.

IMPAIRMENT EVALUATION

    Long-lived assets are reviewed whenever indicators of impairment are present
and the undiscounted cash flows are not sufficient to recover the related asset
carrying amount. The Company recorded an impairment of asset charge of
$12.1 million during 2000. A $9.8 million charge was taken in connection with
the Company's editorial content agreement with a strategic marketing partner,
whereby the partner would supply PurchasePro content for its product. The value
of this asset was originally based on projected future cash flows. In the fourth
quarter of 2000, the Company concluded that the estimated future cash flows were
less than the carrying value. Therefore, an impairment charge was recorded in
accordance with generally accepted accounting principles. The Company still
retains the right to use the content as outlined in the license agreement. In
addition, a $2.3 million impairment of asset charge reflects the results of the
Company's assessment of its strategic investments. After reviewing all of its
investments, the Company recorded a charge to reflect the net realizable value
of certain investments.

REVENUE RECOGNITION

    The Company earns revenue from several sources. The nature and revenue
recognition policy for each major source of revenue are as follows:

    SOFTWARE LICENSE FEES:  For software license revenue, the Company applies
the provisions of SOP 97-2, SOFTWARE REVENUE RECOGNITION and SOP 98-9,
MODIFICATION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION WITH RESPECT TO CERTAIN
TRANSACTIONS, which amends SOP 97-2. SOP 97-2 and 98-9, as amended, generally
require revenue earned on software arrangements involving multiple elements to
be allocated to each element based on the relative fair values of the elements.
The fair value of an

                                       41
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
element must be based on the evidence that is specific to the vendor. License
revenue allocated to software products generally is recognized upon delivery of
the products or deferred and recognized in future periods to the extent that an
arrangement includes one or more elements that are to be delivered at a future
date and for which fair values have not been established. Revenue allocated to
maintenance is recognized ratably over the maintenance term and revenue
allocated to training and other service elements is recognized as the services
are performed. If evidence of fair value does not exist for all elements of a
license agreement and professional consulting services are the only undelivered
element, then all revenue for the license arrangement is recognized ratably over
the term of the agreement as license revenue. If evidence of fair value of all
undelivered elements exists but evidence does not exist for one or more
delivered elements, then revenue is recognized using the residual method. Under
the residual method, the fair value of the undelivered elements is deferred and
the remaining portion of the arrangement fee is recognized as revenue. For
software licenses sold to resellers, the Company defers revenue recognition
until the time the reseller delivers the software to the end user. Under the
Company's standard reseller program, the Company has no obligation of future
performance under licenses sold to resellers.

    If the Company provides other services that are considered essential to the
functionality of the software products, both the software product revenue and
service revenue are recognized at the time the services are completed. Such
contracts typically consist of professional services and are generally completed
within 45 days of the software sale.

    During the year ended December 31, 2000, the Company acquired certain
software technology from third-parties to which it also sold its own software
products. The acquired technology is used by the Company in a hosted environment
and will only be available to customers who pay for such services. The acquired
technology is not part of the software sold by the Company. In accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 29, ACCOUNTING
FOR NONMONETARY TRANSACTIONS, and Emerging Issues Task Force ("EITF") No. 00-3,
APPLICATION OF AICPA STATEMENT OF POSITION 97-2 TO ARRANGEMENTS THAT INCLUDE THE
RIGHT TO USE SOFTWARE STORED ON ANOTHER ENTITY'S HARDWARE, the Company
determined that the acquired technology was to be used as internal use software,
and therefore, recorded the acquired assets at their fair value of approximately
$14.2 million as computer equipment and software in the accompanying
consolidated balance sheets. Also, in accordance with APB No. 29 and EITF
No. 00-5, the Company recognized revenue from the sale of its software at the
fair value based on its own vendor specific objective evidence. Total revenue
for the year ended December 31, 2000 from these software sales was approximately
$6.8 million, and no individual transaction was in excess of 10 percent of total
revenues.

    NETWORK ACCESS AND SERVICE FEES:  Network access and service fees consist
of: member subscription fees, transaction fees, hosting, maintenance, and other
service fees. Network access fees, including subscription, hosting, and
maintenance fees, are recognized over the term of the executed contracts. These
fees are generally terminable at any time by a customer with 30 days notice.
Subscription fees are recorded, net of discounts, ratably over the subscription
period and deferred revenues are recognized for amounts received before services
are provided. Transaction fees are recognized in the period the transaction
occurs. Service for setting up marketplaces for software licensees are generally
completed within 45 days of contract execution.

                                       42
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    During the year ended December 31, 1999, the Company exchanged subscriptions
on its public procurement network for services and advertising, consisting of
development of customized websites and designation as a preferred provider of
procurement services for another web site. Revenues were recorded at the fair
value of subscriptions given, with corresponding amounts recorded for expenses.
Such revenue represented 7 percent of total revenues for the year ended
December 31, 1999. No such transactions occurred during 2000.

    For software licensees who contract with the Company to host their
marketplaces, hosting revenue is recognized over the period the hosting services
are provided. Hosting contracts generally are terminable on 30-day notice and do
not impact the license and maintenance agreement.

    ADVERTISING:  Banner advertisements on the Company's public and private
procurement networks and slotting fees for vendors designated as "preferred" or
"exclusive" providers of a category of goods or services on the public
procurement network. Advertising revenue is recorded over the term of the
advertisements of slotting arrangements.

    OTHER:  Other revenues represent website development, transaction and
participation fees from groups buying services, and miscellaneous revenues.
Other revenues are generally recognized as earned or as services are provided.

    DEFERRED REVENUE:  The Company recognizes revenues as earned. Amounts billed
in advance of the period in which service is rendered are recorded as a
liability under "Deferred revenues."

ADVERTISING COSTS

    The cost of advertising is generally expensed as incurred. Advertising
expenses for the years ended December 31, 1998, 1999 and 2000 were $33,000,
$413,000 and $4.0 million.

STOCK-BASED COMPENSATION

    The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of 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 stated for the option. With respect to the stock options
granted since inception through December 31, 2000, the Company has recorded
deferred stock-based compensation of $27.3 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 on a staight-line basis
over the vesting period of the individual options. Unamortized stock-based
compensation totaled $3.9 million and $4.4 million, as of December 31, 1999 and
2000, respectively.

INCOME TAXES

    The Company recognizes deferred tax assets and liabilities for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets, including tax loss and credit carryforwards,

                                       43
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The components of the deferred tax assets and liabilities are
individually classified as current and non-current based on their
characteristics. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.

EARNINGS (LOSS) PER SHARE

    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 ("SAB") No. 98, REVISION OF
CERTAIN SAB TOPICS TO REFLECT THE PROVISIONS OF STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS (SFAS) NO. 128, EARNINGS PER SHARE AND SFAS NO. 130,
REPORTING COMPREHENSIVE INCOME, 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 years ended December 31, 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 $0.0035 per share.
All such warrants were exercised by December 31, 1999.

    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 two-for-one stock split which
occurred on October 12, 2000.

COMPREHENSIVE INCOME

    Comprehensive income consists of net income and other gains and losses
affecting shareholders' equity that, under generally accepted accounting
principles, are excluded from net income. For the Company, such items consisted
of unrealized gains on securities classified as available-for-sale. The
components of comprehensive income are as follows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                  DECEMBER 31, 1999             DECEMBER 31, 2000
                                             ---------------------------   ---------------------------
                                                             TAX EXPENSE                   TAX EXPENSE
                                             PRETAX AMOUNT    (CREDIT)     PRETAX AMOUNT    (CREDIT)
                                             -------------   -----------   -------------   -----------
<S>                                          <C>             <C>           <C>             <C>
Net loss applicable to common
  stockholders.............................     $(81,983)       $  --         $(72,811)       $  --
Unrealized gain (loss) on securities.......        6,484           --           (4,956)          --
                                                --------        -----         --------        -----
Total comprehensive income.................     $(75,499)       $  --         $(77,767)       $  --
                                                ========        =====         ========        =====
</TABLE>

                                       44
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH FLOWS

    Supplemental cash flow information including the Company's non-cash
investing and financing activities is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Other assets acquired with note payable.....................   $   50    $    --    $    --
                                                               ======    =======    =======
Other assets acquired with preferred stock..................   $   --    $   674    $    --
                                                               ======    =======    =======
Conversion of notes payable to equity.......................   $1,782    $   700    $    --
                                                               ======    =======    =======
Conversion of preferred stock to common stock...............   $   --    $16,381    $    --
                                                               ======    =======    =======
Value of warrants issued for editorial content rights.......   $   --    $10,747    $    --
                                                               ======    =======    =======
Obligations under capital leases............................   $   --    $    --    $   140
                                                               ======    =======    =======
Obligations under marketing and technology development
  agreements................................................   $   --    $    --    $48,137
                                                               ======    =======    =======
Warrants issued under marketing and technology development
  agreements................................................   $   --    $    --    $63,960
                                                               ======    =======    =======
Cash paid for interest, net of capitalized interest.........   $  166    $   124    $ 1,533
                                                               ======    =======    =======
</TABLE>

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. Marketable securities that have readily determinable fair values
are carried at fair value. The fair value of the long-term obligations are not
determinable due to the unique nature of such obligations.

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 1999, no customers accounted for more than 10 percent of
net revenues. During the year ended December 31, 2000, two customers each
accounted for 18 percent of net revenues. As of December 31, 1998, no customers
accounted for more than 10 percent of net accounts receivable. As of
December 31, 1999, one customer accounted for 26 percent of net accounts
receivable. As of December 31, 2000, two customers, one of which is America
Online, accounted for 46 percent of net accounts receivable.

                                       45
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    The Company depends on America Online ("AOL") for a substantial portion of
its revenues and anticipates that revenues from the AOL relationship will
constitute a substantial portion of the Company's revenues for the foreseeable
future. During the year ended December 31, 2000, the Company recognized
$4.9 million from subscriptions paid by AOL on behalf of its subscribers,
$10.5 million from revenue referred by AOL, and $2.0 million from software
license resold by AOL. If AOL is unable to continue to generate substantial
revenues for the Company or if its relationship with AOL proves unsuccessful,
changes, or deteriorates, the Company's business, operating results and
financial position would be seriously harmed.

MANAGEMENT'S USE OF ESTIMATES

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.

RECLASSIFICATIONS

    Certain reclassifications have been made to prior period financial
statements to conform to the 2000 presentation, which have no effect on
previously reported net income.

RECENTLY ISSUED ACCOUNTING STANDARDS

    In June 1998, the Financial Accounting Standards Board ("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 Nos. 137
and 138, which defer the effective date and amend portions of SFAS No. 133. SFAS
No. 133 will be effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company currently does not engage in, nor does
management expect the Company to engage in, derivative or hedging activities;
therefore, management does not believe that the adoption of SFAS No. 133 will
have a material impact on the Company's results of operations or financial
position.

    In December 1999, the SEC issued SAB No. 101, REVENUE RECOGNITION IN
FINANCIAL STATEMENTS, which summarizes the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB No. 101 requires, upon adoption, companies to report any changes in revenue
recognition as cumulative change in accounting principle at the time of
implementation in accordance with APB Opinion No. 20, ACCOUNTING CHANGES.
Management believes that the Company has followed the guidelines set forth in
SAB No. 101 as it relates to revenue recognition.

    In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"), ACCOUNTING
FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION--AN INTERPRETATION OF APB
25. This Interpretation clarifies (a) the definition of employee for purposes of
applying APB 25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequence of various

                                       46
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
modifications to the terms of a previously fixed stock option or award, and
(d) the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 became effective July 1, 2000, but certain conclusions in
FIN 44 cover specific events that occur after either December 15, 1998, or
January 12, 2000. The adoption of FIN 44 does not have a material effect on the
Company's financial statements.

(3) INTANGIBLE ASSETS

    As of December 31, 1999 and 2000, intangible assets consisted of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       2000
                                                              --------   --------
<S>                                                           <C>        <C>
AOL marketing and technology agreements.....................   $   --    $ 92,518
Gateway marketing agreement.................................       --      38,160
Other intangibles...........................................    1,120       7,095
                                                               ------    --------
                                                                1,120     137,773
Less -- accumulated amortization............................     (193)     (8,847)
                                                               ------    --------
Net intangible assets.......................................   $  927    $128,926
                                                               ======    ========
</TABLE>

    AMERICA ONLINE

    In March 2000, the Company entered into a series of agreements with AOL to
co-develop a new generation of the Company's marketplace technology and to
co-develop and market a co-branded marketplace. The Company and AOL will each
contribute technology to the development alliance and co-manage the development
of the new marketplace technology. The Company will pay AOL $20.0 million in
eight equal quarterly installments beginning August 1, 2000 and AOL will make
AOL programmers available to the development alliance. The Company has made
payments of $5.0 million through December 31, 2000 in connection with this
obligation. The parties also agreed to market the co-branded marketplace across
the AOL properties. The Company agreed to pay AOL $50.0 million for marketing
support in the form of advertising impressions. The Company paid $25.0 million
to AOL in March 2000 and the $25.0 million balance is payable in seven equal
quarterly installments beginning June 30, 2000. The Company has made total
payments of $10.7 million through December 31, 2000 in connection with this
obligation. The Company imputed interest at 10 percent on the total
$45.0 million of payments due to AOL. The discounted value of the payments have
been included in the accompanying consolidated balance sheets in the "Long-term
liabilities" and "Current portion of long-term liabilities" captions.

    The Company also issued AOL warrants to purchase up to 4,000,000 shares of
the Company's common stock. This warrant was amended in November 2000 (see
Note 7). The value of the 1,000,000 warrants that vested immediately was
determined to be $25.8 million using the Black Scholes model with the following
assumptions: risk-free interest rate of 7.0 percent; no expected dividend yield;
warrant term of 36 months; and an expected volatility of 45 percent. The total
net present value of future cash payments and the 1,000,000 warrants that vested
immediately have been recorded as an intangible long-term asset. The marketing
expense will be charged to sales and marketing expense as

                                       47
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(3) INTANGIBLE ASSETS (CONTINUED)
impressions are delivered, or on a straight-line basis, whichever is higher. For
the year ended December 31, 2000, the Company amortized approximately
$7.9 million to sales and marketing expense. The technology development costs
will be amortized to programming and development expense over three years (the
estimated useful life of such costs and the agreement term, including expected
renewals).

    The Company and AOL have agreed to a revenue sharing arrangement, under
which each will share revenue generated by the co-branded marketplace, including
network access fees, transaction fees and advertising revenue. The marketplace
was launched in September 2000. In addition, the Company and AOL will share
revenue resulting from the marketing of marketplaces utilizing the co-developed
technology to AOL's trading partners.

    At certain revenue thresholds and at certain times during the agreement
term, AOL has the option to (i) receive a share of the revenue from the decision
point forward, or (ii) receive a cash payment of $25.0 million in exchange for
providing additional future advertising. The contingent payment will be accrued
as revenue is earned, and a corresponding prepaid marketing expense will be
recorded. Should AOL elect the revenue share, the asset and liability will be
eliminated at that time.

    GATEWAY

    In September 2000, the Company entered into agreements with Gateway pursuant
to which (i) the Company agreed to acquire approximately $500,000 of computer
hardware from Gateway, (ii) Gateway agreed to acquire three marketplace software
licenses from the Company for approximately $3.3 million, and (iii) Gateway
agreed to provide the Company with certain training services for customers using
the Company's global e-commerce marketplace, including the Gateway marketplaces
to be powered by the Company (the "Gateway Marketplaces"), and certain marketing
services in connection with the Gateway Marketplaces and the Company's global
marketplace. The services shall be rendered during a two-year period, and the
aggregate contractual value of the services shall be at least $40 million. The
Company issued warrants as consideration for the training and marketing services
to be rendered by Gateway (see Note 7).

    The minimum value of the training and marketing services to be received has
been determined to be at least equal to the value of the warrants issued. The
training services were valued based upon the estimated number of training units
to be offered and the estimated fair value of each unit using information
obtained from other companies that provide similar training services. The
marketing services were valued based primarily upon the estimated number of
icons to be placed on computers sold by Gateway, to their small- and
medium-sized business customers, based on an independent appraisal. The value of
these marketing and training services has been deferred and will be amortized
over the life of the contract on the faster of the straight-line basis or as the
services are used.

OTHER INTANGIBLES

    Intangible assets also includes the costs of technology and a non-compete
agreement with two individuals. These assets are being amortized over a 36-month
and 60-month period, respectively. Other intangible assets also includes the
purchase of a software license and trademarks, which are being

                                       48
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(3) INTANGIBLE ASSETS (CONTINUED)
amortized over a 60-month period. Amortization expense was $0, $194,000 and
$705,000 for the years ended December 31, 1998, 1999 and 2000, respectively.

(4) INVESTMENTS IN OTHER COMPANIES

    The Company's investments comprise convertible notes, preferred stock and
common stock. Investments are carried at fair market value, if determinable.
Investments in private companies are not marked to market, as exempted by SFAS
No. 115. All investments are held in the Company's name. The specific
identification method is used to determine the cost of securities disposed of,
with realized gains and losses reflected in other income and expense. As of
December 31, 1999 and 2000, all of the Company's investments were classified as
available-for-sale. Unrealized gains and losses on these investments are
included as a separate component of stockholders' equity.

    The following table summarizes the Company's investments (in thousands):

<TABLE>
<CAPTION>
                                                                    GROSS        GROSS
                                                      AMORTIZED   UNREALIZED   UNREALIZED   ESTIMATED
                                                        COST        GAINS        LOSSES     FAIR VALUE
                                                      ---------   ----------   ----------   ----------
<S>                                                   <C>         <C>          <C>          <C>
DECEMBER 31, 1999
  Common stocks.....................................   $ 2,603      $6,484        $  --      $ 9,087

DECEMBER 31, 2000
  Common stocks.....................................   $ 1,000      $1,528        $  --      $ 2,528
</TABLE>

    The Company also has investments in convertible notes and preferred stocks
totaling $3.5 million and $13.2 million as of December 31, 1999 and 2000,
respectively.

(5) NOTES PAYABLE

    The Company's Chief Executive Officer (the "Principal Stockholder") provided
funds to finance development of the Company's product. In January 1998, the
Company repaid $813,000 to the Principal Stockholder with proceeds from the
Lenders' Notes Payable (see below) and the remaining obligation of $1.7 million
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
and the Principal Stockholder contributed his remaining notes payable and
advances totaling approximately $1.8 million to the Company in consideration for
previously issued shares of common stock. The Company recorded the $1.8 million
as additional paid-in capital.

    In January 1998, the Company issued promissory notes totaling $2.3 million
(the "Lenders' Notes Payable") to several individuals (the "Lenders"). The
Lenders were also issued 6,900,000 shares of the Company's common stock. The
Lenders' Notes Payable were repaid in June 1998 and the Lenders contributed
4,425,000 shares of common stock back to the Company (see Note 7). The Company
allocated the $2.3 million 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.

                                       49
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(5) NOTES PAYABLE (CONTINUED)
    In September 1998, the Company issued promissory notes to three individuals,
including the Principal Stockholder and a then-member of the Company's Board of
Directors, totaling $1.5 million. In connection with the issuance of these
notes, the Company issued 479,998 warrants to the note holders whereby each
warrant provided the holder the right to purchase one share of Company common
stock for $0.0035 per share through September 2003. Using the Black-Scholes
pricing model, the Company determined the value of these warrants to be $0.83
per share, or $398,400. The Company recognized the $398,400 as an original issue
discount that was being amortized to interest expense. In June 1999, $700,000 of
the notes payable were converted into 600,000 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 7).

(6) 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 approximately $280,000, $418,000, and
$2.4 million for the years ended December 31, 1998, 1999, and 2000,
respectively. Minimum future lease obligations under non-cancelable operating
leases in effect at December 31, 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,                                       AMOUNT
------------------------                                      --------
<S>                                                           <C>
2001........................................................  $ 4,130
2002........................................................    3,834
2003........................................................    3,240
2004........................................................    2,728
2005........................................................    2,575
Thereafter..................................................   12,566
                                                              -------
  Total.....................................................  $29,073
                                                              =======
</TABLE>

    The Company has also committed to lease approximately 30,000 square feet of
additional office space for 10 years, effective the second half of 2001. This
office space will result in an additional $660,000 per year in rent expense.

LEGAL PROCEEDINGS

    The Company is involved in various routine legal proceedings incidental to
its normal course of business. The Company does not believe that any of these
legal proceedings will have a material adverse effect on the financial
condition, results of operations or cash flows.

    In February, 2001, All Creative Technologies, Inc. (the "Plaintiff") filed a
lawsuit in the Eighth Judicial District Court, Clark County, Nevada, Case
No. A43337, against PurchasePro.com, Charles E. Johnson, Jr., the Company's
Chairman and CEO, and Ranel Erickson, the Company's former VP of Research and
Development. The complaint alleges violations of the Nevada Racketeering,
Influence and Corruption Act ("RICO"), and misappropriation of trade secrets by
Mr. Johnson and

                                       50
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Mr. Erickson, unlawful acquisition of trade secrets by the Company, and breach
of contract by Mr. Johnson. The complaint seeks compensatory damages in excess
of $10,000 for each of the four causes of action, treble damages with respect to
the civil RICO claim, and exemplary damages with respect to the unlawful
acquisition of trade secrets, as well as costs and attorney fees. The exact
monetary amount being sought is unknown at this time. Although the Company is
currently unable to predict the ultimate outcome of this lawsuit, the Company
believes there is no merit to the suit and intends to vigorously defend this
action.

(7) STOCKHOLDERS' EQUITY

COMMON STOCK

    All share and per share amounts have been restated to give effect to the
three-for-two stock split that occurred on December 14, 1999 and the two-for-one
stock split that occurred on October 12, 2000.

    The Company has authorized the issuance of 190,000,000 shares of common
stock.

    In connection with the repayment of the Lenders' Notes Payable in June 1998
(see Note 5), the Company and the Lenders entered into an agreement whereby
4,425,000 shares were contributed back to the Company. Accordingly, the number
of shares held by the Lenders was reduced to 2,475,000. In connection with the
same agreement and in connection with the Series A Preferred Stock offering, two
of the founders of the Company contributed an aggregate of 2,775,000 shares of
common stock to the Company.

    In June 1998, the Principal Stockholder sold 900,000 of his shares of common
stock to an unrelated third party for $0.035 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 $0.83 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 4,410,000 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 September 1999, the Company completed an initial public offering ("IPO")
in which it sold 13,800,000 shares of common stock, including 1,800,000 shares
in connection with the exercise of the underwriters' over-allotment option, at
$4.00 per share. The Company received approximately $50 million in cash, net of
underwriting discounts, commissions and other offering costs. 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 16,200,000 shares of common
stock (see below).

    In February 2000, the Company completed a follow-on offering in which it
sold 6,000,000 shares of common stock, including 2,000,000 shares sold by
stockholders in connection with the exercise of the underwriters' over-allotment
option, at $40 per share. The Company received $150.7 million in cash, net of
underwriting discounts, commissions and other offering costs.

    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 1,350,000 shares of common stock pursuant to certain anti-dilution
rights of the holders of Series A Preferred Stock.

                                       51
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(7) STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK

    In June 1998, the Company issued 6,300,000 shares of 8% Series A Convertible
Preferred Stock, par value $0.001 ("Series A"). In June 1998, the Company sold
the 6,300,000 Series A shares at $0.83 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 1,200,000 shares of common stock, including warrants to purchase
1,140,000 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 $0.0035 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 9,900,000 shares of 8% Series B Convertible
Preferred Stock, par value $0.001 ("Series B") for $1.17 per share and received
aggregate proceeds of $11.4 million net of offering costs of $150,000.

    Prior to the completion of the Series B offering, the Company had received
cash totaling approximately $3.1 million pursuant to Series B subscription
agreements. Of this amount, $2.0 million 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 had a
beneficial conversion feature totaling $9.4 million, measured as the difference
between the conversion price of $1.17 per share and the fair value of the
underlying common stock at the time of issuance. The beneficial conversion
feature was 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.

    Of the 9,900,000 Series B shares issued, 600,000 shares were issued to
holders of the September 1998 Notes, including a former member of the Company's
Board of Directors (see Note 5). 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 500,000 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 127,500 shares of Series B to an
individual in exchange for his rescission of a future right to acquire up to
35 percent of PPS.

    In September 1999 at the time 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.

                                       52
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(7) STOCKHOLDERS' EQUITY (CONTINUED)

COMMON STOCK WARRANTS

    In July 1999, the Company issued 1,500,000 warrants to Office Depot, Inc.,
whose Chairman was a member of the Company's board of directors until 2000. The
exercise price for the warrants was $4.00 per share. At the time of issuance,
the Company did not recognize a charge. In connection with the Company's
follow-on offering in February 2000, the strategic marketing partner exercised
555,554 warrants. As of December 31, 2000, 944,446 warrants remain outstanding
and exercisable.

    In November 1999, the Company issued 1,050,000 common stock warrants valued
at $10.7 million to a strategic marketing partner in exchange for a right to use
editorial content. The fair value of the warrants was determined using the
Black-Scholes pricing model with the following assumptions: risk-free interest
rate of 5.3 percent; no expected dividend yield; warrant term of 6 months; and
an expected volatility of 100 percent. The value of the content was determined
through an independent appraisal. The strategic partner exercised all of the
warrants during 2000. A charge for the unamortized value of the asset was
recognized in 2000 (see Note 2).

    In December 1999, the Company issued 2,700,000 common stock warrants valued
at $50.1 million to a strategic marketing partner. The value of the warrant is
included in the consolidated statements of operations as sales and marketing
expense. The fair value of the warrants issued was determined using the
Black-Scholes pricing model with the following assumptions: risk-free interest
rate of 7 percent; no expected dividend yield; warrant term of 1.5 years; and an
expected volatility of 75 percent. The value of the warrants was expensed
immediately as they were fully vested and the strategic marketing partner has no
further obligations related to the warrants. The strategic marketing partner may
earn the right to exercise an additional 2,700,000 warrants if certain
performance conditions are met. As of December 31, 2000, none of the vested
warrants had been exercised.

    In March 2000, the Company issued to AOL warrants to purchase up to
4,000,000 shares of the Company's common stock at an exercise price of $63.26,
of which 1,000,000 warrants vested immediately. The warrants are exercisable
from the time they vest until March 2003. In November 2000, the Company and AOL
amended and restated the March 2000 warrant agreement. For the 3,000,000
performance-based warrants that had not been earned as of the date of the
amendment, the strike price was adjusted to $0.01 per share. In exchange for the
reduced strike price, the defined revenue for which AOL can vest the
performance-based warrants was expanded to include software license fees
recognized by the Company that resulted from referrals from AOL. The formula for
vesting warrants on referral revenue is that for each $1 of revenue generated
from the referrals during a fiscal quarter, AOL is able to earn a number of
warrants calculated as three times the revenue recognized divided by the
estimated fair value, as defined. The agreement limits the total recognized
revenue allowed in the calculation to $10.0 million in the quarter ended
December 31, 2000, $15.0 million in the quarter ending March 31, 2001 and
$20.0 million in the quarter ending June 30, 2001. For the quarter ended
December 31, 2000, AOL earned approximately 1.8 million warrants, and the
Company recognized a non-cash expense of $30.0 million that is included in sales
and marketing expense in the accompanying consolidated statements of operations.

    In September 2000, as consideration for training and marketing services to
be rendered by Gateway, the Company issued three separate warrants to purchase
an aggregate of 3,000,000 shares of

                                       53
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(7) STOCKHOLDERS' EQUITY (CONTINUED)
Company common stock at an exercise price of $29.75 per share. Of the warrants,
1,000,000 vested and are exercisable immediately and another 1,000,000 vested
and became exercisable on October 31, 2000. The remaining 1,000,000 warrants may
vest and become exercisable over a period of eighteen months, with one share
vesting for each $40 in revenue generated from transaction fees charged for
transactions executed over the Gateway Marketplaces. The value of these
warrants, using the Black Scholes model, totaled $38.2 million. The following
assumptions were used: risk-free interest rate of 6.5 percent; no expected
dividend yield; warrant term of 12 months; and an expected volatility of
64 percent. The value of the warrant is recorded as additional paid-in capital.
See Note 3 for further discussion of the agreement. As of December 31, 2000,
none of the vested warrants had been exercised.

(8) 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 9,000,000.
As of December 31, 1999 and December 31, 2000, the Company had options
outstanding totaling 7,866,352 and 3,365,486 to employees under the 1998 Plan.
Generally, the options have five-year terms and are exercisable as follows:
Class A options, 50 percent at the end of each of the first two years after
grant; Class B options, 33 percent at the end of each of the first three years
after grant; and Class C options, 25 percent at the end of each of the first
four years after the date of grant. Through December 31, 1999 and 2000, the
Company had issued a total of 1,110,000 options to non-employees, including
615,000 issued to members of the Board of Directors. These options were issued
with exercise prices ranging from $0.83 to $1.17. The value of these options
using the Black-Scholes option-pricing model was determined to be approximately
$1.1 million, of which $800,000 was charged to non-cash strategic marketing
expense for options granted primarily to a strategic marketing partner.
Remaining amounts will be amortized over the vesting periods of the options. As
of December 31, 2000, 317,750 non-employee options were outstanding under the
1998 Plan.

    1999 STOCK OPTION PLAN--The 1999 Stock Plan (the "1999 Plan") was adopted by
the Company's Board of Directors in June 1999. The 1999 Stock Plan provided for
the issuance of 4,500,000 shares of common stock, incentive stock options
("ISOs"), or non-statutory stock options to employees, directors, independent
contractors and advisers until July 2000, when stockholders approved an
amendment to the 1999 plan that increased total shares available to 13,500,000.
The number of shares eligible for issuance increases each year by 3.25 percent
of the number of shares of common stock outstanding at the prior calendar
year-end. At December 31, 1999 and 2000, the Company had options outstanding
totaling 4,124,600 and 11,089,517, respectively, to employees under the 1999
Stock Plan. The exercise price for ISOs is generally at least 100 percent of the
fair market value of the stock on the date of grant, and 110 percent for
stockholders with 10 percent 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. Through December 31, 2000, the
Company had issued a total of 24,500 options to non-employees and 150,000
options to members of the Board of Directors. These options were issued with
exercise prices ranging from $10.58 to $23.92. As of December 31, 2000, 2,000
non-employee options were outstanding under the 1999 Plan.

                                       54
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(8) STOCK OPTION PLANS (CONTINUED)
    A summary of the options granted to employees under the Company's plans as
of December 31, 1998, 1999 and 2000 is presented below (shares in thousands):

<TABLE>
<CAPTION>
                                                     DECEMBER 31,          DECEMBER 31,          DECEMBER 31,
                                                         1998                  1999                  2000
                                                  -------------------   -------------------   -------------------
                                                             WEIGHTED              WEIGHTED              WEIGHTED
                                                             AVERAGE               AVERAGE               AVERAGE
                                                             EXERCISE              EXERCISE              EXERCISE
                                                   NUMBER     PRICE      NUMBER     PRICE      NUMBER     PRICE
                                                  --------   --------   --------   --------   --------   --------
<S>                                               <C>        <C>        <C>        <C>        <C>        <C>
Options Outstanding, Beginning of year..........      --      $  --       2,130     $0.83      10,427     $ 5.94
Granted.........................................   2,130      $0.83       9,094     $7.09      10,901     $30.47
Exercised.......................................      --      $  --        (538)    $0.90      (4,280)    $ 2.46
Cancelled.......................................      --      $  --        (259)    $1.23      (2,593)    $19.87
                                                   -----                 ------                ------
Options Outstanding, End of year................   2,130      $0.83      10,427     $5.94      14,455     $22.98
                                                   =====                 ======                ======
</TABLE>

    The following table summarizes information about the options outstanding at
December 31, 2000 (shares in thousands):

<TABLE>
<CAPTION>
                                                    OPTIONS OUTSTANDING                OPTIONS EXERCISABLE
                                          ----------------------------------------   ------------------------
                                                          WEIGHTED
                                                           AVERAGE       WEIGHTED                   WEIGHTED
                                                          REMAINING      AVERAGE                    AVERAGE
                                            NUMBER      CONTRACT LIFE    EXERCISE      NUMBER       EXERCISE
            RANGE OF PRICES               OUTSTANDING      (YEARS)        PRICE      EXERCISABLE     PRICE
----------------------------------------  -----------   -------------   ----------   -----------   ----------
<S>                                       <C>           <C>             <C>          <C>           <C>
              $0.83--$3.60                    2,667         8.30          $ 1.24        1,766        $ 1.19
             $3.61--$18.99                    2,544         9.16          $10.51          513        $ 8.11
             $19.00--$23.99                   5,372         9.60          $20.81        1,200        $20.13
             $24.00--$53.99                   2,960         9.19          $36.91          104        $44.92
             $54.00--$75.15                     912         9.11          $61.89          105        $62.08
                                             ------                                    ------
                                             14,455                                     3,688
                                             ======                                    ======
</TABLE>

    For stock options granted to employees from January through December 2000,
with an exercise price less than the fair value on the date of grant, the
Company recorded deferred stock-based compensation of $17.6 million. This amount
is being amortized to operating expense over the vesting period of the
individual options. 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

                                       55
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(8) STOCK OPTION PLANS (CONTINUED)
Company's net loss applicable to common stock and loss per share would have
increased to the following pro forma amounts (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net Loss Applicable to Common Stockholders
  As Reported...............................................  $(7,135)   $(81,983)  $(72,811)
                                                              =======    ========   ========
  Pro Forma.................................................  $(7,205)   $(86,002)  $(98,446)
                                                              =======    ========   ========
Basic Loss per Share
  As Reported...............................................  $ (0.28)   $  (2.44)  $  (1.15)
                                                              =======    ========   ========
  Pro Forma.................................................  $ (0.28)   $  (2.56)  $  (1.55)
                                                              =======    ========   ========
Diluted Loss per Share
  As Reported...............................................  $ (0.26)   $  (2.39)  $  (1.15)
                                                              =======    ========   ========
  Pro Forma.................................................  $ (0.26)   $  (2.51)  $  (1.55)
                                                              =======    ========   ========
</TABLE>

    The fair value of each option grant was determined using the Black-Scholes
option-pricing model, which values options based on the stock price at the grant
date, the expected life of the option, the estimated volatility of the stock,
the expected dividend payments, and the risk-free interest rate over the
expected life of the option. The assumptions used in the Black-Scholes model
were as follows for stock options granted in over the three-year period:

<TABLE>
<CAPTION>
                                                                1998        1999       2000
                                                              ---------   --------   --------
<S>                                                           <C>         <C>        <C>
Risk-free interest rate.....................................          7%        6%         6%
Expected volatility of common stock.........................          0%      116%       118%
Dividend yield..............................................         --        --         --
Expected life of options....................................              2 years    3 years
  Class A...................................................  1.5 years
  Class B...................................................  2.0 years
  Class C...................................................  2.5 years
</TABLE>

                                       56
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(9) EARNINGS PER SHARE

    The computations of basic and diluted earnings per share for each period
were as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                               FOR THE YEAR ENDED DECEMBER 31,
                                                              ---------------------------------
                                                                1998        1999        2000
                                                              ---------   ---------   ---------
<S>                                                           <C>         <C>         <C>
LOSS (NUMERATOR)
Net loss....................................................   $(6,800)   $(71,941)   $(72,811)
Preferred stock dividends...................................      (245)       (511)         --
Accretion of preferred stock to redemption value............       (90)       (131)         --
Value of preferred stock beneficial conversion feature......        --      (9,400)         --
                                                               -------    --------    --------
Basic EPS
  Net loss applicable to common stockholders................   $(7,135)   $(81,983)   $(72,811)
                                                               =======    ========    ========
Diluted EPS
  Net loss applicable to common stockholders after assumed
    conversions.............................................   $(7,135)   $(81,983)   $(72,811)
                                                               =======    ========    ========
SHARES (DENOMINATOR)
Basic EPS
  Weighted average shares outstanding.......................    25,800      33,598      63,399
Effect of securities issued for nominal consideration
  warrants..................................................     1,680       1,680          --
Exercise of Warrants........................................        --      (1,005)         --
                                                               -------    --------    --------
Diluted EPS
  Weighted average shares outstanding.......................    27,480      34,273      63,399
                                                               =======    ========    ========
Per Share Amount
Basic EPS...................................................   $ (0.28)   $  (2.44)   $  (1.15)
                                                               =======    ========    ========
Diluted EPS.................................................   $ (0.26)   $  (2.39)   $  (1.15)
                                                               =======    ========    ========
</TABLE>

    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 SAB No. 98, REVISION OF CERTAIN SAB TOPICS TO REFLECT THE
PROVISIONS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 128,
EARNINGS PER SHARE AND SFAS NO. 130, REPORTING COMPREHENSIVE INCOME, 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 years ended December 31, 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 $0.0035 per share. All such warrants were exercised by
December 31, 1999.

    Options to purchase 2,549,550, 11,462,400, and 14,894,753 shares of common
stock were outstanding as of December 31, 1998, 1999 and 2000, 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 anti-dilutive.

                                       57
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(9) EARNINGS PER SHARE (CONTINUED)
    Warrants to purchase 0, 7,950,000 and 13,344,446 shares of common stock were
outstanding as of December 31, 1998, 1999 and 2000, 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
anti-dilutive.

(10) INCOME TAXES

    SFAS No. 109 requires the recognition of deferred tax assets and
liabilities, 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 full valuation allowance is
applied. At December 31, 1998, 1999 and 2000, the Company believes that the
"more likely than not" criteria has not been met, and accordingly, a full
valuation allowance has been recognized. The Company did not record any
provision (benefit) for income taxes for the years ended December 31, 1998,
1999, and 2000 because it experienced net losses and generated net operating
losses for tax purposes. As of December 31, 2000, the Company has approximately
$82 million of net operating loss carryforwards, which expire in 2018 and 2019.
The Company's utilization of its net operating loss carryforwards will be
limited pursuant to Internal Revenue Code Section 382 due to cumulative changes
in ownership in excess of 50 percent 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 (in thousands):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Income tax benefit computed at Federal statutory rate.......  $(2,380)   $(25,179)  $(25,484)
Permanent and other items...................................       11          36         77
Change in valuation allowance...............................    2,369      25,143     25,407
                                                              -------    --------   --------
                                                              $    --    $     --   $     --
                                                              =======    ========   ========
</TABLE>

                                       58
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(10) INCOME TAXES (CONTINUED)

    The significant tax effected components of the Company's net deferred tax
assets and liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Deferred Tax Assets
  Net operating loss carryforward...........................  $  7,450   $ 28,841
  Trade accounts receivable.................................       182        846
  Deferred revenue..........................................       149      1,122
  Accruals and reserves.....................................       105      4,582
  Equity-based expenses.....................................    17,824     28,324
  Stock-based compensation..................................     2,023         --
                                                              --------   --------
                                                                27,733     63,715
  Less -- valuation allowance...............................   (27,512)   (52,919)
                                                              --------   --------
    Total deferred tax assets...............................       221     10,796
Deferred Tax Liabilities
  Depreciation and amortization.............................      (221)    (3,942)
  Stock-based compensation..................................        --     (6,854)
                                                              --------   --------
    Total deferred tax liabilities, net.....................  $     --   $     --
                                                              ========   ========
</TABLE>

(11) RETIREMENT BENEFIT PLAN

    In October 1999, the Company instituted a defined contribution 401(k) plan
for eligible employees. Employees may contribute from 1 to 20 percent of their
annual compensation to the Plan, limited to a maximum annual amount as set
periodically by the Internal Revenue Service. Since inception of the 401(k)
plan, the Company has not matched employee contributions, nor has it contributed
any discretionary amounts to the plan.

(12) RELATED PARTY TRANSACTIONS

    One of the founding stockholders of the Company provided significant
services designing the Company's technology. The Company paid the stockholder
for his services. Payments totaling $72,000, $93,000 and $0 are included in
programming and development expense for the years ended December 31, 1998, 1999
and 2000, respectively. There were no amounts owed to the stockholder as of
December 31, 1999 and 2000. In January 1998, concurrent with the 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.

    The Company paid certain costs on behalf of a company owned by a former
member of the Board of Directors. At December 31, 1999 and 2000, there was
$162,000 and $399,000, respectively, due to the Company, which is included in
other receivables in the accompanying consolidated balance sheets. Subsequent to
each respective year end, all amounts due the Company were collected.

    In 1998, the Company entered into an agreement to lease its corporate office
space from a company owned by individuals who were then members of the Company's
Board of Directors. Terms of

                                       59
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(12) RELATED PARTY TRANSACTIONS (CONTINUED)
the lease require monthly base payments of $29,000, which is adjusted on an
annual basis, but in no case is the adjustment greater than five percent. During
the year ended December 31, 1998, the Company did not pay any amounts under
terms of the lease agreement and recorded expense related to the lease totaling
approximately $20,000. During the years ended December 31, 1999 and 2000, the
Company paid $308,000 and $1.2 million, respectively, under the terms of the
lease agreement. In management's opinion, the terms of the lease are comparable
to terms that the Company would receive from an independent third party.

    The Company recorded $500,000 and $514,000 in revenue for the years ended
December 31, 1999 and 2000, respectively, from a customer, whose Chairman of the
Board is a former member of the Company's Board of Directors. These revenues are
included in network access and service fees, software license fees, and
advertising revenue in the accompanying consolidated statements of operations.

    In 2000, the Company recorded $11.5 million in revenue from a strategic
marketing partner, whose former Chief Executive Officer is a former member of
the Company's Board of Directors. These revenues were included in network access
and services fees and advertising revenue in the accompanying consolidated
statements of operations.

    In 2000, the Company paid $50,000 in consulting fees to an investment
banking firm, where a member of the Company's Board of Directors is a senior
executive.

(13) SUBSEQUENT EVENTS (UNAUDITED)

    On January 16, 2001, PurchasePro.com, Inc. completed its acquisition of all
the outstanding stock of Stratton Warren Software, Inc. ("Stratton Warren"), a
company that designs and markets software for hotels, resorts, casinos, and
other food service operations with purchasing, inventory and materials
management requirements. Stratton Warren's principal assets include its
intellectual property and software, in addition to numerous license and
maintenance agreements with companies that license and use Stratton Warren's
software. The total consideration for the acquisition consisted of:

    1.  $1.5 million in cash, paid on October 30, 2000, plus $3.5 million used
       by Stratton Warren to redeem certain of its shares held by one of its two
       shareholders prior to completion of the acquisition. After redemption of
       this shareholder's shares, there was one remaining shareholder of
       Stratton Warren;

    2.  $9.0 million in shares of common stock of the Company (which totaled
       541,353 shares based on the closing price of the Company's common stock
       on January 16, 2001); and

    3.  $500,000 in cash deposited in escrow to secure indemnification
       obligations of Stratton Warren's sole remaining shareholder to be
       distributed ninety days after the closing date.

    The transaction will be accounted for as a purchase business combination,
with the purchase price allocated based on the fair values of the net assets
acquired.

    The consideration for the outstanding stock of Stratton Warren was
determined through arms-length negotiations. The cash portion of the purchase
price for the shares of Stratton Warren was provided from the Company's working
capital. Stratton Warren redeemed all outstanding shares of Stratton Warren held
by one of its two shareholders for a total of $3.5 million in cash, which amount
was provided to Stratton Warren by the Company for such purpose. Stratton
Warren's obligation to

                                       60
<PAGE>
                      PURCHASEPRO.COM, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(13) SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
make such payment and redeem such shares was guaranteed by the sole remaining
shareholder. Also, in connection with the acquisition, the Company entered into
a non-competition and non-disclosure agreement with the sole remaining
shareholder.

(14) QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  QUARTER ENDED,
                                                              -----------------------
                                                   MARCH 31   JUNE 30    SEPTEMBER 30   DECEMBER 31
                                                   --------   --------   ------------   -----------
                                                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                <C>        <C>        <C>            <C>
1998
Total revenues...................................  $    236   $    293      $   502      $    639
                                                   ========   ========      =======      ========
Gross profit.....................................  $    138   $    179      $   379      $    528
                                                   ========   ========      =======      ========
Net loss applicable to common stockholders.......  $ (1,258)  $ (2,258)     $(1,643)     $ (1,977)
                                                   ========   ========      =======      ========
Loss per share:
  Basic EPS......................................  $  (0.04)  $  (0.08)     $ (0.07)     $  (0.09)
                                                   ========   ========      =======      ========
  Diluted EPS....................................  $  (0.04)  $  (0.08)     $ (0.07)     $  (0.08)
                                                   ========   ========      =======      ========
1999
Total revenues...................................  $    674   $  1,006      $ 1,670      $  2,667
                                                   ========   ========      =======      ========
Gross profit.....................................  $    511   $    819      $ 1,452      $  2,399
                                                   ========   ========      =======      ========
Net loss applicable to common stockholders.......  $ (2,710)  $(13,643)     $(7,786)     $(57,844)
                                                   ========   ========      =======      ========
Loss per share:
  Basic EPS......................................  $  (0.12)  $  (0.57)     $ (0.25)     $  (1.03)
                                                   ========   ========      =======      ========
  Diluted EPS....................................  $  (0.11)  $  (0.55)     $ (0.25)     $  (1.03)
                                                   ========   ========      =======      ========
2000
Total revenues...................................  $  4,550   $  9,514      $17,337      $ 33,590
                                                   ========   ========      =======      ========
Gross profit.....................................  $  4,237   $  8,814      $15,847      $ 31,606
                                                   ========   ========      =======      ========
Net loss applicable to common stockholders.......  $(15,668)  $(12,154)     $(8,231)     $(36,758)
                                                   ========   ========      =======      ========
Loss per share:
  Basic EPS......................................  $  (0.27)  $  (0.19)     $ (0.13)     $  (0.55)
                                                   ========   ========      =======      ========
  Diluted EPS....................................  $  (0.27)  $  (0.19)     $ (0.13)     $  (0.55)
                                                   ========   ========      =======      ========
</TABLE>

                                       61
<PAGE>
       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE

To PurchasePro.com, Inc.:

    We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements included in
PurchasePro.com, Inc.'s (the "Company") Form 10-K and have issued our report
thereon dated February 12, 2001. Our audits were made for the purpose of forming
an opinion on those financial statements taken as a whole. The supplemental
Schedule II as shown on page 63 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 12, 2001

                                       62
<PAGE>
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                         ACCOUNTS RECEIVABLE ALLOWANCES

<TABLE>
<CAPTION>
                                                            CHARGED TO
                                                BEGINNING   COSTS AND
                                                 BALANCE     EXPENSES    DEDUCTIONS   ENDING BALANCE
                                                ---------   ----------   ----------   --------------
<S>                                             <C>         <C>          <C>          <C>
Year ended December 31, 1998..................  $ 72,796    $  127,204   $       --     $  200,000
Year ended December 31, 1999..................  $200,000    $1,078,235   $  684,235     $  594,000
Year ended December 31, 2000..................  $594,000    $3,393,019   $1,516,352     $2,470,667
</TABLE>

                                       63
<PAGE>
ITEM 9: CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURES

    None

                                    PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11: EXECUTIVE COMPENSATION

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information called for by PART III (Items 10, 11, 12, and 13) has been
omitted, as the Company intends to file with the Securities and Exchange
Commission not later than 120 days after the end of its fiscal year, a
definitive Proxy Statement pursuant to regulation 14A, and such information is
incorporated herein by reference.

                                    PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

    (a)(1) FINANCIAL STATEMENTS

    The financial statements appear in Item 8 to this Form 10-K.

    (2) FINANCIAL STATEMENT SCHEDULES

    Schedule II--Valuation and Qualifying Accounts appear in Item 8 to this
Form 10-K.

    The other financial statement schedules have been omitted since they are
either not required, not applicable, or the information is otherwise included.

    (3) EXHIBITS

    The exhibits listed below are required by Item 601 of Regulation S-K. Each
management contract or compensatory plan or arrangement required to be filed as
an exhibit to this Form 10-K has been identified.

    (a) EXHIBITS

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                   DESCRIPTION
---------------------   ------------------------------------------------------------
<S>                     <C>
 2.1                    Stratton Warren Software, Inc. Stock Purchase Agreement
                        dated October 30, 2000 (incorporated by reference to the
                        Company's Current Report on Form 8-K, filed January 31,
                        2001).

 3(i).1                 Certificate of Amendment to Amended and Restated Articles of
                        Incorporation (incorporated by reference to the Company's
                        Quarterly Report on Form 10-Q for the quarter ended June 30,
                        2000).

 3(ii).1                Bylaws of the Registrant, as amended (incorporated by
                        reference to the Company's Quarterly Report on Form 10-Q for
                        the quarter ended September 30, 1999).

 4.1                    Form of Common Stock Certificate. +

10.1*                   Form of Indemnification Agreement between the Registrant and
                        each of its directors and officers. +
</TABLE>

                                       64
<PAGE>

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                   DESCRIPTION
---------------------   ------------------------------------------------------------
<S>                     <C>
10.2*                   1998 Stock Option and Incentive Plan and forms of agreements
                        thereunder. +

10.3*                   1999 Stock Plan. (incorporated by reference to the Company's
                        Registration Statement on Form S-1 (No. 333-01865) and by
                        reference to the Company's Definitive Proxy Statement, filed
                        June 15, 2000).

10.4*                   Letter of Employment between Registrant and Charles E.
                        Johnson, Jr. +

10.5*                   Letter of Employment between Registrant and Robert G. Layne.
                        +

10.6                    Warrant dated as of July 22, 1999, by and between Registrant
                        and Office Depot, Inc. +

10.7*                   Letter of Employment between Registrant and Richard Moskal.
                        ++

10.8                    Warrant Purchase Agreement dated November 29, 1999 by the
                        Company and Sprint Communications Company L.P. ++

10.9                    Warrant to Purchase Common Stock of the Company dated
                        November 1999 (issued to Sprint Communications, L.P.). ++

10.10                   Amendment to Warrant to Purchase Common Stock of the Company
                        dated December 6, 1999 (by Sprint). ++

10.11                   AOL Technology Development Agreement. **

10.12                   AOL Interactive Marketing Agreement. ** ##

10.13                   Advanstar Warrant Agreement Amendment No. 1 (incorporated by
                        reference to the Company's Quarterly Report on Form 10-Q for
                        the quarter ended September 30, 2000).

10.14                   Training and Management Services Agreement by and between
                        the Company and Gateway Companies, Inc., dated September 29,
                        2000.*** ##

10.15                   Warrant Agreement by and between the Company and Gateway
                        Companies, Inc.***

10.16                   Warrant Agreement by and between the Company and Gateway
                        Companies, Inc.***

10.17                   Warrant Agreement by and between the Company and Gateway
                        Companies, Inc.***

10.18                   AOL Amended and Restated Warrant Agreement dated November
                        18, 2000.

10.19                   AOL Bulk Subscription Sales Agreement dated December 1,
                        2000.

10.20                   E-MarketPro Amended and Restated Assignment Agreement dated
                        November 3, 2000.

10.21                   AuctioNet.com, Inc. License Agreement dated December 29,
                        2000.

10.22                   BroadVision PurchasePro Master Agreement dated December 19,
                        2000. #

10.23*                  Employment Agreement between the Company and Jeffrey
                        Anderson

10.24*                  Employment Agreement between the Company and James P. Clough

10.25*                  Employment Agreement between the Company and Joseph Michael
                        Kennedy

10.26*                  Employment Agreement between the Company and Shawn P. McGhee

23.1                    Consent of Arthur Andersen LLP.
</TABLE>

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

+  Incorporated by reference to the Company's Registration Statement on
    Form S-1 (No. 333-01865).

++ Incorporated by reference to the Company's Registration Statement on
    Form S-1 (No. 333-92303).

                                       65
<PAGE>
*   Indicates management contract or compensatory plan or agreement.

**  Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
    the quarter ended March 31, 2000.

*** Incorporated by reference to the Company's Current Report on Form 8-K, filed
    October 23, 2000.

#  Confidential treatment has been requested with respect to certain portions of
    this agreement.

## Confidential treatment has been granted with respect to certain portions of
    these agreements.

    (b) REPORTS ON FORM 8-K

    On October 23, 2000, we filed a Current Report on Form 8-K reporting
(i) our transaction with Gateway Companies, Inc., and (ii) the approval of the
issuance or amendment of warrants to purchase common stock of the Company.

                                       66
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, who are duly authorized, in the City of Las Vegas, State of
Nevada, on the 29th day of March, 2001.

<TABLE>
<S>                                                    <C>  <C>
                                                       PURCHASEPRO.COM, INC.

                                                       By:         /s/ CHARLES E. JOHNSON, JR.
                                                            -----------------------------------------
                                                                     Charles E. Johnson, Jr.
                                                               CHIEF EXECUTIVE OFFICER AND CHAIRMAN
</TABLE>

    Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
                      NAME                                       TITLE                      DATE
                      ----                                       -----                      ----
<C>                                               <S>                                  <C>
          /s/ CHARLES E. JOHNSON, JR.
     --------------------------------------       Chief Executive Officer and          March 29, 2001
            Charles E. Johnson, Jr.               Chairman

              /s/ JAMES P. CLOUGH
     --------------------------------------       Senior Executive Vice President and  March 29, 2001
                James P. Clough                   Chief Financial Officer

              /s/ SCOTT H. MILLER
     --------------------------------------       Senior Vice President--Finance,      March 29, 2001
                Scott H. Miller                   Chief Accounting Officer

              /s/ R. TODD BRADLEY
     --------------------------------------       Director                             March 29, 2001
                R. Todd Bradley

            /s/ MARTHA LAYNE COLLINS
     --------------------------------------       Director                             March 29, 2001
              Martha Layne Collins

               /s/ JOHN G. CHILES
     --------------------------------------       Director                             March 29, 2001
                 John G. Chiles

            /s/ DR. CAROL C. HARTER
     --------------------------------------       Director                             March 29, 2001
              Dr. Carol C. Harter

             /s/ MICHAEL D. O'BRIEN
     --------------------------------------       Director                             March 29, 2001
               Michael D. O'Brien
</TABLE>

                                       67