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Kevin J . YourmanVahn AlexanderJennifer R. WilliamsWEISS & YOURMAN10240 Wilshire Boulevard24 FloorLos Angeles CA 90024Tel : (31) 268-280 0

Nadeem FaruqiShane T . RowleyAntonio VozzoloFARUQI & FARUQI, LLP320 East 3 91n StreetNew York, NY 10016Tel : (212) 983-933 0

Co-Lead Counsel for the Class

William H. Stoddard, Esq .G. Mark Albright, Esq.C . Adam Buck, Esq .ALBRIGHT STODDARD, WARNICK& ALBRIGHT801 S . Rancho DriveQuail Park Suite D-4Las Ve as, NV 89106Tel : (702) 384-711 1

Liaison Counselfor the Class

UNITED STATES DISTRICT COURT

DISTRICT OF NEVADA

In ReSECURITIES LITIGATION

THIS DOCUMENT RELATES TO :

Master File No . : CV-S-01-0483-JLQ

CLASS ACTION

CONSOLIDATED CLASS ACTIONCOMPLAINT

Plaintiffs Demand A Trial By Jury

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Plaintiffs, as and for their consolidated complaint, allege the following upo n

personal knowledge as to themselves and their own acts, and upon information and

belief as to all other matters . Plaintiffs' information and belief is based, inter alia,

on the investigation conducted by plaintiffs' attorneys, including a review of the

press releases and public filings of defendant PurchasePro .com, Inc . ("PurchasePro"

or the "Company") and articles pertaining to the Company . Plaintiffs believe that

substantial evidentiary support will exist for the allegations set forth after a

reasonable opportunity for discovery .

NATURE OF THE CAS E

1 . This is a consolidated class action on behalf of all purchasers of th e

securities of PurchasePro (including those individuals who acquired their

PurchasePro securities in exchange for shares, ADRs, or options in other companies

which were acquired by the Company) (the "Class") between March 23, 2000, and

May 21, 2001, inclusive (the "Class Period"), seeking to pursue remedies under the

Securities Exchange Act of 1934 (the "Exchange Act") . Defendants include :

PurchasePro, Charles E . Johnson, Jr ., James P . Clough, John G. Chiles, Christopher

Carton, Shawn P . McGhee, Richard T . Moskal, Scott Miller and Arthur Andersen

LLP .

2 . As is more fully alleged throughout the Complaint, this action arise s

from damages incurred by the Class as a result of a scheme and common course of

conduct by defendants which operated as a fraud and deceit on the Class during the

Class Period . Defendants' scheme included rendering false and misleading

statements and/or omissions concerning the financial condition and business

prospects of the Company in order to artificially inflate the value of the Company's

securities .

3 . In fact, defendants made numerous positive representations, and issue d

I financial statements -- upon which defendant Arthur Andersen issued its opinion i n

alidated Class Action ComplaintNo: CV-S-01-0483-JLQ 2

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the Company 10-K for fiscal year 2000 that such statements were issued in

accordance with Generally Accepted Accounting Principles ("GAPP") and fairly

presented the Company's financial condition -- throughout the Class Period

regarding the financial and business prospects and results of the Company, while

either knowing, or with conscious or deliberate recklessness disregarding, that the

Company was improperly recognizing revenue in violation of and thereby artificially

inflating the Company's reported financial results and the trading value of

PurchasePro securities . As is alleged in greater detail below, the improper

recognition of revenue included, inter alia : (i) the premature and improper

recognition of revenue that should have been deferred to later periods ; (ii) the

improper recognition of revenue from a customer when "we [PurchasePro] had

insufficient facts to determine whether the customer was creditworthy" ; and (iii)

throughout the Class Period, the improper recognition as revenue of certain

payments made to PurchasePro by certain customers, which payments were in fact

and substance payments for warrants to purchase PurchasePro stock that

PurchasePro had granted to those customers in order to gain their business .

4 . Since the disclosure of these, and other, adverse facts would cause a

severe collapse in the price of the Company's securities, defendants set out on a

scheme to artificially inflate PurchasePro's stock price so that they could maintain

their lucrative positions, enable PurchasePro to complete two acquisitions financed

by the Company's inflated share price, and earn ill-gotten gains through their insider

trading practices, among other things.

5 . As a result of defendants' false statements, misrepresentations, an d

omissions, the price of PurchasePro' s securities was artificially inflated during the

Class Period. In fact, the Company's securities traded at over $60 per share' durin g

'All stock prices have been adjusted, when necessary, to account for a 2-for-1 stock split on or about October 13, 2000 .

olidated Class Action ComplaintNo: CV-S-01-0483-JLQ 3

1 the Class Period, and were maintained at an artificially inflated level until the

2 Company's true financial condition was disclosed during a spectacular month-long

3 disintegration beginning on April 25,200 1, during which time : (i) PurchasePro twice

4 delayed reporting its financial results for the first quarter of 2001 ; (ii) PurchasePro

5 twice revised downwards its financial results for the first quarter of 2001 ; and (iii)

6 Charles E. Johnson, Jr., PurchasePro's Chief Executive Officer and Chairman of the

7 Board, was fired . During this troubling month, PurchasePro's revenues dropped

8 from the initially-expected $41-$43 million (a figure which defendant Johnson had

9 publicly confirmed in March 2001) to, on April 26, 2001, $29 .8 million, only to be

10 cut drastically once again - and without explanation - on May 22, 2.001 to $17 .1

11 million .

12 6. These disclosures caused the stock price of PurchasePro to lose

13 approximately 60% of its remaining value, falling from its closing price of $6 .22 on

14 April 24, 2001 to close, on May 23, 2001, at $2 .48 per share .

15 7. Due to defendants' deceptive and illegal conduct, plaintiffs and the

16 other Class members purchased their PurchasePro securities at grossly inflated

17 prices . Had plaintiffs and the other Class members been aware of the truthful

18 condition of the Company and the adverse impact that defendants' omissions were

19 having on the Company, they would not have purchased their shares, or at least not

20 at the artificially inflated prices at which they purchased those shares .

21 JURISDICTION AND VENUE

22 8. The claims herein arise under §§10(b) and 20(a) (15 U .S .C . §§78j(b)

23 and 78t(a)) of the Securities and Exchange Act of 1934 (15 U .S .C . §78) (the

24 "Exchange Act") and Rule IOb-5 promulgated thereunder (17 C .F .R . §240.1Ob-5) .

25 9. This Court has subject matter jurisdiction of this action pursuant to 15

26 U .S .C . §78u .

27 10. Venue is proper in this District pursuant to 28 U .S .C . §1391(b) .

28

A idated Class Action ComplaintNo: CV-S- 01-0483-JLQ 4

1 Defendant PurchasePro maintains its corporate offices in this District and the

2 violations of law complained of herein occurred primarily in this District, including

3 the dissemination of materially false and misleading statements and the omission of

4 material information complained of herein .

5 11 . In connection with the conduct complained of herein, defendants,

6 directly or indirectly, used the means and instrumentalities of interstate commerce,

7 including the mails and interstate telephone communications, and the facilities of a

8 national securities exchange .

9 PARTIES

10 12. Plaintiffs Stuart Sokolin and Ron Turner are the same persons

11 previously appointed in this consolidated action as Lead Plaintiffs .

12 13. Plaintiffs, including the Lead Plaintiffs described above, and

13 representative plaintiff Michael Braeuel, purchased securities ofPurchasePro, and/or

14 acquired PurchasePro securities in exchange for shares, ADR's, or options in other

15 companies which were acquired by the Company during the Class Period and have

16 been damaged thereby .

17 14. PurchasePro is a Nevada Corporation with its headquarters in Las

18 Vegas . It is purportedly one of the largest B2B e-commerce software companies in

19 the world and is noted for its extremely flexible and affordable solutions that help

20 businesses of all sizes buy, sell, and collaborate more efficiently . PurchasePro also

21 operates the Global Marketplace, which is described by many as a "Yellow Pages for

22 the Internet," interconnecting more than 140,000 businesses and powering hundreds

23 of private and public marketplaces with its highly scalable, hosted e-commerce

24 software .

25 15. At all relevant times until May 21, 2001 when it was announced that he

26 had "left the company and resigned his position on the board," defendant Charles E .

27 Johnson, Jr . ("Johnson") was the founder, Chairman and Chief Executive Officer

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olidatedClass Action Complaint 5No: CV-S-01-0483-JLQ

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("CEO") of PurchasePro . He has been the driving force behind the Company since

its inception in 1996 . During the Class Period, defendant Johnson sold over 6

million shares of PurchasePro stock at artificially inflated prices for proceeds of over

$32 million .

16 . At all relevant times, defendant James P . Clough ("Clough") was Senio r

Executive Vice President, Corporate Operations and Development, and during most

of the Class Period served as the "interim" Chief Financial Officer ("CFO") of

PurchasePro . Clough became the "interim" CFO of PurchasePro in approximately

April of 2000, and served as such until his replacement by Richard Clemmer was

announced on April 24, 2001 . During the Class Period, defendant Clough sold

150,000 shares of PurchasePro stock for proceeds of over $4 .7 million .

17 . At all relevant times, defendant John G . Chiles ("Chiles") was a member

of the Board of Directors at PurchasePro . During the Class Period, defendant Chiles

sold 165,000 shares of PurchasePro stock at artificially inflated prices for proceeds

of over $5 .5 million .

18 . At all relevant times until November 28, 2000, defendant Christophe r

Carton ("Carton ") was the acting President and Chief Operating Officer ("COO" )

of PurchasePro, as well as a director of the Company . From November 28, 200 0

until February 22, 2001, Carton continued to serve as President and as a director of

the company .

19 . At all relevant times after November 2000, defendant Shawn P . McGhee

("McGhee") was the COO of PurchasePro, and at all relevant times after February

22, 2001, McGhee served as PurchasePro's President as well . On June 6, 2000,

PurchasePro announced that, in a change "to its senior management team designed

to add greater focus to the company's systematic and structured approach to its

strategy," the Company was replacing McGhee with a new COO, Allen Winder .

20 . At all relevant times, defendant Richard T. Moskal ("Moskal") was a

onsolidated Class Action Complaintuse No : CV-S-01-0483-JLQ 6

1 Vice President of PurchasePro. During the Class Period, defendant Moskal sold

2 90,000 shares of PurchasePro stock at artificially inflated prices for proceeds of over

3 $964,000 .

4 21. At all relevant times, defendant Scott H . Miller ("Miller") has served

5 as Vice President of Finance and Chief Accounting Officer of PurchasePro since

6 July 1999 and as Senior Vice President of Finance and Administration since April

7 2000 . From April 1999 through June 1999, Mr . Miller served as the Company's

8 Chief Financial Officer. From October 1998 through April 1999, Mr . Miller served

9 as PurchasPro's Controller . From September 1997 through September 1998, Mr .

10 Miller was the Chief Financial Officer of Max Riggs Construction Company in Las

11 Vegas, Nevada. From 1984 to September 1997, Mr . Miller held various

12 management positions at defendant Arthur Andersen LLP in Denver and Las Vegas,

13 most recently as senior manager .

14 22. At all relevant times, defendant Arthur Andersen LLP ("Andersen" or

15 the "Accountant Defendant") was employed by the Company as its "independent

16 public accountant" and was thereby responsible for the audit of PurchasePro's 10-K

17 during the Class Period . In fact, Andersen has audited the financial statements of the

18 Company from its inception (October 8,1996) through November 21, 2001, at which

19 time Andersen resigned as the independent certifying accountant due to "accounting

20 disputes" with certain defendants identified herein .

21 23. Defendants Johnson, Clough, Chiles, Carton, McGhee, Moskal and

22 Miller are collectively referred to in this Complaint as the Individual Defendants and

23 were at all relevant times during the Class Period controlling persons of PurchasePro

24 within the meaning of §20(a) of the Exchange Act . By reason of their stock

25 ownership, management positions, and/or membership on PurchasePro's Board, the

26 Individual Defendants were controlling persons of PurchasePro and had the power

27 and influence, and exercised the same, to cause it to engage in the illegal conduct

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olidated Class Action ComplaintNo : CV-S-01-0483-JLQ 7

1 complained of herein . The Individual Defendants are liable for the false statements

2 pleaded herein, as those statements were each "group published" information, the

3 result of the collective action of the Individual Defendants .

4 24. As officers, directors and/or controlling persons of a Company

5 registered with the Securities and Exchange Commission ("SEC") under the federal

6 securities laws, whose securities are traded on the NASDAQ, and governed by the

7 provisions of the federal securities laws, the Individual Defendants each had a duty

8 to disseminate truthful information promptly and accurately with respect to the

9 Company's operations, products, markets, management, earnings and business

10 prospects, to correct any previously issued statements that had become materially

11 misleading or untrue, and to disclose any trends that would materially affect earnings

12 and the financial results of PurchasePro, so that the market price of the Company's

13 publicly traded securities would be base upon truthful and accurate information .

14 25. Under rules and regulations promulgated by the SEC under the

15 Exchange Act, the Individual Defendants also had a duty to report all trends,

16 demands or uncertainties that were likely to influence : (a) PurchasePro's liquidity ;

17 (b) PurchasePro's net sales, revenues and/or income ; and (c) previously reported

18 financial information such that it would not be indicative of operating results . The

19 Individual Defendants' representations during the Class Period violated these

20 specific requirements and obligations .

21 26. The Individual Defendants, because of their positions with the

22 Company, controlled and/or possessed the power and authority to control the

23 contents of PurchasePro's quarterly and annual reports, press releases and

24 presentations to securities analysts, which information was conveyed through the

25 analysts to the investing public . Each defendant was provided with copies of the

26 Company's reports and press releases alleged herein to be misleading prior to or

27 shortly after their issuance and had the ability and opportunity to prevent their

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olidated Class Action ComplaintNo: CV-S-01-0483-JLQ 8

1 issuance or cause them to be corrected .

2 27. In fact, these defendants have repeatedly admitted in numerous filings

3 with the SEC that they exercise control not only over the activities of the Company

4 but also over each other . For example, defendants stated in a document filed with

5 the SEC on or about March 7, 2000 that its directors and executive officers as a

6 group own 23,778,399 shares or 18 .7% of the outstanding common stock of the

7 Company . As a result, the officers and directors are able to exercise significant

8 influence over all matters requiring shareholder approval, including the election of

9 directors and approval of significant corporate transactions .

10 28. Because oftheir positions and access to material non-public information

11 available to them but not to the public, each of these defendants knew, or with

12 conscious or deliberate recklessness disregarded, that the adverse facts specified

13 herein had not been disclosed to and were being concealed from the public and that

14 the positive representations which were being made were then materially false and

15 misleading .

16 29. Defendants are also each liable as individual participants in a fraudulent

17 scheme and course of conduct that operated as a fraud and/or deceit upon the Class .

18 Because of their executive, managerial and/or directorial positions with the

19 Company, each of the defendants had access to the adverse, non-public information

20 about the business, finances and business prospects of PurchasePro as particularized

21 herein and acted to misrepresent, misstate or conceal such information from

22 plaintiffs and the investing public .

23 30. It is also appropriate to treat the defendants as a group for pleading

24 purposes under the federal securities laws and the Federal Rules of Civil Procedure

25 and to presume that the false and misleading information complained of herein was

26 disseminated through the collective actions of the defendants . Defendants were

27 involved in the drafting, producing, reviewing, and/or disseminating of the false and

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olidated Class Action ComplaintNo: CV-S-01-0483-JLQ 9

1 misleading information detailed herein, and knew, or with conscious or deliberate

2 recklessness disregarded, that such materially misleading statements were being

3 issued by the Company, and/or approved or ratified these statements in violation of

4 the federal securities laws. Defendants' false and misleading statements and

5 omissions of fact consequently had the effect of, both on their own and in the

6 aggregate, artificially inflating the price of the securities of PurchasePro at all times

7 during the Class Period .

8 CLASS ACTION ALLEGATION S

9 31. Plaintiffs bring this action as a class action, pursuant to Federal Rules

10 of Civil Procedure 23(a) and (b)(3), on behalf of a class consisting of all persons

11 who purchased or otherwise acquired PurchasePro securities between March 23,

12 2000, and May 21, 2001, inclusive, and who were damaged thereby (the "Class") .

13 Excluded from the Class are defendants, the officers and directors of PurchasePro

14 and members of their immediate families and entities in which they have a

15 controlling interest .

16 32. During the Class Period, there were over 66 million shares of

17 PurchasePro common stock outstanding and held by thousands of shareholders . At

18 all relevant times, PurchasePro common stock was actively traded on the NASDAQ

19 (under the ticker symbol "PPRO") an open, well-developed and efficient market,

20 during the Class Period . There were numerous analysts following the stock and

21 numerous market makers trading the stock . Because persons who purchased or

22 otherwise acquired PurchasePro shares during the Class Period number at least in the

23 thousands and are believed to be located throughout the country, joinder of all such

24 Class members is impracticable .

25 33. There are questions of law and fact common to all Class members which

26 predominate over any questions affecting only individual Class members, including :

27 (a) Whether the federal securities laws were violated by defendants' acts

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onsolidated Class Action Complaintase No : CV-S-0I-0483-JLQ 10

1 as alleged herein ;

2 (b) Whether documents, releases and/or statements disseminated to the

3 investing public and PurchasePro shareholders during the Class Period omitted

4 and/or misrepresented material facts about the business, financial condition and

5 accounting practices of the Company ;

6 (c) Whether defendants made materially misleading statements during

7 the Class Period about the business, financial condition and accounting practices of

8 the Company ;

9 (d) Whether defendants acted knowingly or with conscious or deliberate

10 recklessness in making materially false statements and omitting material facts about

11 the business, financial condition and accounting practices of the Company;

12 (e) Whether the market price of the Company's securities was

13 artificially inflated during the Class Period due to the non-disclosures and/or material

14 misrepresentations complained of herein ; and

15 (f) Whether the members of the Class have suffered damages and, if so,

16 what is the proper measure of damages .

17 34. Plaintiffs claims are typical of all Class members' claims . Plaintiffs

18 have selected counsel experienced in class and securities litigation and will fairly

19 and adequately protect the interests of the Class . Plaintiffs have no interests

20 antagonistic to those of the Class .

21 35 . A class action is superior to other available methods for the fair and

22 efficient adjudication of this controversy . Since the damages suffered by individual

23 Class members may be relatively small, the expense and burden of individual

24 litigation make it virtually impossible for members of the Class to individually seek

25 redress for the wrongful conduct alleged.

26 36. Plaintiffs know of no difficulty which will be encountered in the

27 management of this litigation which would preclude its maintenance as a class

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onsolidated Class Action Complaintase No : CV-S-01-0483-JLQ

1 action .

2 SUBSTANTIVE ALLEGATION S

3 37. PurchasePro purports to be one of the largest business to business

4 ("B2B") e-commerce software companies in the world, noted for its extremely

5 flexible and affordable solutions that help businesses of all sizes buy, sell, and

6 collaborate more efficiently . PurchasePro also operates the Global Marketplace, a

7 form of electronic "Yellow Pages," interconnecting more than 140,000 businesses

8 and powering hundreds of private and public marketplaces with its highly scalable,

9 hosted e-commerce software . This enables PurchasePro's customers to compete

10 more effectively by enhancing sales opportunities, reducing procurement costs, and

11 increasing employee productivity .

12 Defendants ' Improper Accounting Practices

13 38. Throughout the Class Period, defendants caused PurchasePro to engage

14 in improper accounting practices that had the effect, inter alia, of inflating the

15 Company's reported revenues and growth rate, diminishing the losses that the

16 Company reported, and inflating the price of the company's securities .

17 39. These improper accounting practices included : (i) the premature and

18 improper recognition of revenue that should have been deferred to later periods and

19 properly recognized in those later periods ; (ii) the improper recognition of revenue

20 from a customer when "we [PurchasePro] had insufficient facts to determine whether

21 the customer was creditworthy;" and (iii) most significantly, throughout the Class

22 Period, the improper recognition as revenue of certain payments made to

23 PurchasePro by certain customers, which payments were in fact and substance

24 payments for warrants to purchase PurchasePro stock that PurchasePro had granted

25 to those customers in order to gain their business . The SEC has ruled that such

26 payments cannot properly be classified as revenues, because such payments are not

27 payments for the company's goods or services but rather for the company's warrants .

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onsolidated Class Action Complaintase No : CV-S-0I-0483-JLQ 12

1 40. In fact, PurchasePro's financial results throughout the Class Period were

2 in large part subsidized and distorted by PurchasePro's warrants-for-revenues

3 business model . For instance, in March of 2000 PurchasePro entered into an

4 agreement with America Online ("AOL") in which PurchasePro would gain access

5 to AOL's large subscriber base in order to market and promote PurchasePro'

6 services. In exchange, among other things, PurchasePro would have to make

7 periodic payments to AOL, and AOL was granted warrants based on how much

8 business it referred to PurchasePro . Adjusted for stock splits, defendants granted to

9 AOL as much as 4 million warrants for PurchasePro stock with an exercise price of

10 $63 .26 per share . Because such a strike price soon became inconceivable due to a

11 decline in PurchasePro's stock price, these warrants became worthless and gave

12 AOL no incentive to refer business to PurchasePro . However, in November of 2000,

13 defendants decreased the exercise price of the warrants by over 99°/o, from $63 .26

14 to $0.01, to motivate AOL to promote PurchasePro and refer business to

15 PurchasePro . To earn the warrants, among other things, AOL offered its customers

16 100,000 free memberships to PurchasePro's online marketplace for December 2000

17 (underwritten by AOL and paid by AOL to PurchasePro), resulting in multi-million

18 dollar payments from AOL to PurchasePro . However, the repriced warrants that

19 AOL was earning for its efforts generate $3 for AOL for every $1 paid to

20 PurchasePro .

21 41. To note the magnitude of the importance to PurchasePro of such

22 revenues-for-warrants deals, in the first quarter of 2001, payments derived from

23 PurchasePro's partnership with AOL accountedfor 65% ofPurchasePro 's revenues

24 (according to the figures reported by the Company on April 26, 2001). PurchasePro

25 had, at prior times during the Class Period, also entered into warrants-for-revenues

26 contracts with, inter alia, Office Depot, Gateway and Sprint . Thus, defendants

27 engaged in an ongoing pattern of generating "revenue" through the issuance of

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Dlidated Class Action ComplaintNo: CV-S-01-0483-JLQ 13

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warrants .

42 . However, the upshot of such warrants-for-business transactions is that :

(i) PurchasePro is generating what it has been calling "revenue" by issuing warrants

to business partners that offer the partner much more in warrant profits than the

partner pays to PurchasePro ; (ii) such "revenue" continues only so long as the

warrants do, and once the warrants have been earned there is no incentive that the

payments will keep coming (because, at such a point, the payments actually become

real payments rather than a game in which one receives $3 for every $1 one pays) .

Thus, as the SEC has held, calling such payments revenues is materially misleading,

because these payments are neither entered into purely for the company's goods or

services nor indicate anything about the market demand for or acceptance of the

company's goods or services . Such payments, essentially, are not payments for the

company's goods or services but for its warrants .

43 . Wedbush Morgan Securities analyst George Santana, in an analyst

report published on April 27, 2001, summarized the issue as follows :

PPRO : IQ Earnings Fiasco ; Reiterate Sel l

STILL BELIEVE REVENUES ARE BEING DRIVEN BYAGGRESSIVE WARRANTS FOR REVENUES DEAL SWe believe PurchasePro has failed to address our main point ofcriticism . We contend that PurchasePro ' s revenues are being driven byaggressive warrants for revenues deals that raise serious questionsabout the long-term sustainability of PurchasePro ' s revenues . Webelieve investors should take zero comfo rt in PurchasePro'srelationship with AOL . True, the AOL partnership accounted for 65%of PurchasePro's revenues in the first quarter 2001 . We believe a hi hrevenue concentration is to be expected in the very near term , preciselybecause AOL is earning warrants at a rapid clip as it refers business toPurchasePro . Specifically AOL is earnin $3 worth of warrants (at anexercise _price of $0 . 01 j for every S of revenue referred toPurchasePro . . . We believe that the current warrant agreement for AOLencourages a very short -term revenue benefit for PurchasePro and verylittle long-term benefit . When AOL earns and exercises its warrantsand sells its PurchasePro shares, we believe the referral of business toPurchasePro will drop sharply .

In addition to the referral of license fees, PurchasePro is benefittingfrom significant nonrecurring revenues from AOL that are an offshootwe believe, of the same warrant award to AOL . These revenues helpe d

solidated Class Action ComplaintNo: CV-S-O1-0483-JLQ 14

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PurchasePro ' s fourth quarter, as AOL paid $4.9 mil li on for 1.00,000one-month promotional subscriptions to PurchasePro ' s network for themonth of December 2000 . In the first quarter 2001, PurchaseProrecognized $9 million of revenues from AOL for subscriptions to thePurchasePro network and an additional $3 .7 mil lion of revenues fromAOL for ` integration services' that weren 't very well explained. Webelieve this type of revenue wi ll prove to be short-lived . We could bewrong but webelieve it less than coincidental that these revenues fromAOL began after PurchasePro re-priced the warrants to AOL, inNovember 2000 from the original strike price of $63 .26 to the newstrike price of $6 .01 .

Overall , it is our belief that AOL has every incentive to refer businessto PurchasePro as quickly as possible to earn its warrants as quickly aspossible. We contend AOL will exercise these warrants and sell itsPurchasePro shares sooner rather than later . We believe that once AOLearns its warrants and sells its PurchasePro shares it will have littleincentive to refer additional business to Purchase Pro and will scaledown resources devoted to the relationship, leaving PurchasePro witha sharply reduced revenue outlook .

44. Each set of financial results detailed below and issued by defendant s

during the Class Period was materially false and misleading when issued due to

defendants' improper accounting practices . PurchasePro, as detailed below, has

already been forced to revise downwards on three occasions the financial results

defendants had previously issued for two separate financial quarters.

Defendants ' Issuance of False and Misleading Statements and FinancialResults During the ClassPeriod

45 . On March 23, 2000, the Individual Defendants caused the Company t o

issue a press release - prior to the end of the first quarter of 2000 - announcing that

they expected PurchasePro to exceed previously-stated financial expectations for the

quarter. The March 23, 2000 press release stated :

PurchasePro .com Anticipates Record First Quarte r

LAS VEGAS (March 23, 2000) -- PurchasePro . com, a leader inbrowser-based business -to-business electronic commerce, todayannounced that it believes its results for the quarter ended March 31,2000, will exceed published expectations .

"We're looking at a record quarter," said Charles E . Johnson, Jr .,Chairman and EO of PurchasePro .com . "Our revenues are trackingsignificantly ahead of Wall Street's forecasts, with a high recurrin g

solidated Class Action ComplaintNo: CV-S-01-0483-JLQ 15

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component and very high gross profit margins . Further, we have anextremely healthy balance sheet, with more than $140 million in cashon hand and no long term debt. "

PurchasePro .com's browser-based solution has gained broadacceptance by companies of all sizes . The company has more than20,000 members on its public and private networks and powers morethan 100 private marketplaces .

"Our strategy of partnering with leaders in a variety of vertical andhorizontal communities, combined with our geographical . reach, willenable us to reach the desktops of the critical mass of businesses andenhance our leadership position in business-to-business e-commerce,"said Johnson .

46 . On April 18, 2000, the Individual Defendants caused the Company to

issue a press release announcing PurchasePro's "record" and better-than-expected

financial results for the first quarter of 2000 . The April 18, 2000 press release stated :

PurchasePro .com, Inc . Reports Record Financial Results for the FirstQuarter of 2000

Revenues Increase 71 Percent Over Most Recent Quarter; Gross ProfitMargins Grow to 93 Percent

LAS VEGAS (April 18, 2000) -- PurchasePro . com, Inc .(Nasdaq : PPRO) a business-to-business e-commerce solutions leader,today announced financial results for the first quarter ended March 31,2000.

PurchasePro . com reported record revenues of $4 .5 million for the firstquarter of 2000 with grossprofit margin of 93% a 575% increase overrevenues of $6~14 , 00(J for the first quarter of 19 9 , and an increase of71 /o over revenues of $2 .7 million for the fourth quarter of 1999 . Thenet loss for the quarter , excludin charges for stock-basedcompensation , was $8 . 3 million , or $0.2 per diluted share, comparedto a net loss of $6 .1 million , or $0 .22 per diluted share for the fourthquarter of 1999 .

"Our outstanding financial results illustrate that our network andmarketplace exchanges are reaching critical mass and gaining traction,"said Charles E . Johnson , Jr., chairman and chief executive officer ofPurchasePro . com . "We successfully completed a secondary offeringduring the quarter and from a balance sheet ~perspective,PurchasePro . com is extremely strong with more than $ 136 million incash and cash equivalents . Our growth strategy is to partner with thedominant. players in a variety of vertical and horizontal sectors andalign our interests with our partners by reaching out to their customersnot competing with their suppliers . Our current reach of over 21,00dcompanies participating in over 150 public and private marketplacesshows the broad acceptance of our solution and technology platform . "

olidated Class Action ComplaintNo : CV-S-O1-0483-JLQ 16

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"Our business model is clicking on all cylinders `we are generatin grecurring revenue, we increased our already healthy gross pro _ 11margins while reducing our attrition rate to approximately one percent,and we increased customer growth nearly 120 percentquarter- over-quarter . It is important to note that all of our growth wasorganic, and that approximately 25 percent of our new business for thequarter came through online registration, without the use of a sales call,illustrating the vibrant , viral nature of our solution," concluded Mr .Johnson.

The following highlights were announced during the first quarter :

-- America Online, Inc (NYSE : AOL) the world ' s leading interactiveservices company , and f urchasePro .com formed a strategic alliance toprovide business users of several AOL brands with a completeelectronic commerce solution powered by PurchasePro .com . Under theagreement, the two companies will utilize their advancedcomplementary technologies to co-develo next-generation businessexchanges to better enable businesses 61 all sizes and across allindustries to increase sales and reduce supply costs . The companieswill co-develop a business exchange for the millions of business usersacross AOL, AOL .COM, CompuServe and Netscape Netcenter .PurchasePro .com will power the easy -to-use , interactive marketplacewith its robust and reading browser-based e-commerce solutionallowing users to source , bid, negotiate, buy and sell their products andservices across multiple vertical and horizontal business markets . Theexchange interfaces will be tailored specifically to the size and type ofbusiness . The co-branded AOL/PurchasePro . com business marketplaceis expected to roll out by the end of second quarter 2000 .

-- Office Depot and PurchasePro .com implemented the rollout of acomprehensive on line and offline direct marketing program . Adoptionof the PurchasePro . com platform is six months ahead of scheduleillustrating the strength of the Company's technology platform and itsability to execute p artnership programs . The program will brinPurchasePro .com's browser-based e-commerce solution to millions ofOffice Depot's business customers .

Office Depot has installed PurchasePro.corn kiosks in 450 superstores,with an additional 400 outlets anticipated to go online shortly. Thekiosks feature an interactive demonstration of PurchasePro .com'seasy-to-use solution with a direct link to a co -branded commerce sitewhere businesses can be educated about PurchasePro .corn and thenumerous benefits to their business .

-- IBM and PurchasePro .com announced that they will bringeasy-to-use e-procurement service to members of the IBM OwnerPrivileges Program a uni que membership program for IBM Aptiva PCand Thinkpad i Series system owners .

-- PurchasePro .com expanded its management team with eight keytechnology and Internet veterans as the core of an expanded executiveteam .

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"With direct expe rtise in strategic planning, operations , equitymanagement, mergers and acquisitions , marketing and purchasing, ourexpanded team is integral to charting the company ' s, future growthplans through entry into new vertical markets , expansion of strategicpartnerships and alliances , creation of new strategic initiatives andgrowth of its increasingly diversified customer base ," concluded Mr .Johnson .

47 . On May 21, 2000, the Individual Defendants caused the Company to

file with the SEC PurchasePro's Form 10-Q for the first quarter of 2000 . Signed by

defendant Clough and dated May 12, 2000, the Form 10-Q reiterated (and expanded

upon) the financial results issued on April 18, 2000 .

48 . PurchasePro ' s financial results for the first quarter of 2000, as issued

by defendants on April 18 and May 12, 2000, were materially false and misleading

due to their improper recognition as revenue of payments made to PurchasePro by

certain of its business partners to whom PurchasePro had granted warrants in

exchange for referred "revenues . "

49. On July 19, 2000, the Individual Defendants caused the Company to

announce "record financial results" for PurchasePro's second quarter ended June 30 ,

2000 :

PurchasePro . com, Inc . (Nasdaq : PPRO), the leader in browser-basedbusiness -to-business e-commerce solutions , today announced recordfinancial results for the second quarter ended une 30 exceedinganalyst consensus estimates by eight cents per share . The companyposted record revenue of $9 .5 million for the quarter with a gross prot tmargin of 93 percent an 846 percent increase over revenues of $1 .0million for the second quarter of 1999 and an increase of $5 .0 millionor 109 over revenues of $4 .a~ million for the first quarter of2000 . he net loss for the quarter , excluding charges for stock-basedcompensation , was $7 .1 million , or $0 .22 per diluted share comparedto a net loss of $8 .3 million , or $0 .28 per diluted share for the firstquarter of 2000 .

"This q uarter we have shown our recurring revenue business model'sstrength in delivering top line revenue with only moderate expensegrowth," said Charles E . Johnson , Jr., chairman and chief executiveofficer of PurchasePro .com . "With our continued high growth, lowattrition rates, and excellent cash position of $120 million , we are wellpositioned to achieve profitability in the second quarter of 2001,significantly earlier than the market ' s expectations . "

"We are now the dominant player in the `exchange to exchange' space ,

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linking all our marketplaces into a universal platform to deliver acritical mass of businesses," he added . "At the same time we aredelivering a liquid marketplace where these companies can participateas both buyers and suppliers , bringing maximum value to both . Muchof our growth is attributable to the network effect surrounding bu yersand suppliers . As we move forward , growth will be enhanced bypro rams with key channel pa rtners . As we expand these relationshipsandgcontinue our strateg y of partnering with dominant layers in amultitude of vertical and horizontal sectors, we expectto see ourcurrent high growth continue into future quarters ."

"A portion of the company's healthy revenue growth is attributable tothe second quarter release of PurchasePro .com's new suite of privatelabel e --marketplace solutions ," said James P . Clough, senior executivevice president and chief financial officer of PurchasePro .corn." Ourcontinuin success in selling this suite of solutions will addsubstantially to our recurring revenue mix, with revenue contributioncoming from monthly hostin g and maintenance , as well as subscriber,transaction and advertising fees . "

50 . Based on these misrepresentations concerning the financial stability and

potential of the Company, the stock closed at $20 .25 per share . Shortly thereafter,

Chris Vroom, a Credit Suisse First Boston analyst, rated PurchasePro a "strong buy . "

51 . Over the next couple of months, based on several positiv e

announcements by PurchasePro regarding its present and future prospects , its stock

began to rise . In July alone , there were ten separate press releases by the Company

announcing partnerships that were being formed, the addition of new Board of

Director appointees, and the opening of a new technology center built to prepare for

the "rapid growth" the Company was about to undergo . Simultaneously, PurchasePro

announced the launch of its co-developed business -to-business destination with

AOL .

52 . On August 15, 2000, the Individual Defendants caused the Company

to file with the SEC PurchasePro's Form 10-Q for the second quarter of 2000 .

Signed by defendant Clough and dated August 14, 2000, the Form 10-Q reiterated

(and expanded upon) the financial results issued on July 19, 2000 . These results, as

defendants were later to admit, when they filed an amended Form 10-Q with restated

financial results for the period, were materially incorrect when issued .

Nlaatea C lass Action ComplaintNo: CV-S-01-0483-JLQ 19

1 53. On August 25, 2000 , Prudential analyst Tim Getz (" Getz") gave

2 PurchasePro a boost by stating that the stock was undervalued . In the same article,

3 which was based on and repeated information provided by defendants, Getz stated

4 that he expected the Company to have a strong third -quart er with a "potentially

5 significant upside " from his $13 .7 million revenue estimate . He also reiterated his

6 "strong buy" rating on the Company .

7 54. On August 31, 2000, Patrick Walravens ("Walravens'a Lehman

8 Brothers analyst , also called the Company "woefully undervalued ." In his report,

9 which was similarly based on and repeated information provided by defendants,

10 Walravens highlighted the online marketplace that PurchasePro had co-developed

11 with AOL .

12 55. Defendants ' positive releases had their effect . By September 8, 2000,

13 PurchasePro ' s stock had been artificially increased to $32 .875 which was up 70%

14 from its closing price of $18 . 50 on August 15, 2000 . Moreover, Keith Jensen,

15 director of investor relations at PurchasePro , stated that the Company was "`very

16 comfortable ' with Wall Street ' s expectations for the quarter ending September 30 ."

17 He added that there were only "a couple of week ' s [sic] left in the quarter , and we're

18 doing very well . "

19 56 . On September 29, 2000 in an interview with Allan Gould of

20 Line56 . com, defendant Johnson continued to misrepresent the Company's

21 relationships with its customers by describing them as true "partnerships ." The

22 following is an extract from that interview :

23 The value of these relationships comes from the value of our product, ourproduct offering . And the ability of us to make money for these partners .

24 When we do a deal , we set it up so where our success mirrors their success-so they are truly partnerships , versus a vendor deal, or selling someone an e-

25 commerce solution.

26 57. Defendant Johnson's statements on September 29, 2000 were false and

27 misleading because he knew that these relationships were extremely costly "warrants

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onsolidated Class Action Complaintase No : CV-S-0 I-0483-JLQ 20

1 for business" transactions that had nothing to do with the "value of [PurchasePro's]

2 product" and that offered the supposed "partner" much more in warrant profits than

3 the "partner" paid to PurchasePro .

4 58. As the Individual Defendants were successfully implementing their

5 scheme, they continued to inundate the market with unfounded statements

6 concerning the Company ' s financial condition . For example, on October 17, 2000,

7 the Individual Defendants caused the Company to announce PurchasePro ' s third

8 quarter results stating in pa rt :

9 PurchasePro Inc . (Nasdaq : PPRO), a leading enabler ofbusiness-to-business e-commerce and exchange - to-exchange

10 technolo for companies of all sizes , today announced record financialresults of $17 .3 million in revenue for the third quarter ended

11 September 30, 2000 - an increase of $7 .8 million or 82% over theprevious quarter. The net loss for the quarter excluding non-cash

12 charges , was $4 . 7 million or $0 .07 per diluted share, an improvementover a net loss of $7 . 1 million or $0 .11 per diluted share for the second

13 quarter.

14 "The company's continuing trend of record financial results furtherpositions PurchasePro as a leading provider of e-commerce solutions,"

15 said Charles E . Johnson , Jr., chairman and chief executive officer ofPurchasePro ." "As a result of our tremendous business efficiencies,

16 PurchasePro ' s gross margins were above 90 percent for the fou rth

17quarter in a row . "

"Because of our recurring revenue model , we will begin the fourth18 quarter with a significant percentage of the revenue generated in the

third q uarter," said Johnson . "As a result , we are advancing our19 profitability estimate to the fourth quarter . "

20 59 . On October 18, 2000, defendant Johnson was interviewed on CNBC .

21 The following is an extract from that interview :

22 MARK HAINES , CNBC ANCHOR , SQUAWK BOX : PurchasePro .commaking the connection . The company beat the Street third quarter results .

23 The net loss was $ 0 .10 narrower than expected at $0 .07 a share , better thanlast year's $0 .12 loss, but discounting an increase in the number of shares net

24 loss actually grew to $4 . 7 million from last year's $3 .7 million . Revenue upa whopping 960 percent at $17 million . PurchasePro helps connect companies

25 on electronic marketplaces . It says it expects to break even next quarterinstead of in 2001 , as previously forecast . So what ' s oing to happen here'

26 The stock down about 40 percent year to date , ends at about 940.25 onTuesday . And any moment now we will see - no, we're not going to see the

27 stock . Okay . Let s go online and get a closer look.

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HAINES : In fact, you would have had a profit this quarter, would younot, if you hadn't deferred about $5 million in revenue?

JOHNSON : We have $5 .3 million that was done through resellers withno future deliverables or no obligation . But we elected to take an extremeconservative view of our accounting and to defer the revenue .

HAINES : What is bringing you to profitability somewhat ahead ofschedule?

JOHNSON : Well, we've tracked well . There is a huge demand. Wehave huge resellers- Computer Associates AOL, Gateway, Sprint, OfficeDepot . And our product sits in the middle oLhe mid-market and there's sucha demand on the offline companies and we've managed the business where wehave not scaled our employees over the last three quarter while our revenuecontinues to grow more that 100 percent, our expenses are only growing atabout 25 percent .

HAINES : I would assume these are primaril y small businesses youserve since the big businesses tend to get in and do this themselves ?

JOHNSON : Well, actually we go from the small all the way up to thelarger market and the ones that do it themselves , they sti ll need a platformwhere they can place their actual suppliers and their actual customers . So webuilt a platform where they can take their customers and their suppliers andnot only use it for the internal benefit , but they can take their suppliers andcustomers and link them with everyone else's suppliers and customers . Theycan monetize as they previously , their database of both buyers and suppliers,that previously they weren't able to do .

LOUIS NAVELLIER : I notice the current ratio about current assetsversus liabilities was starting to deteriorate a bit but it is still , you are still verypositive . I mean is that going to improve?

JOHNSON : Well, the liability you see on the actual balance sheet is afuture obligation we have with AOL which is tied to four million impressionsa day, which will obviously be tied to an increasin g revenue . So our cashposition is well over $ 100 million . If you add in the $5 .3 millionoperationally including amortization we were profitable this quarter . So thatis not a concern at all .

HAINES : And once gaining profitability, will you stay in profitability ?

JOHNSON : Oh, absolutely . We are scaling very, very fast . As I saidbefore, we built this company from day one to make money . We weren't atraditional dot .com with venture money . The bulk of money that capitalizedthe company came from myself and the other shareholders . W e went througha secondary and lock a that's been off five months and we've had noexecutive sell the single First share .

60, Despite Johnson's statements concerning the lack of insider sales a t

PurchasePro , only days later , on or about October 23, 2000, with stock prices at a

olidated Class Action ComplaintNo: CV-S-0I-0483-JLQ 22

1 recent peak, defendants Chiles and Clough took advantage of the inflated price of

2 PurchasePro's securities . Specifically, with their insider knowledge that the

3 Company would be "re-releasing" its prior second quarter results later in the week,

4 which would reclassify certain Company income, they sold uncharacteristic amounts

5 of their stock. Defendant Chiles sold a fourth of his direct shares and almost ten

6 percent of his indirect shares totaling $5 .5 million and defendant Clough sold $4 .7

7 million of his direct shares. Plaintiffs are unaware of either defendant selling any

8 quantities of their PurchasePro securities prior to this time .

9 61. Simultaneously, on October 23, 2000, PurchasePro announced that it

10 had agreed to acquire Stratton Warren Inc . using a combination of cash and

I 1 PurchasePro's stock . The acquisition was completed on January 17, 2001, for a total

12 price of $14 .5 million. Of this amount, approximately $5 .5 million was paid in cash,

13 with the remaining $9 .0 million paid with PurchasePro's artificially-inflated shares .

14 As such, defendants were motivated to maintain the Company's stock at an

15 artificially inflated level to facilitate the Stratton Warren Inc . acquisition.

16 62. Then, on or about October 27, 2000, the Company did in fact re-release

17 its second quarter results . The new results reflected that PurchasePro would be

19 "reclassifying" $2 .3 million, nearly 25% of its total profit for the second quarter, into

19 "other," one-time income . That money had previously been classified as recurring

20 income . On October 27, 2000, PurchasePro filed with the SEC an amended Form

21 10-Q for the second quarter of 2000, signed by Clough, that contained the new and

22 restated results .

23 63. However, even these amended financial results for the second quarter

24 of 2000 were materially false and misleading due to their improper recognition as

25 revenue of payments made to PurchasePro by certain of its business partners to

26 whom PurchasePro had granted warrants in exchange for referred "revenues ."

27 64. Nevertheless, defendants still refused to disclose the true financial

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condition of the Company to the investing community . In fact, while the market

voiced certain concerns regarding this "reclassification" of income by the Company,

the Individual Defendants continued to assure the investing community that all was

well with PurchasePro . This was done in furtherance of their scheme and in an effort

to thwart a decline in the value of the Company' s securities .

65 . In fact, on or about November 8, 2000, defendant Johnson stated :

` First and foremost , it doesn't matter , it's not going to make or breakmy q,uarter ' Johnson said . ` It's a gnat , in terms of significance . Let'ssay the deferred revenue stayed the same and I don't recognize any ofit . We've still got the cash in the bank and I smoke the quarter , so whatdifference does it make . '

66 . In the upcoming months, it became more important than ever fo r

defendants to continue perpetrating their fraud, especially when confronted by

analysts and financial columnists who were beginning to express doubts about

PurchasePro's financial results and accounting after PurchasePro's restatement of

its second quarter results and after PurchasePro's issuance of its third quarter results .

Defendants countered by saturating the investing community with more unfounded

positive news concerning the Company's growth and financial stability .

67 . For instance, in a pair of articles that appeared in TheStreet .com on

November 3, 2000 and November 8, 2000 (the latter with the title "`PurchasePro

Pounded Over Deferred Revenue Issue ; CEO Unfazed"), analysts stated doubts and

concerns about PurchasePro's financial results and accounting, all of which were

summarily dismissed by defendants. The November 3, 2000 article (titled "Doubters

Question PurchasePro's Results, as its Stock Price Dives"), after concluding one

avenue of critique, noted :

But concerns over PurchasePro's numbers don't end there . Thecompany beat third quarter estimates by a dime because it didn't. recorda sales and marketing payment that analysts were looking for .

soiiaatea Class Action Compla intNo : CV-S-O]-0483-JLQ 24

1 Under a March agreement with AOL for technology developmentPurchasePro has to pay $20 million over the next two years in equal

2 quarterly installments (in total, it has agreed to pay AOL $70 millionthrough various deals) . But it only paid $1 .1 million of the $7.1

3 million it was expected to pay dur ng the third quarter, a result of a

4"timing issue, "the company says .

5 68. Days later , on November 14, 2000 , the Individual Defendants caused

6 the Company to file with the SEC PurchasePro ' s Form 10-Q for the third quarter of

72000 . Signed by defendant Clough and dated November 13, 2000 , the Form 10-Q

8 reiterated and expanded upon the third quarter financial results issued by defendants

9 on October 17, 2000 .

69 . PurchasePro ' s financial results for the third quarter of 2000 , as issued1 01 1 by defendants on October 17 and November 14, 2000, were materially false and

12 misleading due to their improper recognition as revenue of payments made to

13 PurchasePro by certain of its business partners to whom PurchasePro had granted

14 warrants in exchange for referred "revenues ."

15 70. On December 28, 2000 , defendant Johnson was interviewed by CNBC

16 which he used as a platform to allay any conce rns voiced by the investing

17community . The following is an extract from the interview:

JOHNSON : Well I think that we had a great year . We will be cash EPS18 positive this quarter . I think last year at this time we did $2 .7 million for the

quarter . We were caught in the whirlwind of the NASDAQ and now we wi l l19 survive the flushing out of the dot . coms . We are going to be cash EPS

positive. We will d as much revenue this quarter as we've done the last20 three quarters combined.

21 MARIA : You last week announced an alliance with BroadVision . Tell22 us about that . What does that do for your company ?

JOHNSON : Well, our alliance with BroadVision , Computer Associates,23 Gateway, AOL, they're all similar in the fact that we will be their platform for

their B to B strategy and by doing so it allows us to get to a mass market at a24 much faster pace and will help us create multiple streams of revenue as well

as deliver the personalization of software that BroadVision has and offer our25 business base a wide range of goods and service s

26 GEROLD KLAUER: Mr. Johnson , this is Gerry Klauer . I'm impressed

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28 2 Emphasis added unless otherwise indicated .

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with what you just said in li ght of the fact through the nine months I think youreported revenues of over $ 30 million and that the fourth quarter you just saidwould be as much as what you did in the first nine months . Can you tell ourviewers how you derive your revenues ?

JOHNSON : We derive it from multiple streams . First is people pay anaccess fee to access universal network and the way that we've built oursolution is we have e-market services where people can market their goodsand services to the entire universal network as well as each privatemarketplace that we have . We've really built this business from the groundup . We weren ' t incubated to be a dot.com . So we are happy that this businessmodel is beginning to flush out and we think `01 will be a coming out partyof the winners and losers and we feel we will be on the winning side .

KLAUER: Just a uick follow on . Do you get a percentage of thetransactions that occur between companies ?

JOHNSON: We are actually getting anywhere from a half percent toa one percent transaction fee . We get access tees . We get license fees . Weget about eight or 10 different types of fee structures . So we have no one feestructure that we are dependent upon and because of that, our customer baseis very bullish . The demand is very, very high and we hear about those softlandings and hard landings and we have yet to see any effect at all on ourspace at all .

MARIA : That all sounds great , Mr. Johnson , but I was just looking atyour customer base and you've got Computer Associates and Sprint andUateway and Office Depot all of whom have already said that things areslowing down . Are you not feeling that slowdown ?

JOHNSON : That ' s actually to our advantage because they've now triedto create new streams of revenue and we are that stream of revenue . We arean alternative source of revenue where they can now take their businesscustomers and monetize them in a different way by linkin g them in thisuniversal database . Each one of,these customers now has a chance not onlyto buy those particular company s goods and service but we enable them tosell their goods and services to the other customer of these companies . So weactually look at that as an opportunity and actually it will be a benefit to usthis year.

MARIA: All right, what exactly specifically do you need to do toenhance shareholder value ?

JOHNSON : I think that really we're not going to have to do much . Ithink the numbers will speak for themselves . I think that up to this point, allthese stocks were valued on hope and hype based on their press releases andwe are lookin forward to ` 01 because we think at the end of the day thecompanies that make the most money will be the winners . And now that weare all beginning to be cash EPS positive , we feel like the numbers will speakfor themselves

GEROLD KLAUER: Mr. Johnson, the fourth quarter, I'm still veryimpressed . Congratulations . Is that any seasonal effect in the fourth quarter .

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JOHNSON : No, it is a ramping effect of our recurring revenue and weare g~oin to do from $17 mi ll ion in Q 3 to over $30 million in cash EPSpositive . If you look at each qua rter, we have grown anywhere from 80 to 100p ercent in revenue while our expenses have only grown at 25 percent . Wehave gross margins at near 94 percent . I think it comes down to rhow] themarket will recognize who the real winners in this space will be and becauseour top line was not as great as some of the other players in the space, I thinkwe were discounted heavily . But I think now people see how scalable themodel is, but more impo rtantly how profitable the model is .

MARIA : I'm just reading a report from Lehman Brothers on yourcompany and the analyst here is saying that he thinks that the program withAOL is going extremely well but he was looking for revenues from youralliance with AOL to come in the first qua rter, but in fact it is kicking inearlier than people expected . Is that correct?

JOHNSON : Yes. Our alliance with AOL has actually been, it'sexceeded even my expectations . AOL has nine mil lion different businessusers and three million different business and we are the platform and strategythat they are taking to market . And we've had in the Net businessregistrations near a million businesses already re gistered . So we feel like thesuccess of this actual program will exceed , I think, everyone's expectations .

71 . Defendant Johnson's statements of December 28, 2000 were false an d13

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misleading because PurchasePro was in fact using warrants to manipulate its

revenues such that it was buying revenues, and as a result, PurchasePro's reported

revenues were not indicative of underlying demand for the Company's products and

services .

72 . On December 29, 2000 , defendant Johnson was interviewed by CNN .

The following is an extract from the interview :

CHARLES MOLINEAUX, CNNfn ANCHOR: . . . Do you think thatyour company is now ready to tu rn around and move into 2001 ?

CHARLES JOHNSON CEO, PURCHASEPRO .COM: We've reallybeen ready the whole year . This quarter will be the first quarter that we'recash EPS positive . So we really feel like that the winners and losers will flushthemselves out with the results .

[AMANDAI LANG[CNNfn ANCHORI What differentiates you fromsome of the other j players in the B to B space? The names that come up Ariba,Commerce one. How is purchaseone [sic] any different ?

JOHNSON : Most of the other companies targeted going after a fewcustomers that would ay a lot of money . We've gone after a lot of customersthat would pay a little bit of money but aggregately our gross margins are near94 percent and with the scalability of our model, our operating margins wi llapproach 50 to 60 percent upon maturation of the model .

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MOLINEAUX : Now a couple of concerns with that model though .Your target is a mid-size company . Usually they are less the leading edgeadapters and adopters . Doesn't that put you at risk for a slower pace ofadoption?

JOHNSON: Well I think that's been a hypothesis that everybody startedwith but we found in reality that ' s not the case . We're going after this marketthrough AOL , through Gateway, throughS rint , through Computer Associatesand by not having to go through the ra tional route these people are veryquick to adapt because its their money and any money that they save or an ymarketing costs that they can reduce to increase their sales, they re real quickto adapt .

LANG : Tell us about your management team . There are some concernsabout there being some holes in it . Are you out vigorously recruiting .

JOHNSON : Holes, I'm actually kind of surprised. We just brought inthe former president of Office De ot ,Shawn McGhee . We have senior levelmanagement from Sprint , Bell South. Our legal comes from PillsburyMadison & Sutro , a big law firm . Obviously we' ll continue to, as thecompany grows , to grow our management team but at this point in time wethink we have a top tier management team that ' s second to none and I thinkits reflective on our results of being cash EPS positive this quarter .

MOLINEAUX : We've seen a dramatic change in the business tobusiness world this year . Instead of independent marke places and exchangesbeing set up, there are a lot of them now being set up by the industries andplayers with the industries that they are supposed to serve . Where do you fitinto that?

JOHNSON: We actually have a universal platform that allows all theindustries and all the individual companies that want to build a market placeto build and have complete interoptibility { h). So instead [of] buildingindividual silo's, we built it where both private and public marketplaces cancome together and every business in the marketplace has the ability to bothbuy and-sell which is unique and its kind of unique cause we sta rted ourplatform from day one that way and because of that we have the greatestamount of liquidity and the greatest amount of scalability because of alreadyinstant liqui dity for a new market place .

MOLINEAUX; OK, thank you very much Charles Johnson, CEO,PurchasePro . Good to have you with us .

73 . Not long thereafter, the February 5, 2001 edition of Barron's (released

several days before February 5, 2001) published an article on PurchasePro which

highlighted certain concerns regarding the Company's accounting . The following

is an extract from the article :

Factors more specific to PurchasePro are definitely worth ponderingtoo . Among them : Its liberal accounting procedures and the lack of a chief'financial oicer; its inexperienced management team full of buddies ; its

olidated Class Action ComplaintNo: CV-S-0I -0483-JLQ 28

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inability to retain some high-profile partnerships, including those withtroubled retailer Office Depot and Sprint ; and its heavy reliance on a singlesource, Hilton Hotels for transaction revenues . A big question remains as towhether the small and mid-size companies PurchasePro is targeting stand toreap the kind of benefits from B2B exchanges that will induce them to stay onas subscribers .

Noteworthy , too : Top PurchasePro officials often make a point inpresentations to investors and to the media that they have not sold any of theirshares . What they don't disclose in their discussions but have acknowledgedprivately to investors , is they've borrowed against tieir shares , the next bestthing to selling shares since the stock is pledged as collateral . Johnson, forone, secured a $100 million personal loan . Also insider selling has picked upof late .

7~ ~ 7C

"They need a CFO ," says Chris McHugh, of Turner InvestmentsPartners who bought PurchasePro shares at the 1-6-17 level for his small-capand B2I funds .

Indeed , some accounting issues have cropped up . In the third quarter,the company ref led its second- q uarter results to reclassify $2 .35 million ofrevenues . Also in the third quarter, CEO Johnson signaled to the Street thatrevenues would be in the $2Z million range ; the figure came in at $ 17 mi llionand Johnson admitted to investors $5 million had not been sold through yetto end users and he was advised to defer the revenue . In addition , accountsreceivables spiked u dramatically in the third quarter - to $22.6 million from$1 .73 million - and the provision for "doubtful ' (or uncollectable) accountsbulged by nearyl $2 million , versus $351 , 000 a year earlier. Days salesoutstanding or DSOs, jumped to 123 days in the third uarter. Companyofficials routinely characterize Purchase-Pro as having turned cash flow-positive in the third quarter , but then explained this is only possible if ordersbooked through resellers are accounted for immediately .

The more common practice is to wait until products or services are soldto the end users before recognizing revenues . "There are issues about controland the business process and who is minding the store when it comes - togeneral accounting practices" says a New York-hedge-fund manager who waslong the stock in the past as a momentum play, but no longer holds a position .

In his call to Barron ' s, Johnson said that the CFO post is the only onehe's filled with employees a ge 50 or older , something that helped satisfyinvestment bankers . One, Richard St. Peter-whose eight year stint as formerCFO of Petco Animal Supplies ended in 1998, after a series of ea rningsshortfalls - lasted less than a year . Johnson, who noted St . Peter " did real, realwell in one year ," leaving with 50,000 vested PurchasePro stock o ptions, saysthat the former CFO was "old school" in his approach and didn't haveconfidence in PurchasePro's business model .

74. The Barron's article pointed out how defendant Johnson was profitin g

from defendants' scheme to artificially inflate the Company's stock price by using

solidated Class Action ComplaintNo : CV-S-0 I -0483-JLQ 29

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the inflated stock as collateral for a $100 million personal loan . Johnson's use of

stock as collateral provided him with further motive to maintain the Company' s

stock price at it's artificially inflated level .

75 . The Barron ' s article also quoted defendant Johnson as stating that :

"We're on the cutting edge of everything . We're on the cutting edge of technology,

the cutting edge of accounting ." By the end of the Class Period it became clear what

defendant Johnson meant by "cutting edge accounting" and it was riot within the

boundaries of GAMP .

76 . On February 4, 2001, in an effort to maintain their scheme, and

therefore the artificially inflated value of PurchasePro ' s securities , the Individual

Defendants caused the Company to issue a press release rebutting the Barron's

article entitled , "PurchasePro Responds to Misleading Barron 's Article." The

relevant portion of that release stated :

PurchasePro today said that an article published in Barron's February5, 2001 edition that discussed the company was riddled with inaccuracies andinnuendo.

The company said that although it is reluctant to g ive credence to thearticle with a response , it feels that its shareholders and analysts should beassured that statements made in the article are without factual basis .

The company said, "Barron's continues to publish inaccurate,unverified information about PurchasePro . These references began almost ayear ago when the publication stated the company would be out of cash inthree quarters . PurchasePro at the end of the most recent quarter, had inexcess of a hundred million collars in cash and cash equivalents . "

Charles E . Johnson Jr ., chairman and chief executive officer ofPurchasePro , pointed out that the article is "rife with inaccuracies ."According to Johnson, "Writing an article of this magnitude withoutconfirming the facts with the company violates a basic tenet of reporting .Had the author simply called com pany representatives , identified herself, andasked to check facts, she might have had the oppo rtunity to write a fresh,credible and powerful story about a company that holds a significantleadership position in e-commerce . We were eager for an interview withBarron ' s but wanted to wait until after our fourth quarter earningsannouncements to do so ."

In terms of inaccuracies , Johnson specifically cited the following :

*PurchasePro's financial statements are prepared in accordance wit h

solidated Class Action ComplaintNo : CV-S-01-0483-JLQ 30

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generally accepted accounting principles . The company discloses its financialcondition in all material respects .

*PurchasePro has a chief financial officer. The com any ' s CFO isJames P. Clough . He has held the p osition since April 18, 2000 . Clough isa former partner in the law firm Pillsbury Madison & Sutro LLP and is thesecond to serve as CFO since before the company went public in September1999. Additiona lly , the company has had a single Chief Accounting OfficerScott Mi ller , a former Arthur Andersen CPA, for the past three and a haltyears .

Barron ' s asserts that the company has an "inexperienced managementteam ." This is not borne out by the facts . Johnson believes that the companyhas created a top-tier management team . Additionally , Johnson , PresidentChris Carton , and Executive Vice President Geoff Layne are each five-yearveterans of an industry that is only five years old . Each has strongmanagement experience and is recognized as a pioneer in e-commerce .Together with the senior management team , PurchasePro is positioned tocontinue its rapid growth .

Other inaccuracies in the Barron ' s profile include , but are not limitedto, the following :

*Entrepreneur Steve Wynn did not pay off any notes for Johnson orPurchasePro . His total capital contribution to the company wasinsignificant, comprising $50,000 . His equity position was repurchased inthe first quarter of 1998 .

*PurchasePro has not changed its business model . The company'sfocus has always been on developing multiple streams of recurringrevenue . The addition of license revenue is a revenue stream the companyis able to charge as a result of the instant liquidity in its interoperableplatform. This new fee triggers an additional recurring revenue stream'hosting and maintenance that equals almost 50% of the initial license fee

on an annual basis . Other fees including subscription transaction, andcommerce services are expected to increase in value clue to the evolution ofthe model . Average license revenue has increased every quarter , contraryto the reporter ' s assertion of competitive pricing pressure .

*In terms of metrics , usage on the PurchasePro global marketplacegrew 52% last quarter . The company expects that growth will continue toaccelerate .

*The company has no "handshake " deals and its agreements with itsmajor partners are available for review at the Securities and ExchangeCommission ' s website at http :/www.see .gov . Relationships with suchpartners remain strong . As is normal in the business cycle, certain agreementswith partners have expired . This expiration does not mean conpantes haveleft the network or have ceased to do business with PurchasePro . OfficeDepot, for example, recently mailed more than 300,000 catalogs prominentlyfeaturing the PurchasePro e-commerce solution . The company s relationshipwith Sprint is ongoing .

Dlidated Class Action ComplaintNo : CV-S-O1-0483-JLQ 31

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*Additionally, Barron's failed to mention that the company has signedother significant partners including Gateway, Honeywell, ComputerAssociates, and BroadVision .

*AOL was not given four million warrants . AOL does have theopport unity to earn warrants as it meets certain revenue objectives .Additionally , PurchasePro and AOL have a revenue sharing agreement onmonies received as a result of the partnership .

`Johnson did secure a line of credit using his PurchasePro stock ascollateral . This amount used on the line of credit does not ap proach $100million . In fact , Johnson has used more than $20 million from the credit lineto acquire additional PurchasePro shares . Additionally, Johnson and severalsenior members of the management team continue to take no salary or otherform of compensation from the company .

'Many of the non-financial metrics in the article have never beenreleased by PurchasePro and are grossly inaccurate . PurchasePro does notrelease transaction metrics on a marketplace-by-marketplace basis becauseeach is individually owned .

*PurchasePro is a browser -based software application . It is not a merewebsite , or simply an electronic yellow pa es" as described in the Barron'sarticle . The product suite is the first to be browser-based and wirelessin the B2B sector. This product enables companies of all sizes to eliminatethe need to integrate , update, and incur large implementation costs whenbecoming a member of the company ' s global marketplace .

"Overall ," Johnson pointed out, "Barron ' s apparent misunderstandinof PurchasePro ' s business model and strategy is evident by the depiction ofthe company's partnerships . PurchasePro s model is to overlap businessdatabases through numerous partnerships . PurchasePro recognized early thatpartnerships and relationships will vary in their success rates . Speed tomarket is key . We created a strategy that wouldn't force the company todepend on any relationship for its success .

Johnson concluded by saying , "A final egregious error in. the article isrelative to the mention of a supposed " Superbowl ' party. If Barron's wouldhave made its diligence calls, they would have learned that on January twenty-sixth , PurchasePro had an employee appreciation gathering to reward itsemployees for their continued loyalty and support .

"In conclusion I think every PurchasePro marketplace owner, memberand investor should take a personal affront to Barron's depiction ofPurchasePro in this article . Their style discredits the thousands olmembersour global marketplace who have made our solution part of their day -to-dayoperations , as well as our strategic partners who have chosen us as their e-commerce platform and B2B strategy .

"Although the company will not comment on financial results prior toits earnings on February 12, Johnson invites Barron's readers to review theinvestor relations page of the company's website ( www.purchasepro.com),includin the "Frequently Ask Questions" pertaining to most of Barron'scomments on the company's business and financial practices .

alidated Class Action ComplaintNo: CV-S-01-0483-JLQ 32

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Johnson invited Barron ' s readers to access the company's earningswebcast and press release during the week of February 12 for a detailedanalysis of its financial results and business prospects . Details relating to thiscall are forthcoming .

77 . The rebuttal of February 4, 2001 compounded and reinforce d

defendants' false and misleading Class Period statements, because in fact, by this

time, defendants knew that demand for PurchasePro's products and services was

deteriorating, which deterioration was being concealed by PurchasePro's

manipulative accounting practices . Furthermore, defendant Johnson knew that

because the Company was using warrants to manipulate its revenue, the Company's

revenues were not indicative of underlying demand for the Company's products and

services .

78 . On or about February 12, 2001, the Individual Defendants caused th e

Company to announce "record" year end results for PurchasePro stating in part :

PurchasePro .com Inc. (Nasdaq :PPRO), a leading enabler ofbusiness-to-business e-commerce solutions for companies of all sizes,today reported operating positive cash earnings per share of $0 .11 or$7 .6 million of cash earnings, exclusive of non-cash charges and aone-time gain .

The company reported revenue of $33 .6 million for the fourth quarterended December 31, 2000 . Additionall during the fourth quarter thecompany posted a one-time net gain of $0 .04 per share from the sale ofan investment. The company's cash flow for the quarter was $10 .3million .

PurchasePro ' s revenues for the fou rth quarter rose 94 percent from the$17 .3 million posted in the precedin quarter and increased 1,160percent to a record $ 33 .6 million, from $2 .7 million a year ago .. For the

'full year, PurchasePro recorded revenues of $65 .0 million , an increase

of 933 percent versus last year's revenues .

The company also reported that it has significantly narrowed its totalcash loss to $12 . 6 million , or $0 .20 per basic share for the year endedDecember 31, 2000, from a cash loss of $0 .45 per basic share a yearearlier .

Including all charges , the company reported a total net loss per share of$0 .55 for the quarter compared to a net loss per share of $1 .03 last year.For the year , the total net loss per share was $1 .15 versus $2 .44 lastyear.

olidated Class Action ComplaintNo : CV-S-01-0483-JLQ 33

1 Charles E. Johnson Jr ., chairman and chief executive officer, said, "Wethink our fourth quarter results confirm the strength of our busines s

2 model and validate without qua lification , our revenue model . This isfurther evidence of the leadership PurchasePro has established in the

3 e-commerce industry . "

4 "Critical to the growth of PurchasePro is member adoption," continuedJohnson. "Adoption by new members has continued to increase and we

5 expect that growth to be of even greater magnitude in the future .Simultaneously , the company's purchase order volume rose by nearly

6 fifty percent during the fourth quarter . Posting record revenue whileeffectively managing company expenses enabled PurchasePro to

7 recognize cash earnings per share of eleven cents , significantly8 exceeding consensus analyst estimates . "

9 79. PurchasePro ' s financial results for the fourth quarter and fu ll year of

10 2000 , as issued by defendants on February 12, 2001 , were materially false and

11 misleading due to their improper recognition as revenue of payments made to

12 PurchasePro by certain of its business partners to whom PurchasePro had granted

13 warrants in exchange for referred "revenues . "

14 80. On March 6, 2001, the Individual Defendants caused the Company to

15 announce that they had agreed to acquire BayBuilder , and would pay for this

16 acquisition using cash and PurchasePro stock .

17 81 . The very next day, on or about March 7, 2001, the Individual

18 Defendants caused the Company to make the following announcement which

19 misleadingly reaffirmed the financial solidity of the Company :

20 Responding to numerous investor and media inquiries following theannouncement of its acquisition of BayBuilder, PurchasePro today

21 announced that the company is confident and on track to achieve the22 objectives stated in its current financial guidance .

PurchasePro said it expects basic cash earnings per share for fiscal year23 2001 to be in excess of $0 .65 , or $0 .59 diluted .

24 The company again stated that for the fiscal year 2001 it anticipatesrevenue will grow approximately 250 percent to more than 225

25 million , compared with $65 million in 2U00 . PurchasePro also said i tbelieves that gross margin will . be in excess of 90 percent for the year

26 and that cash operating margins excluding non-cash charges, willcontinue to increase to as hi h as 36 percent in the fourth quarter from

27 more than 24 percent in the first quarter.

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olidated Class Action ComplaintNo : CV-S-01-0483-JLQ 34

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PurchasePro expects first quarter revenue of more than $42 million, a25 percent quarter-over-quarter increase . Basic cash earnings per shareare anticipated to be in excess of $0 .10 per share . With the inclusionof the anticipated impact of the diluted share count, which comprisesa portion of outstanding stock o ptions and warrants, estimated dilutedcash earnings per share are calculated to be in excess of $0 .09 per sharefor the first quarter and $0 . 59 for the fiscal year 2001 .

82. As PurchasePro's stock increased in price due to defendants' misleading

statements, PurchasePro's insiders Johnson and Moskal took advantage of this

artificial inflation of PurchasePro's stock by selling off 1,450,000 and :50,000 shares

of their stock for prices as high as $11 .70 per share, pocketing $15 .9 million and

$584,000, respectively, in illegal insider trading proceeds . In total, between March

6, 2001 and March 9, 2001, the Individual Defendants unloaded 1 .5 million of their

shares of PurchasePro stock for over $16 million in illegal insider proceeds .

83 . Days later, on March, 12, 2001, the Individual Defendants caused the

Company to issue a press release entitled, "PurchasePro Chairman Announces Stock

Sale Plan ; Company Announces First Founder Stock Sale Since Company IPO 18

Months Ago ." The press release stated in part :

PurchasePro Inc ., a leading enabler of business -to-business e-commercesolutions for companies of all sizes, today announced that its founder,chairman and chief executive officer, Charles E . Johnson Jr ., has adopted aplan to begin selling shares under rule 1 Ob5-1 .

Under this plan he will gradually liquidate a portion of his holdings inthe company .

The plan sets forth a predetermined amount of shares to be sold daily .Rule lOb5-1 permits an implementation of a written plan for stock selling attimes when insiders are not in possession of material non-public informationand allows them to sell shares on a regular basis, regardless of any subsequentnon-public information they receive or the price of the stock at the time of thesale .

Johnson adopts the plan 18 months after the company's IPO and morethan a year after the company completed its secondary offering . He hadcommitted that he would not sell any shares . until the company reachedprofitability . The company posted cash earnings per share in the fourthquarter of 2000 . Johnson has not received any cash compensation in the formof salary or bonus for over a year and has not received any option grants sincethe company went public .

84 . Defendant Johnson had in fact sold $15 .9 million worth of hi s

olidated Class Action ComplaintNo: CV-S-0I-0483-JLQ 35

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PurchasePro shares just days prior to this disclosure .

85 . On April 23, 2001, PurchasePro completed the acquisition of

Baybuilder, paying $8 .5 million in cash and artificially-inflated Purchase-Pro stock .

The consummation of the Baybuilder transaction provided defendants with further

motivation to maintain the stock price at artificially inflated levels .

86 . Then, only two days after having closed the Baybuilder acquisition, o n

or about April 25, 2001, PurchasePro' s string of artificially-inflated financial results

began their spectacular disintegration .

PurchasePro's True Financial Results Begin to Emerg e

87 . On April 25, 2001, PurchasePro stunned the financial community wit h

a surprise announcement which stated that PurchasePro expected its first quarter

results to be below consensus estimates "primarily due to the deferred recognition

of certain license revenue" (after having very clearly affirmed on March 7, 2000 that

the company would not only meet but exceed its financial expectations) . The price

of PurchasePro stock fell from the previous day's close of $6 .22 to $4 .05, a 35% one

day drop on volume of 11 .6 million shares .

88 . On the same day, the Company announced that it would be hosting a

conference call to discuss PurchasePro's results for its first fiscal quarter of 2001 .

However, the conference call was at the last minute rescheduled, without

explanation, to occur on the following day, April 26, 2001 .

89 . On April 26, 2001, the Company disclosed the following :

For the 2001 first quarter PurchasePro's revenues totaled $29 .8 millioncompared with $33 .6 million posted in the fourth quarter of 2000 and,$4 .6 million posted in last year's first quarter .

Excluding non-cash charges of $16 .7 million for strategic marketingexpense, and amortization of equity -based compensation andgoodwill,PurchasePro reported a cash operating loss for the first per share . Netloss for the 2001 first ua rter was $T8 .1 million , or $0 .26 per share,compared to net loss ofb36.8 million , or $0 .5 5 per share, in the fourthquarter of 2000 , and $15 .7 million , or $0 .27 per share, in thecorresponding year earlier quarter .

onsolidated Class Action Complaintase No : CV-S-01-0483-JLQ 36

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Charles E . Johnson , Jr., chairman and chief executive officer, said,"While we recognize that our results are below expectations, weachieved a number of milestones in the quarter that are broadening ourreach , strengthening our network and setting us up for solid growth intothe future . Our focus continues to be on driving Transactions, revenuesand growth to further our position as a leading business -to-businesse-commerce company . "

The company said that the difference between estimates and reportedrevenues resultedprincipally from deferral of revenues associated withthe sale of several marketplaces .

90 . In other words, PurchasePro reported financial results for the first

quarter showing a sequential revenue decline from the prior quarter rather than

growth, showing revenues that came in approximately 3 0% lower than the Company

had explicitly led the market to expect, numbers that it reaffirmed during the quarter

and showing a net loss rather than the net profit the Company had explicitly

promised .

91 . The following report by The Street.com was issued on April 26, 2001 :

After preannouncin on the day of its scheduled earnings releaseWednesday, and then postponing its results and conference call until thismorning, PurchasePro badly missed the consensus estimate . The companyposted a loss of 2 cents per share compared with analysts' expectations for aprofit, on revenue reduced to $2§ .8 million because of accounting concerns .

Analysts expected the company would earn 8 cents a share on revenueof $41 million, according to Thomson Financial/First Call .

On its conference call with financial analysts, the company said it sawa total of about $43 million in "contract activity"but that its auditors wouldn'tlet it recognize all that revenue due to accounting rules .

Jim Clough , the company's interim CFO, said that $4 .1 million of thecompany's deals this quarter fell into the deferred revenue category , while thecompany didn t reco gnize another $3 .7 million because we had insufficientfacts to determine whether the customer was creditworthy ." In all, Cloughsaid about $ 10 million of the company's potential revenue this qua rter wasaffected by recognition issues .

Accounts receivable , or the money owed to the company by itscustomers but not et collected, shot up to $44 million from $23 million in thefourth quarter of 2000 . Days sales outstanding , or the len th of ' time it takesto collect that money, jumped to 134 days . PurchasePro said the spikeresulted from several large deals that closed toward the end of the q uarter andthat it had already collected $23 million of its accounts receivable so far inApril .

olidated Class Action ComplaintNo: CV-S-01-0483-JLQ 37

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The delayed quarterly report . and loss comes after PurchaseProreiterated its guidance in March, promising Wall Street that it would make itsnumbers despite the rough economy .

George Santana, an analyst at Wedbush Morgan Securities who ratesPurchasePro a sell, found little to be happy about in the report .

"In 2001 , you probably shouldn ' t be selling to or banking a largepercentage of your revenue to customers with credit concerns ," Santana said.'A lot of analysts had taken comfort that the economy had not significantlyimpacted their business because they .adamantly reiterated their guidance inMarch, and then here the company is with this mayhem and the delay inreleasin their results . Then they miss their numbers , and there ' s no guidancegoing forward ." (Santana's firm hasn't done underwriting forPurchasePro .com)

Charles Johnson, Jr., the company ' s CEO, told investors to expectsimilar "business activity" and gross revenue in the company ' s secondquarter, and that PurchasePro would give further guidance in comingweeks . Currently consensus revenue estimates for the second quarter standat $47.4 million. Analysts ex ect I 1 cents per share in earnings , accordingto Thompson FinancialFirst Call .

The company also said it was doing away with its controversialpractice of issuing warrants to business partners.

"That was an early stage strategy " said Johnson . "We will not issueany new warrants , and now warrants will be repriced . "

In November , PurchasePro repriced to a penny -per share 3 millionwarrants that it had granted to AOL T ime Warner . While the companywon't grant any new warrants, Wedbush Morgans Santana pointed out thatAOL gets warrants it was already promised over time , as it helps sellPurchasePro ' s marketplaces . The company said that nearly two-thirds ofits revenue during the first quarter came through its partnership with AOL .

How quickly AOL can exercise its warrants, however , is based onhow much revenue it generates for PurchasePro - the more revenue it refersto the company , the faster its warrants are rewarded . Santana estimatedthat at its current rate , AOL could earn all of its promised warrants by thisJune .

"AOL is betting the warrants and exercising them immediatel ,"Santana says . If you go through and exercise all the warrants by June,what's the incentive for AOL to keep pushing PurchasePro s marketplacesafter that?"

The issues were taking a toll on PurchasePro's stock. After losing35% Wednesday, it was trading off $1 .27, or 31 .4%, to $2 .78 in recenttrading .

The company also introduced its new CFO former uantumexecutive Richard lemmer, on its conference call . He will succeed

onsolidated Class Action Complaintase No : CV-S-0 f -0483-JLQ 38

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Clough, who will remain at the company .

92 . After the market absorbed these revelations the stock traded in the $ 3

range and continued to be artificially inflated during the remainder of the Class

Period as defendants concealed the full extent to which the Company had

misreported its financial results in prior quarters .

93 . On April 26, 2001, an article by Tiffany Kary on CNET News .com

highlighted the shocking revelation by Jim Clough, the Company's interim CFO,

that the Company didn't recognize another $3 .7 million in revenue because "we

had insufficient facts to determine whether the customer was creditworthy ." The

CNET News .com article quotes Pawan Malhotra, an SG Cowen analyst, a s

stating, "[t]hese are individuals who haven't sold software before, they don't

understand a lot of issues relating to software accounting. "

94 . The accounting mayhem that was plainly in existence at th e

Company was further highlighted on April 27, 2001, in an interview on CNNfn of

Cory Johnson, editor of The Industry Standard . In the interview Cory Johnson

stated as follows :

JOHNSON : They don't know where their revenues are coming from .They don't even know what to call revenues . This is a company that'sbeen through at least four CFOs in about four years. They just hired theirfifth CFO . -They've been operating with an interim CFO . They come outin March -- they came out in March 7 and said -- this is a ll detailed in mystory. -- but they come out and said, We're going to make our guidance.We don ' t see an economic slowdown . We sti ll expect to earn ;42 millionin the quarter .

This is in March, Bruce . This is well into the quarter . They shouldknow exactly what they're doing .

95 . On May 7, 2001 The Industry Standard , published the following

article about PurchasePro :

Johnson ' s swagger is legendary . At Credit Suisse First Boston'stechnology conference last falr Johnson wore a gold pinkie ring, goldRolex and black alli gator- skin boots . During his presentation , one hedge-fund manager leaned over to me to say, "I ' d short the stock if I wasn'tafraid Junior would come over here and kick my ass . "

olidated Class Action ComplaintNo: CV-S-01-0483-JLQ 39

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Johnson ' s confidence didn ' t end with his wardrobe . In the face ofthe economic slowdown , PurchasePro reaffirmed its earnin s guidance inearly March , forecasting, $42 million in quarterly revenue . the stocksoared 14 percent after the announcement .

But just five days later Junior admitted he was oing to se ll massivequantities of stock . Purchase'Pro underwriters CS First Boston had givenhim a $100 mil li on personal line of credit . Now Johnson said that CS FirstBoston was forcin him to sell stock to back the loan . According toInsiderSores . com, Junior sold $15 .9 million in PurchasePro stock on March6 and 7 alone .

This is the backdrop .to the mess over PurchasePro ' s revenues .Analysts say the company is overly reliant on one customer , Hilton Hotels,and on deals offered via AOL - deals they say , that are not likely to berenewed . Some were done in exchange for PurchasePro warrants, a once-valuable commodity but now virtually worthless .

Like Gateway and Lucent, PurchasePro is suffering less from theslow economy than from its own missteps . These are not the failuresof the new economy - these are the failures of weak management,bad decisions and shoddy accounting .

96 . On May 15, PurchasePro missed the deadline to file its Form 10-Q fo r

the first quarter, and instead notified the SEC that it would be late in filing its first

quarter results . No explanation was given by PurchasePro, voluntarily or when

explicitly asked, as to why the Company needed more time to finish and file its

financial results, or as to what specific issues were involved .

97 . On May 21, 2001, it was announced that after an emergency meeting

of the board of directors on the night of May 20, 2001, defendant Johnson had "left

the company and resigned his position on the board," thus ceasing all active roles i n

PurchasePro .

98 . Then, at 4 :00 a.m . on May 22, 2001, PurchasePro issued a press releas e

announcing a further, and even more drastic, revision of the company's first quarte r

2001 financial results . The press release, stating results revised and diminished for

the second time in one month, noted without explanation :

nsolidated Class Action Complaintse No : CV-S-0 I -0483-JLQ 40

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PurchasePro Revises Reported First Quarter Result s

LAS VEGAS May 22, 2001 (PRIMEZONE) - PurchasePro(r),(Nasdaq :PPRO - news) today reported revised results for its firstquarter ended March 31, 2001 .

For the 2001 first quarter PurchasePro's revenues were $17 .1 millioncompared with $33 .6 million posted in the fourth quarter of 2000 and$4 .6 million posted in first quarter a year earlier .

Excluding non-cash charges of $16 .7 million for strategic marketinexpenses and amo rtization of equity -based compensation and goodwil ,Purchasel'ro reported a cash operating loss for the first quarter of $15 .9million , or $0 .23 per share .

The net loss for the first quarter ended March 31, 2001 was $32 .4million or $0 .47 per share, compared with a net loss of $36 .8 million,or $0 .5~ per share, in the fourth quarter of 2000, and $15 .7 million, or$0 .27 per share, in the corresponding year earlier quarter .

99 . In other words, as opposed to revenues that defendants stated woul d

come in at approximately $43 million and earnings per share that defendants stated

would amount to approximately $0 .08 per share, PurchasePro's financial results for

the first quarter of 2001, after two revisions in one month, looked shockingly

different : revenues of $17 .1 million (i.e., 60% less than the revenue number that

defendants claimed PurchasePro would exceed) and a GAMP loss of $0 .47 per share

(i.e., net income 600% less than defendants claimed PurchasePro would report) .

100 . On May 22, 2001, on the basis of this latest revision to the Company' s

financial results, PurchasePro stock fell to close at $2 .58 per share .

101 . Unfortunately for the investing community, in ignorance of the adverse

facts concerning PurchasePro's business condition during the Class Period relating

to the Company's revenues, improper accounting practices, which were concealed

by defendants throughout the Class Period, plaintiffs and the other members of the

Class purchased their PurchasePro securities at artificially high prices, relying on the

statements made and/or the integrity of the market and were damaged thereby .

102 . Had plaintiffs and the other members of the Class known of th e

materially adverse information not disclosed by the defendants , they would not have

Diiuateu L i ass Action ComplaintNo : CV-s-01-0483-JLQ 41

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purchased their PurchasePro securities at the a rtificially inflated prices that they did .

Subsequent News

103 . On May 29, 2001, the Individual Defendants caused the Company to

announce yet another set of revised earnings . The following extract from the

Lexington Herald-Leader of May 30, 2001, details the latest shocking revelations :

Like a mirage in the Nevada desert, PurchasePro .com's revenue forthe first three months of the year keeps disappearing .

Yesterday, Las Vegas-based PurchasePro revised its first-quarterfinancial results downward for the second time in a week .

The latest numbers included in the company's long-overdue Form10-Q quarterly report to the Securities and Exchange Commission, areslightly below results announced in a press release last Tuesday, anddramatically lower than the company ' s original estimates of April 26 .

Last week's revision came a day after Chairman and CEO Charles"Junior" Johnson, a Lexington native, abruptly left the company he hadfounded in October 1996 . -PurchasePro builds Web sites that let businessesbuy and sell goods over the Internet.

The company's first-quarter loss of $33 .47 million is 85 percentgreater than the $ 18 .08 million it announced in April , and its revenuefigures dropped 46 percent , from $29 . 78 million to $16 .03 million.

Shares of PurchasePro (PPROE : Nasdaq) closed yesterday at $1 .70,up 15 cents , or 9 .7 percent.

104 . On June 11, 2001, The Industry Standard released an article detailin g

how far reaching the fraud was by revealing for the first time how many

organizations claimed by PurchasePro to be clients had never in fact been clients .

The following are extracts from the article :

The company ' s 1999 annual report, for instance, listed about 50organizations - including the state of Nevada and five casino companies - asusers of its network that links corporate buyers with suppliers of goodsranging from office paper to food . Nut at least a half dozen were just kickingthe tires. "We never actually purchased anything " says Dave Mitchell,purchasin~g director for four of the customers on 'urchasePro 's list : thePhoenix Suns basketball team, the Arizona Diamondbacks baseball team andtheir respective stadiums , America West Arena and Bank One Ba llpark.

One alleged customer Carnival Cruise Lines, says it tested the systembut never used it . Another, Phoenix-based ILX Resorts, decided not to signon because executives weren't convinced it would recoup its investment .

oiiaatea laass Action ComplaintNo : CV-S-0I-04$3-JLQ 42

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105 . On June 19,200 1, The Washington Post published the following articl e

concerning the placement on administrative leave by AOL of one of its executives

who worked closely with PurchasePro . The following is an excerpt from the a rticle :

An America Online Inc . executive has been placed on administrativeleave pending an internal investigation of the company ' s relationship with acorporate partner , according to sources familiar with the matter.

Eric Keller a senior vice president of business affairs at the InternetDivision of New fork- based AOL Time Warner ., is on leave for six weekswhile the company looks into matters related to its pa rtnership with financiallytroubled PurchasePro . com Inc ., sources said . At-least one other lower-levelAOL employee also was put on administrative leave they said . "As a policy ,we don't comment on employee matters , said Jim Whitney , a spokesman forthe Dulles -based online unit , which runs the world's largest Internet service .Whitney said that Keller was unavailable for comment .

106 . Ina conference call on August 7, 2001, Rick Clemmer, PurchasePro' s

new President and Chief Executive Officer , made the telling admission that the

Company was "working [with AOL] to restructure the relationship, so that there's

balance in the relationship ." This was a belated admission of PurchasePro's

imbalanced relationship with AOL, an admission that directly contradicted

defendant Johnson ' s Class Period statements where he characterized the relationship

with AOL, as well as other clients, as "truly partnerships ." As is alleged within,

these were not true partnerships , but were instead imbalanced relationships with no

genuine benefits accruing to the Company .

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

107 . During the Class Period, defendants publicly disseminated and/or file d

with the SEC financial statements, earnings releases and financial information which

contained materially false and misleading financial information in. violation of

Generally Accepted Accounting Principles ("GAMP") and SEC Rules and

Regulations . GAMP encompasses the rules, conventions and practices recognized

and employed in the preparation of financial statements for the fair presentation of

the financial condition, results of operations and cash flows of an enterprise .

Financial statements that are filed with the SEC must conform with GAMP and SEC

Jlldated (_ ; lass Action ComplaintNo : CV-s-01-0483- .JLQ 43

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Regulations .

108 . During the Class Period, defendants materially misled the investin g

public, thereby inflating the price of PurchasePro securities, by publicly issuing false

and misleading statements and omitting to disclose material facts necessary to make

defendants' statements, as set forth herein, not false and misleading . Said statements

and omissions were materially false and misleading in that they failed to disclose

material adverse information and misrepresented the truth about the Company, its

financial performance, accounting, reporting and condition, including, inter alia:

a. During the Class Period, the Company reported revenues, income

and earnings per share that were materially overstated ;

b . The Company' s financial statements did not present, in al l

material respects, the Company's true financial condition, and did not reflect all

adjustments which were necessary for a fair statement of the interim and full year

period presented ; and

c . Interim financial statements reported by the Company were no t

presented in conformity with GAMP or principles of fair reporting .

109 . The SEC requires that publicly-traded companies present their financia l

statements in accordance with GAMP. 17 C .F .R. §210 .4-01(a)(1) . Moreover,

financial statements filed with the SEC which are not prepared in accordance with

GAMP "will be presumed to be misleading or inaccurate , despite footnote or other

disclosures, unless the Commission has otherwise provided." 17 C .F .R. §210 .4-

01(a)(1). Although the Individual Defendants and Accountant Defendant stated in

PurchasePro's financial statements contained in their public filings throughout the

Class Period that such statements were prepared in accordance with GAMP, these

defendants deviated from GAMP in material and significant ways which violated

GAMP, SEC rules and regulations and federal securities laws and perpetrated a fraud

on the Class .

onsolidated Class Action Complaintase No : CV-S-01-0483-JLQ 44

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110 . Interim financial statements must also comply with GAMP, with the

exception that interim financial statements need not include disclosures which would

be duplicative of disclosures accompanying annual financial statements . 17 C .F .R.

§210 .10-01(a) . Further, "where material contingencies exist, disclosure of such

matters shall be provided even though a significant change since year end may not

have occurred ."

111 . As set forth in Accounting Principles Board ("APB") Opinion No . 28 ,

"Interim Financial Reporting, " (part of GAMP) "Each interim period shall be

viewed primarily as an integral part of an annual period . The results for each interim

period shall be based on the accounting principles and practices used by an

enterprise in the preparation of its latest annual financial statements unless a change

in an accounting practice or policy has been adopted in the current year ."

Additionally, "[r]evenue from products sold or services rendered shall be recognized

as earned during an interim period on the same basis as followed for the full year ."

112 . Management is responsible for preparing financial statements tha t

conform with GAMP. As noted by the American Institute of Certified Public

Accountants ("AICPA") professional standards [AU § 110.03 ( 1998)_1 :

Financial statements are management ' s responsibility[M anagement is responsible for adopting sound accountin g policiesand for establishing, and maintaining internal controls that will, amongother things , record , process, summarize , and report transactions (aswell as events and conditions) consistent with management's assertionsembodied in the financial statements . The entity ' s transactions and therelated assets , liabilities and equity are within the direct knowledge andcontrol of management . . . . Thus, the fair presentation of financialstatements in conformity with Generally Accepted AccountingPrinciples is an implicit and integral pa rt of management'sresponsibility .

113 . Pursuant to GAMP , as described by Financial Accounting Standard s

Board ("FASB") Statement of Concepts No . 5 ("Concepts No . 5 "), revenue should

not be recognized unless and until it is realized or collectible . See Concepts No . 5 ,

I ¶¶ 83-84 . Moreover, companies are required to take a loss for uncollectibl e

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receivables where it is probable that they will not be collected . See Statement of

Financial Accounting Standard ("SFAS") No . 5, ¶ 22 .

114 . To properly consider receivables as revenue , GAMP requires a

reasonable expectation of receiving the revenue recognized, otherwise, the

recognition of revenue must be deferred until the Company has a reasonable basis

to expect payment . GAMP, as set forth in Concepts No . 5, provides the basic

requirements for revenue to be recognizable : (1) revenue must have been earned ;

and (2) revenue must be realizable (i.e., collectible) . See Concepts No. 5, ¶83 . "If

collectibility . . . is doubtful, revenues and gains may be recognized on the basis of

cash received." Concepts No . 5, ¶84g .

115 . GAMP, as set forth in SFAS No . 5, Accounting for Contingencies ,

requires that accounts receivable for which there is any degree of uncertainty about

collectibility must be reduced to the expected collectible amount by recording an

allowance for uncollectible receivables, even where the particular receivables that

are uncollectible cannot be identified. See SFAS No . 5, ¶22 .

116. SFAS No. 5 further states that :

An estimated loss from a loss contingency (as defined inparagraph 1) shall be accrued by :

a . a charge to income if both of the following conditions are met :

Information available prior to issuance of thefinancial statements indicates that it is probable thatan asset had been impaired or a liability had beenincurred at the date or the financial statements . It isimplicit in this condition that it must be probablethat one or more future events will occurconfirming the fact of the loss .

b . the amount of loss can be reasonably estimated (SFAS 5, ¶8) .

117 . Pursuant to Staff Accounting Bulletin 101, revenue is not to b e

recognized until all of the following conditions are met : there is persuasive evidence

of an arrangement, delivery and performance has occurred, there is a fixed and

determinable price and collectibility is reasonably assured .

olidated Class Action ComplaintNo : CV-S-01-0483-JLQ 46

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118 . GAMP also requires the following :

a. GAMP requires the restatement of previously issued financia l

statements for the correction of a material error in the financial statements of a prior

period. "Errors in financial statements result from . . . misuse of facts that existed

at the time the financial statements were prepared . " APB No. 20 . The same

GAMP standard requires restatement of previously reported financial statements if

the misuse of facts that existed at the time the financial statements were prepared

caused reported net income to be materially misstated;

b . GAMP also requires , which defendants failed to disclose, th e

existence of known trends, events or uncertainties that they reasonably expected

would have a material unfavorable impact on net revenues or income, or that were

reasonably likely to result in the Company's liquidity decreasing in a material way,

in violation of Item 303 of Regulation S-K under the federal securities laws (17

C .F.R. §229 .303), and that failure to disclose these facts rendered the statements that

were made during the Class Period materially false and misleading ; and

c . By failing to file financial statements with the SEC which

conformed to the requirements of GAMP and SEC rules and regulations, such

financial statements were presumptively misleading and inaccurate pursuant to 1 7

C .F .R. §210 .4-01(a)(1) .

119 . As a result of its accounting improprieties and known restatements, th e

Company's reported financial results (and all defendants) also violated at least the

following provisions of GAMP for which each defendant is responsible :

a . The principle that financial reporting should provide informatio n

that is useful to present and potential investors and creditors and other users i n

making rational investment , credit and similar decisions was violated (FASB

Statement of Concepts No . 1, ¶34) ;

b. The principle that financial reporting should provide informatio n

onsolidated Class Action Complaintase No : CV-S-01-0483-JLQ 47

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about the economic resources of an enterprise, the claims to those resources, and the

effects of transactions, events and circumstances that change resources and claims

to those resources was violated (FASB Statement of Concepts No . 1, ¶40) ;

c . The principle that financial reporting should provide informatio n

about an enterprise's financial performance during a period was violated . Investors

and creditors often use information about the past to help in assessing the prospects

of an enterprise. Thus, although investment and credit decisions reflect investors'

expectations about future enterprise performance, those expectations are commonly

based at least partly on evaluations of past enterprise performance (FA .SB Statement

of Concepts No . 1, ¶42);

d . The principle that financial reporting should provide information

about how management of an enterprise has discharged its stewardship responsibility

to owners (stockholders) for use of enterprise resources entrusted to it was violated .

To the extent that management offers securities of the enterprise to the public, it

voluntarily accepts wider responsibilities for accountability to prospective investors

and to the public in general (FASB Statement of Concepts No . 1, ¶50) ;

e . The principle that financial reporting should be reliable in that i t

represents what it purports to represent was violated. That information should be

reliable as well as relevant is a notion that is central to accounting (FASB Statement

of Concepts No . 2, ¶¶58-59) ;

f. The principle of completeness, which means that nothing is left

I out of the information that may be necessary to ensure that it validly represent s

underlying events and conditions, was violated (FASB Statement of Concepts No . 2,

¶79); and

g . The principle that conservatism be used as a prudent reaction t o

uncertainty to try to ensure that uncertainties and risks inherent in business situations

are adequately considered was violated . The best way to avoid injury to investors

Midated Class Action ComplaintNo: CV-S- 0 1-0483-JLQ 48

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2 . That the report shall identify those circumstances in which such

principles have not been consistently observed in the current

period in relation to the preceding period ; and

3 . That informative disclosures in the financial statements are to be

regarded as reasonably adequate unless otherwise stated in the

report .

124. Statements on Auditing Standards ("SAS") are issued by the AICPA

and are recognized as interpretations of the generally accepted auditing standards .

Under Rule 202 of the Professional Code of Conduct, every member of the AICPA

must comply with all applicable SAS . SAS require, among other things :

1 That confirmation of sales and receivables is a generally accepted

auditing procedure, and an independent auditor who issues an opinion

when SAS have not been employed has the burden of justifying the

opinion expressed ;

2 . That when events occur subsequent to the date of the financial

statements, but prior to the issuance of such financial statements and

the auditor's report thereon, such financial statements should be

adjusted for any such changes and estimates . Adjustments are called

for by additional evidence with respect to conditions that existed at the

date of the financial statements and which affect the estimates inheren t

in the process of preparing such financial statements ;

3 . That when the auditor becomes aware of information which relates to

financial statements previously reported on by it, but which was not

known to the auditor at the date of the auditor's report, and which is of

such a nature and from such a source that the auditor would have

investigated it had it come to the auditor's attention during the course

of its examination, the auditor should, after investigation, take actio n

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to prevent future reliance on the report . This action should include,

among other matters, advising its client to make appropriate disclosure

to persons who may rely on the financial statements . If the client

refuses to make the requisite disclosures, the auditor should make such

disclosures itself; and

4 . That according to SAS No . 53, The Auditor's Responsibility to Detect

and Report Errors and Irregularities, the auditor's exercise of due care

should give appropriate consideration of the possibility of material

errors or irregularities . The auditor should communicate detected

errors and irregularities to the Company and outside parties . The

auditor should be prepared to justify departures .

125 . The FASB sets the principles that the accounting profession is boun d

to follow. Rule 203 of the AICPA's Code of Professional Conduct prohibits an

auditor from issuing an unqualified opinion on the financial statements when a client

has not followed promulgated accounting principles .

EFE CT IN A CE WITH

126. During the Class Period, PurchasePro's financial statements wer e

publicly issued and were claimed to be prepared in accordance with GAMP . In fact,

PurchasePro's 10-K for fiscal year 2000 was not audited by Accountant Defendant

in accordance with GAAS, and did not fairly present or report PurchasePro's

financial condition, results of operations and changes in financial position, and was

not fairly presented in conformity with GAMP because of material deficiencies in

PurchasePro's financial reporting, which all defendants, including Accountant

Defendant, either knew of or recklessly disregarded in issuing their financial

statements to the investing community.

127 . In order to make the Company appear successful, and to otherwise

nsolidated Class Action Complaintse No: C V-S-0 1 -04 83 -JLQ 51

1 artificially support PurchasePro's stock price until its expansion could be completed,

2 Individual Defendants and Accountant Defendant caused PurchasePro to falsely

3 report its financial results during the Class Period through improper revenue

4 recognition and by understating allowances for uncollectible receivables . For

5 example, defendants engaged in improper revenue recognition, in contravention of

6 GAMP, by : (1) the premature and improper recognition of revenue that should have

7 been deferred to later periods ; (ii) the improper recognition of revenue from

8 customers when the Company had insufficient facts to determine whether these

9 customers were actually creditworthy or not ; and (iii) throughout the Class Period,

10 the improper recognition as revenue of payments made to PurchasePro by a number

11 of its customers, such as AOL, which were actually payments for warrants to

12 purchase PurchasePro stock that PurchasePro had granted to these customers in order

13 to gain their business .

14 128. Moreover, defendants have an established track record of

15 misrepresenting their financial results as evidenced by the Company's restatement

16 of it's 10-Q for Q2 2000 . The significance of PurchasePro's restatement cannot be

17 overstated . Under GAMP, the restatement of previously issued financial statements

18 is the most serious step, reserved only for situations in which no lesser remedy is

19 available . Indeed, under Statement of Financial Accounting Standard No . 16, Prior

20 Period Adjustments, and Accounting principle Board Opinion No . 20, Accounting

21 Changes, restatements are only permitted - and are required - for material

22 accounting errors or irregularities that existed at the time the financial statements

23 were prepared. Thus, PurchasePro has already admitted that certain of its financial

24 results were misstated during the Class Period based on information known at the

25 time the statements were made .

26 129. Thus, while defendants publicly represented that the Company had a

27 bright financial future, they failed to disclose that they were improperly recognizing

28

Diloatea cl ass Action ComplaintNo: CV-s-01-0483-JLQ 52

1 revenue and that millions of dollars in receivables were in jeopardy of never being

2 collected. Defendants were required, yet failed, to disclose these issues to the public

3 and to book the appropriate reserves pursuant to GAMP to account for such doubtful

4 accounts .

5 130. The undisclosed adverse information concealed by defendants during

6 the Class Period is the type of information which, because of SEC' regulations,

7 regulations ofnational stock exchanges and customary business practice, is expected

8 by investors and securities analysts to be disclosed and is known by corporate

9 officials and their legal and financial advisors to be the type of information which

10 is expected to be and must be disclosed .

11 131 . The Company's financial statements during the Class Period which

12 were disseminated to the investing public were not presented in accordance with

13 GAMP in that such financial statements failed to disclose that there existed a

14 material overstatement of revenue and the Company's problems associated with its

15 accounts receivables . Defendants allowed PurchasePro to book revenue from its

16 customers when it knew that this was not in fact revenue, but compensation for

17 warrants issued . By concealing these transgressions, in contravention of GAMP and

18 other accounting guidelines compelling disclosure, defendants, including the

19 Accountant Defendant, disseminated false and misleading earnings announcements

20 and financial statements which were not a fair presentation of Purchase-Pro's results

21 and were presented in violation of GAMP and SEC rules and regulations .

22 132. Moreover, Accountant Defendant violated GAAS by, inter alia, issuing

23 an unqualified opinion with respect to PurchasePro's 10-K for fiscal year 2000 when

24 application of proper auditing procedures would have demonstrated that

25 PurchasePro's accounts receivable and revenue were materially overstated and not

26 calculated in conformity with GAMP . At all relevant times herein, PurchasePro' s

27 assets, earnings and net worth were materially inflated by millions of dollars by the

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isolidated Class Action Complaintc No: CV-S-01-0483-JLQ 53

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overstatement of assets and income . By virtue of its intimate knowledge o f

PurchasePro's affairs and/or access to PurchasePro's books and records, Accountan t

Defendant either knew of or recklessly disregarded the true worth of th e

PurchasePro ' s accounts receivable and PurchasePro ' s failure to properly report

income.

133 . In addition to the foregoing , Accountant Defendant violated GAAS in

the audit of PurchasePro during the Class Period in, inter alia, the following ways :

1 . GAAS General Standard No . 2 was violated, which standard requires

that an auditor maintain an independence in mental attitude while

conducting an audit ;

2 . GAAS General Standard No . 3 was violated, which standard requires

that due professional care be exercised by the auditor in the

performance of the audit examination and the preparation of the audit

report; 3

Due professional care is to be exercised in the planning and performance)f the audit and the preparation of the report . Due professional care imposes a-esponsibility upon each professional within an independent auditor's organization:o observe the standards of field work and reporting. An auditor should also?osses "the degree of skill commonly possessed" by other auditors and should-.xercise it with "reasonable care and diligence" (that is, with due professional-are) . Auditors should be assigned to tasks and supervised commensurate with:heir level of knowledge, skill, and ability so that they can evaluate the auditwidence they are examining . The auditor with final responsibility for the-.ngagement should know, at a minimum, the relevant professional accounting andr.uditing standards and should be knowledgeable about the client . The auditorwith final responsibility is responsible for the assignment of tasks to, andsupervision of, assistants .

26Due professional care requires the auditor to exercise professiona l

27 skepticism . Professional skepticism is an attitude that includes a questioning mind28 nd a critical assessment of audit evidence . The auditor uses the knowledge, skill ,

onsolidated Class Action Complaintvase No: CV-S-O1-0483-JLQ 54

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3 . GAAS standard of Field Work No . 3 was violated, which standard

requires that sufficient competent evidentiary matter be obtained

through inspection, observation, inquiries, and confirmations to afford

a reasonable basis for an opinion regarding the financial statements

under examination;

4 . GAAS standard of Reporting No . 1 was violated, which requires that

the auditor's opinion state whether the financial statements are

presented in accordance with GAMP . Accountant Defendant's

opinions improperly represented that PurchasePro's financial

statements were fairly presented in conformity with GAMP, which they

were not ;

5 . GAAS Standard of Reporting No . 3 was violated , which requires that

informative disclosures in the financial statements are to be regarded as

reasonably adequate unless otherwise stated in an audit opinion ; and

6 . GAAS Standard of Reporting No . 4 was violated , which requires that

when an opinion on the financial statements as a whole cannot be

and ability called for by the profession of public accounting to diligently perform,in good faith and with integrity, the gathering and objective evaluation ofvidence .

Gathering and objectively evaluating audit evidence requires the auditor toonsider the competency and sufficiency of the evidence . Since evidence isathered and evaluated throughout the audit, professional skepticism should bexercised throughout the audit process .

25 The auditor neither assumes that management is dishonest nor assumes26 unquestioned honesty . In exercising professional skepticism, the auditor shoul d

of be satisfied with less than persuasive evidence because of a belief that27 management is honest .28

onsolidated Class Action Complaintase No : CV-S-01-0483-JLQ 55

1 expressed, for reasons including violations of GAMP, an unqualified

2 opinion may not be issued. Based on the violation of DAMP in the

3 accounting and presentation of PurchasePro's recognition of revenue

4 and assessment of accounts receivable, Accountant Defendant should

5 either have issued a disclaimer of opinion on those financial statements

6 disseminated by PurchasePro during the Class Period or issued adverse

7 or qualified opinions with respect thereto . Accountant Defendant's

8 issuance of an unqualified, "clean" opinion violated both GAMP and

9 GAAS Standard of Reporting No . 4 .

10 134. Accountant Defendant failed to exercise due professional care in its

11 audit of PurchasePro and failed to provide auditors with the necessary skills and

12 industry expertise to perform such audits in accordance with GAAS . If Accountant

13 Defendant's auditors possessed the necessary knowledge and skills, it would have

14 become obvious in the performance of the audit that the revenue being recognized

15 and the receivables being recorded were unreasonable and that they did not present

16 an accurate picture of the Company's financial condition. For example, Accountant

17 Defendant should have been aware that the "revenue" recognized by the Company

18 in exchange for the issuance of warrants to certain of its customers, such as AOL,

19 was not in accordance with GAMP and industry norms and this should have raised

20 a "red flag" as to the revenue recognition policies of PurchasePro, as well as the

21 collectibility of the Company's accounts receivable and their true value . It should

22 have also raised questions as to the integrity of PurchasePro's management .

23 135 . Professional standards of the AICPA require an auditor to have

24 sufficient knowledge and expertise in a client's industry to be able to perform an

25 audit in accordance with GAAS . Further, these same standards required to perform

26 such audit work with competent personnel under his supervision . Due to the

27 magnitude of the overstatement of revenue at issue, and the questionable

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3lidated Class Action ComplaintNo: CV-S-01-0483-JLQ 56

I collectibility of millions of dollars of accounts receivable , it is obvious that

2 Accountant Defendant failed to properly plan and supervise its audits of

3 PurchasePro ' s financial statements throughout the Class Period in accordance with

4 GAAS . Accountant Defendant abandoned its public watchdog role in order to

5 accommodate its client by certifying the Company ' s false and misleading financial

6 statements .

7 136 . Accountant Defendant acted with the requisite scienter in that it knew

8 or was reckless in not knowing that PurchasePro ' s Class Period financial statements

9 were materially false and misleading ; knew or recklessly disregarded that the

10 statements therein would be issued or disseminated to the investing public ; and

11 knowingly and substantially participated or acquiesced in the issuance or

12 dissemination of such statements as primary violators of the securities laws .

13 Accountant Defendant's scienter is also demonstrated by its violation of numerous

14 auditing standards , and its refusal to qualify or withdraw its opinion in light of these

15 failures . The auditor's scienter is also demonstrated by its conscious or de liberately

16 reckless disregard of a number of "red flags" that would cause a reasonably prudent

17 auditor to increase its scrutiny , or qualify or withdraw its opinion , as Accountant

18 Defendant failed to do . As highly experienced auditors , Accountant Defendant's

19 abrogation of well-known auditing standards gives rise to a strong inference that

20 Accountant Defendant knew that its audit could not have been conducted in

21 accordance with GAAS, as it stated in its unqualified audit opinion .

22 137. Accountant Defendant was motivated to act as alleged herein by its

23 desire to retain PurchasePro and other e-commerce related companies as clients, to

24 continue to generate the fees from these engagements , and to secure additional

25 business from other e-commerce entities . Accountant Defendant did not want to

26 disclose the falsity of the financial statements because that would have required

27 Accountant Defendant to disclose that the Company's Class Period financial

28

onsolidated Class Action Complaintase No : CV-S-0 I-0483-JLQ 57

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statements were not materially presented in accordance with GAMP and that

Accountant Defendant ' s audited opinion was also not in accordance with GAMP and

GAAS .

138 . Accountant Defendant knew or recklessly disregarded tha t

PurchasePro's Class Period financial statements were materially falsely inflated

because Accountant Defendant auditors reviewed and consulted with PurchasePr o

management on the accounting for the financial statements, including the accounting

for the AOL transactions and the millions of receivables being recorded by th e

Company, which were not supported by sufficient competent evidential matter and

were not properly recorded throughout the Class Period as evidenced in part by the

restatement of the Company's 10-Q for Q2 2000 . Accountant Defendant had access

to PurchasePro's customers and had the ability and obligation to confirm with the

largest customers - particularly the largest - that the Company's representations

concerning orders and revenues from those customers were accurate . Nonetheless,

during the Class Period, Accountant Defendant issued an unqualified audit opinion

that PurchasePro's financial statements were presented in accordance with GAMP,

when they were not, and that Accountant Defendant's audit was performed in

accordance within the appropriate accounting guidelines .

139 . As noted above , a restatement of previously issued financial statements

is an extraordinary and rare accounting event, reserved for situations in which no

lesser remedy is available . Indeed, under Statement of Financial Accounting

Standard No . 16, Prior Period Adjustments, and Accounting Principles Board

Opinion No . 20, Accounting Changes, restatements are only permitted - and are

required - for material accounting errors or irregularities that existed at the time the

financial statements were prepared . Accordingly, PurchasePro has conceded that its

financial statements for Q2 2000 and Q 1 2001 were misstated based on information

known at the time the statements were made .

c)lidated Class Action ComplaintNo: CV-S-0I-0483-JLQ 58

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140 . GAAS, as approved and adopted by the AICPA, relate to the conduct

of individual audit engagements . Statements on Auditing Standards ("AU§") are

recognized by the AICPA as the interpretation of GAAS .

141 . Accountant Defendant's responsibility, as PurchasePro's independen t

auditor, was to obtain "sufficient competent evidential matter . . ,. to afford a

reasonable basis for an opinion regarding the financial statements under audit" as to

"the fairness with which they present, in all material respects, financial position,

results of operations, and cash flows in conformity with generally accepted

accounting principles ." AU §§ 110, 150 . The SEC has stressed the importance of

meaningful audits being performed by independent accountants :

Moreover , the capital formation process de pends in large part onthe confidence of investors in financial reporting . An investor'swillingness to commit his capital to an impersonal market is dependenton the availability of accurate, material and timely informationregarding the corporations in which he has invested or proposes toinvest . The quality of information disseminated in the securitiesmarkets and the continuing conviction of individual investors that suchinformation is reliable are thus ke y to the formation and effectiveallocation of capital . Accordingly, the audit function must bemeaningfully performed and the accountants' independence notcompromised .

SEC Accounting Series Release No. 296 .

142 . Under GAAS, as set forth in AICPA AU § 326, Evidential Matter, th e

auditor should obtain sufficient, competent evidential matter through inspection ,

observation, inquiries, and confirmations from customers and others to afford a

reasonable basis for an opinion regarding the financial statements under audit :

In evaluating evidential matter , the auditor considers whether specificaudit objectives have been achieved . The independent auditor shouldbe thorough in his or her search for evidential matter and unbiased inits evaluation . In designing audit procedures to obtain competentevidential matter , he or she should recognize the possibility that thefinancial statements may not be fairly presented in conformity withgenerally accepted accountin g princip es . . . . In developing his or heropinion , the auditor should consider relevant evidential matterregardless of whether it appears to corroborate or to contradict theassertions in the financial statements . To the extent the auditor remainsin substantial doubt about any assertion of material significance, he o r

onsolidated Class Action Complaintase No : CV-S-O 1-0483-JLQ 59

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she must refrain from forming an opinion until he or she has obtainedsufficient competent evidential matter to remove such substantial doubtor the auditor must express a qualified opinion or a disclaimer ofopinion .

143 . Accountant Defendant's representations concerning PurchasePro' s

financial statements during the Class Period were false and misleading as thos e

financial statements were not prepared in accordance with GAMP and Accountant

Defendant had not conducted its audit in accordance with GAAS as set forth herein .

144 . Accountant Defendant failed to perform sufficient audit procedures an d

test work to confirm that the financial data supplied by PurchasePro was supported

by the underlying documentation. Accountant Defendant should have performed

sufficient procedures to determine the extent of the misstatements . I1: should have

made inquiry of and request confirmations from PurchasePro's largest customers .

In violation of GAAS, Accountant Defendant failed to exercise due professiona l

care, maintain an attitude of professional skepticism in the performance of the audit ,

and to obtain sufficient competent evidential matter to afford a reasonable basis for

its report on PurchasePro's financial condition .

145 . The AICPA's AU §342 .11. and 342 .12 required Accountant Defendant

to :

.11 Review and test management ' s process . In many situations, theauditor assesses the reasonableness of an accounting estimate byperforming procedures to test the process used by management

make the estimate . The following are procedures the auditor01may consider performing when using this approach :

a. Identify whether there are controls over the preparation ofaccounting estimates and supporting data that may beuseful in te evaluation .

b . Identify the sources of data and factors that managementused in forming the assumptions, and consider w' nethersuch data and factors are relevant , reliable, and sufficientfor the purpose based on information gathered in otheraudit tests .

c . Consider whether there are additional key factors oralternative assumptions about the factors .

onsolidated Class Action Complaintase No : CV-S-01-0483-JLQ 60

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d . Evaluate whether the assumptions are consistent with eachother, the supporting data, relevant historical data, andindustry data .

e . Analyze historical data used in developing theassumptions to assess whether the data is comparable andconsistent with data of the period under audit andconsider whether such data is sufficiently reliable for thepurpose .

f. Consider whether changes in the business or industry maycause other factors to become significant to theassumptions .

g . Review available documentation of the assumptions usedin developing the accounting estimates and inquire aboutany other plans, goals, and objectives of the entity, as wellas consider their relationship to the assumptions .

h. Consider using the work of a specialist regarding certainassumptions ( section 336 , Using the Workof a Specialist) .

i . Test the calculations used by management to translate th eassumptions and key factors into the accounting estimate .

12 Develop an expectation . Based on the auditor's understandingof the facts and circumstances, he may independently develop anexpectation as to the estimate by using other key factors oralternative assumptions about those factors .

146 . The completion of these above detailed tasks by Accountant Defendant

was essential to ensuring that management estimates used were reasonable and were

fairly presented in accordance with GAMP .

147 . Despite its audit requirements , and in violation of GAAS and GAMP ,

Accountant Defendant failed to perform the necessary audit procedures and testing

to determine whether management's financial information was accurate .

148 . These glaring audit failures merely highlight the weaknesses and errors

in Accountant Defendant's audit procedures . The significant nature of the

Company's known restatements indicates that many other errors and. irregularities

were not disclosed by Accountant Defendant . In short, Accountant Defendant

conducted "no audit at all ." In fact, on or about November 30, 2001, Accountant

Defendant resigned its position as Company auditor over "disputes" with member s

olidated Class Action ComplaintNo: CV-s-O1-0483-JLQ 61

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of PurchasePro's prior management (the Individual Defendants herein) . Thus,

Accountant Defendant was aware of accounting transgressions during the Class

Period but did nothing to bring those matters to light. In other words ., Accountant

Defendant knew, or recklessly disregarded, that PurchasePro lacked adequate

internal controls and lacked standardized accounting policies and procedures to

prevent or detect such blatant fraud . Despite its awareness or reckless disregard of

these failures, Accountant Defendant failed to investigate and report the Company's

internal accounting failures, increase its scrutiny of PurchasePro and concomitantly

expand the scope of its audit, or to qualify or withdraw its audit opinion(s) as

required by GAMP and GAAS . These facts demonstrate that Accountant Defendant

relied on management's representations rather than conducting substantive

procedures and testing as required by GAAS . In accordance with SAS No . 19,

representations from management are part of the evidential matter the independent

auditor obtains, but they are not a substitute for the application of those auditing

procedures necessary to afford a reasonable basis for his opinions on the financial

statements .

149 . There is no exculpatory scenario for the auditor here : Accountant

Defendant either knowingly or with deliberate recklessness rubber stamped the

Company's accounting manipulations, or abdicated its duty to conduct a competent

independent audit . If Accountant Defendant failed to audit multimillion dollar

transactions with the Company's largest customers, it cannot have performed a

competent audit .

150 . Accountant Defendant should have exercised additional professional

skepticism in auditing the transactions of a high tech company, especially with

respect to the area of revenue recognition . The American Institute of Certified

Public Accountants' "Audit Risk Alert" - 1998-1999 - warns auditors of recent high-

profile incidents of improper revenue recognition that should serve to remin d

Dlidated Class Action ComplaintNo: CV-S-01-0483-JLQ 62

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auditors of the significant risks that may be associated with this area of financial s

statements .

151 . Accountant Defendant also engaged in the following violations as the y

pertain to the allegations discussed herein :

a. Accountant Defendant violated GAAS Standard ofReporting No .

I that requires the audit report to state whether the financial statements are presented

in accordance with GAMP. Accountant Defendant's opinion falsely represented that

PurchasePro's 10-K was presented in conformity with GAMP when it was not for

the reasons herein alleged .

b . Accountant Defendant violated GAAS Standard of Reporting No .

3 by failing to provide informative disclosures that the financial statements are not

to be regarded as reasonably accurate or adequate .

c . Accountant Defendant violated GAAS Standard of Reporting 4

which requires that , when an opinion on the financial statements as a whole cannot

be expressed, the reasons therefor must be stated . Accountant Defendant should

have stated that no opinion could be issued by it on PurchasePro's financial

statements or issued an adverse opinion stating that the financial statements during

the Class Period were not fairly presented . Accountant Defendant also allowed

PurchasePro to make material misrepresentations regarding the Company to its

shareholders and to the investing public during the Class Period . The failure to make

such a qualification , correction, modification and/or withdrawal was a violation of

GAAS, including the Fourth Standard of Reporting .

d . Accountant Defendant violated GAAS Standard of Field Wor k

No . 1 by failing to adequately plan its audit of the Company and properly supervise

the work of assistants to establish and carry out procedures reasonably designed to

search for and detect the existence of errors and irregularities which would have a

material effect on the Company's financial statements of the type alleged in this

olidated Class Action ComplaintNo: CV-S-01-0483-JLQ 63

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Complaint. Accountant Defendant improperly planned its work by failing t o

evaluate the proper accounting treatment for PurchasePro's revenue and account s

receivable .

e . Accountant Defendant violated GAAS Standard of Field Work

No. 2 which requires the auditor to make a proper study of existing internal controls ,

including accounting, financial and managerial controls, to determine whether

reliance thereon was justified, and if such controls are not reliable, to expand th e

nature and scope of the auditing procedures to be applied . The standard provides

that a sufficient understanding of an entity's internal control structure be obtained

to adequately plan the audit and to determine the nature, timing and extent of tests

to be performed. (AICPA Auditing Standard § 150 .02) . In the course of auditing

PurchasePro ' s fiscal year 2000 financial statements, Accountant Defendant either

knew or recklessly disregarded facts which evidenced that it either failed t o

sufficiently understand PurchasePro's internal control structure and/or it disregarded

weaknesses and deficiencies in PurchasePro's internal control structure, and failed

to adequately plan its audit or expand it auditing procedures .

f. Accountant Defendant violated GAAS Standard of Field Wor k

No . 3, and AU § § 110, 115, which requires sufficient, competent evidential material

be obtained through inspection, observation, inquiries and confirmations to afford

a reasonable basis for an opinion to be issued on the subject financial statements as

to the fairness with which they present, in all material respects, the financial position ,

results of operations and cash flows in conformity with GAMP . As described above,

the fact that Accountant Defendant failed to obtain sufficient , competent evidential

matter to support the recognition and reporting of "revenue" derived from the

issuance of warrants among other things, demonstrates that Accountant Defendant

failed to perform sufficient and competent procedures regarding the existence and

valuation of these balances.

oiidated Class Action ComplaintNo : CV-S-01-0483-JLQ 64

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g. Accountant Defendant violated GAAS and the standards set

forward in SAS (Statement on Auditing Standards) No . 1 and SAS No . 53 by, among

other things, failing to adequately plan its audit and properly supervise the work of

assistants and to establish and carry out procedures reasonably designed to search

for and detect the existence of errors and irregularities which would have a material

effect upon financial statements . Accountant Defendant was required under GAAS

to plan to thoroughly examine the proper revenue recognition, including an

assessment of the collectibility of receivables, which it failed to do .

h . Accountant Defendant violated GAAS General Standard No . 2

and Statement on Auditing Standards §220 which require that an independence in

mental attitude is to be maintained by the auditor in all matters related to the audit .

i . Accountant Defendant violated GAAS General Standard No . 3

and AU §320 by failing to act with due care in the planning and performance of the

audit and the preparation of the audit report. Accountant Defendant failed to

properly test the revenue and related receivables from the Company' s largest

customer . The failure to substantiate such revenue indicates that Accountant

Defendant failed to properly plan and perform the audit .

j . Accountant Defendant failed to follow AU §230, which require s

I the exercise of due care, in improperly recognizing income from the distribution o f

warrants as "revenue" during the Class Period .

k . Accountant Defendant knew or recklessly disregarded facts whic h

indicated that it should have : (a) disclaimed or issued an adverse opinion o n

PurchasePro's 10-K for fiscal 2000 ; or (b) withdrawn, corrected or modified it s

opinion for the affected financial statements as noted above .

152 . As a result of its failure to accurately report on PurchasePro's financia l

statements, Accountant Defendant utterly failed in its role as an auditor as define d

by the SEC . SEC Accounting Series Release No . 295, Relationships Between

olidated Class Action ComplaintNo: CV-S-0I-0483-JLQ 65

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Registrants and Independent Accountants, Securities Act Release No . 6431 ,

Exchange Release Act No . 18044, states in part :

Moreover , the capital formation process depends in large part on theconfidence of investors in financial reporting . An investor'swillingness to commit his capital to an impersonal market is dependenton the availability of accurate , material and timely informationregardin the corporations in which he has invested or proposes toinvest . The quality of information disseminated in the securities marketand the continuing conviction of individual investors that suchinformation be reliable are thus key to the formation and effectiveallocation of capital . Accordingly , the audit function must bemeaningly p erformed and the accountants' independence notcompromised . The auditor must be free to decide questions against hisclients interests if his independent professional judgment compels thatresult .

STATUTORY SAFE HARBOR

153 . The statutory safe harbor provided for forward looking statements under

certain circumstances does not apply to any of the false statements pleaded in this

complaint. The statements alleged to be false and misleading herein all relate to

then-existing facts and conditions . In addition, to the extent certain of the statements

alleged to be false may be characterized as forward looking, they were not identified

as "forward looking" when made, there was no statement made with respect to any

of those representations forming the basis of this complaint that actual results "could

differ materially from those projected," and there were no meaningful cautionary

statements identifying important factors that could cause actual results to differ

materially from those in the purportedly forward-looking statements . Alternatively,

to the extent that the statutory safe harbor is intended to apply to any

forward-looking statements pled herein, defendants are liable for those false

forward-looking statements because at the time each of those forward-looking

statements was made, the particular speaker had actual knowledge that the particular

forward-looking statement was materially false or misleading, and/or the

forward-looking statement was authorized and/or approved by an executive officer

of PurchasePro who knew that those statements were false when made .

olidated Class Action ComplaintNo: CV-S-O1-0483-JLQ 66

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DEFENDANTS' SCIENTE R

154 . During the Class Period , each of the Individual Defendants who wer e

senior executives and/or directors of PurchasePro were privy to confidential and

proprietary information concerning PurchasePro, its operations' finances, financial

condition, products and business prospects, including terms of sales, customer

returns, price protection promotions, credit allowances, receivables and customer

inventory levels . These defendants also had access to and knew of, or were

consciously or deliberately reckless in not knowing of, material adverse non public

information concerning PurchasePro's financial condition .

155 . Each of the Individual Defendants was provided with copies o f

PurchasePro's management reports, press releases and SEC filings alleged herein to

be misleading prior to, or shortly after their issuance . All of the Individual

Defendants had the ability and opportunity to prevent their issuance or cause them

to be corrected . As a result, each of the Individual Defendants is responsible for the

accuracy of the public reports and releases detailed herein as "group published"

information and are therefore responsible and liable for the representations contained

therein .

156 . During the Class Period, the Individual Defendants directly and

indirectly engaged and participated in a continuous course of conduct to

misrepresent the results of PurchasePro's operations and to conceal adverse material

information regarding the finances, financial condition, and results of operations of

PurchasePro as specified herein . The Individual Defendants employed devices,

schemes, and artifices to defraud, and engaged in acts, practices, and a course of

conduct as herein alleged in an effort to increase and maintain an artificially high

market price for the common stock of the Company . This included the formulation,

making, and/or participation in the making of untrue statements of material facts, and

the omission to state material facts necessary in order to make the statements made ,

solidated Class Action ComplaintNo: CV-S-01-0483-.ILQ 67

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in light of the circumstances under which they were made, not misleading, which

operated as a fraud and deceit upon plaintiffs and the other members of the Class .

157. The defendants are liable, jointly and severally , as direct participants i n

the wrongs complained of herein . Defendants had a duty promptly to disseminate

accurate and truthful information with respect to PurchasePro's products, operations ,

financial condition and business prospects or to cause and direct that suc h

information be disseminated so that the market price of PurchasePro stock would b e

based on truthful and accurate information.

158 . As officers, directors and/or controlling persons of a publicly held

Company whose securities are registered with the SEC under the Exchange Act,

traded on the NASDAQ National Market System, and governed by the provisions

of the Exchange Act, the Individual Defendants had a duty to promptly disseminate

accurate and truthful information with respect to the Company's operations ,

business, products, markets, management, earnings and business prospects, to correct

any previously issued statements from any source that had become untrue, and to

disclose any trends that would materially affect earnings and financial operating

results of PurchasePro, so that the market price of the Company's publicly trade d

securities would be based upon truthful and accurate information .

159 . Since the beginning of the Class Period, at the latest, defendants wer e

aware of the existence of inadequate internal controls and/or with conscious or

deliberate recklessness disregarded their obligation to implement adequate controls

to ensure that revenues and accounts receivables were properly recorded in

compliance with GAMP . These defendants had a responsibility to maintain

sufficient accounting controls to accurately report PurchasePro's financial results .

The representations made by defendants in PurchasePro's financial statements and

in other financial disclosures to the public were the representations of PurchasePro's

management. Contrary to the requirements of GAMP and SEC rules, defendant s

bdated Class Action ComplaintNo: CV-S-01-0483-JLQ 68

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failed to implement and maintain an adequate internal accounting control system and

engaged in improper accounting practices as described herein .

160 . During the Class Period, defendants caused PurchasePro to report false

financial results by improperly recognizing revenues on "sales" to customers t o

whom PurchasePro had granted large amounts of warrants to acquire PurchasePr o

stock . In effect PurchasePro was buying revenue in violation of GAMP .

161 . By virtue of their positions with PurchasePro and because of th e

significant reputational and monetary benefits they stood to gain from a positiv e

public perception of PurchasePro, and as a result of artificially inflated stock prices,

the Individual Defendants also had both the opportunity and motive to commit th e

acts alleged herein. Defendants were aware of PurchasePro's true financial

condition yet knew, or with conscious or deliberate recklessness disregarded, the

limitations of the Company . The air of accomplishment and success created as a

result of defendants' material misrepresentations made PurchasePro more attractive

to potential investors, and served to maintain its stock price at artificial levels .

162 . The artificial inflation of PurchasePro's stock price allowed th e

Individual Defendants to realize proceeds of approximately $41 million through their

insider selling . Furthermore, defendant Johnson used the Company's artificially

inflated stock price to receive a line of credit from CSFirst Boston of $100 millio n

using his stock as collateral . Moreover, the artificial inflation of PurchasePro's stock

price allowed PurchasePro to acquire two companies (Stratton Warren and

BayBuilder) using artificially-inflated PurchasePro stock to provide the majority o f

the $23 million aggregate purchase price .

163 . Each defendant had the opportunity to commit and participate in th e

fraud. The Individual Defendants were senior officers and/or directors o f

PurchasePro and they controlled press releases, corporate reports, communication s

with analysts, public filings, and the reporting of the Company's financials . Thus ,

olidated Class Action ComplaintNo: CV-S-01-0483-JLQ 69

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these Individual Defendants, controlled the public dissemination of PurchasePro' s

false and misleading statements, that were approved by defendant Andersen, to the

investing public as alleged herein which artificially inflated the price of

PurchasePro's stock .

164. Each of the Individual Defendants also had the motive to commit an d

participate in the fraud in order to gain pecuniary benefits . The continued receipt of

salary and employment in the Company were significant motives to inflate the

Company's stock and avoid bankruptcy .

165 . As a small Company with limited outside information and new s

concerning the Company, PurchasePro's stock price was particularly sensitive to

defendants' statements regarding PurchasePro's revenues, business and profits .

INSIDER SELLING

166 . The Individual Defendants took advantage of their own scheme to

artificially inflate the Company's stock price by selling large portions of their

personal stock holdings for huge proceeds as detailed below :

Insider Dates Shares Sold Price Proceeds

Johnson 03/06/01 660 , 000 10 . 14 6,692,40 003/07/01 790 , 000 IS) 11 . 70 9,243,00 004/02/01 300 , 000 6 .60 1 , 980 000

,04/03/01 500 ,000 4 . 34 0002,17004/04 /01 500,000 3 .02 1,510,00004/05 /01 500 ,000 3 .42 1 ,710,00004/06/01 500 ,000 IS) 2 .90 1,450 00004/09/01 500,000 2.65 1,325,00 004/10/01 330,000 IS' 3 .11 1,026,30 004/17/01 500 ,000 4 . 71 2,355,00 004/27/01 500 ,000 2 .67 1,33 5,00004/30/01 500 .000 2 .81 1 405 000

'6080 ,2 0$3 1

Moskal 08/22/00 40,000 $ 9 .51 380,40003/09 / 01 50,000 $ 11 .69 584,50 0

964590 0

Clough 10/23/00 150,000 $ 31 .50 $ 4,725,000

Chiles 10/23/00 110 000 33 .82 3,730,20010/23/00 55 .d00 $33 .85 1,861 P75 0

onsolidated Class Action Complaintase No : CV-S-01-0483-JLQ 70

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165,000 $ 5,581,95 0

Total: 6,485, 000 $439473,550

RELIANCE ALLEGATIONSFRAUD-ON-THE-MARKET DOCTRINE

167 . Plaintiffs will rely, in part, upon the presumption of reliance established

by the fraud- on-the-market doctrine in that, among other things :

(a) PurchasePro common stock met the requirements for listing, and

was listed, on the NASDAQ, a highly efficient market ;

(b) as a regulated issuer, the Company filed periodic public report s

with the SEC ;

(c) the trading volume of the Company's stock was substantial ,

reflecting numerous trades each day ;

(d) PurchasePro was followed by securities analysts employed b y

several major brokerage firms who wrote reports which were distributed to the sale s

force and certain customers of such firms and which were available to various

automated data retrieval services ;

(e) the misrepresentations and omissions alleged herein were materia l

and would tend to induce a reasonable investor to misjudge the value of PurchasePr o

common stock; and

(f) plaintiffs and the members of the Class purchased their common

stock during the Class Period without knowledge of the omitted or misrepresented

facts .

168 . Based upon the foregoing, plaintiffs and the other members ofthe Clas s

are entitled to a presumption of reliance upon the integrity of the market for the

purpose of class certification as well as for ultimate proof of their claims on the

merits . Plaintiffs will also rely, in part, upon the presumption of reliance established

by material omissions and upon the actual reliance of the class members .

olidated Class Action ComplaintNo: CV-S-O1-0483-JLQ 71

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COUNT IVIOLATIONS OF SECTI F THE EXCHANGE ACT

AND RULE 10b-5 PROMULGATED THEREUNDERAGAINS T ALL DE FENDANTS

169 . Plaintiffs repeat and reallege each and every allegation contained in th e

foregoing paragraphs as if fully set forth herein .

170 . At all relevant times , the defendants, individua lly and in concert,

directly and indirectly, by the use and means of instrumentalities of interstate

commerce and/or of the mails, engaged and participated in a continuous course of

conduct whereby they knowingly and/or recklessly made and/or failed to correct

public representations which were or had become materially false and misleading

regarding PurchasePro's financial results and operations . This continuous course of

conduct resulted in the defendants causing PurchasePro to publish public statements

which they knew, or were reckless in not knowing, were materially false and

misleading, in order to artificially inflate the market price of PurchasePro stock and

which operated as a fraud and deceit upon the members of the Class.

171 . Defendant PurchasePro is a direct participant in the wrongs complained

of herein . The Individual Defendants are liable as direct participants in and as

controlling persons of the wrongs complained of herein . By virtue of their positions

of control and authority as officers of PurchasePro, the Individual Defendants were

able to and did, directly or indirectly, control the content of the aforesaid statements

relating to the Company, and/or the failure to correct those statements in timely

fashion once they knew or were reckless in not knowing that those statements were

no longer true or accurate . The Individual Defendants caused or controlled the

preparation and/or issuance of public statements and the failure to correct such

public statements containing misstatements and omissions of material facts as

alleged herein .

172 . The Individual Defendants had actual knowledge of the facts making

the material statements false and misleading, or acted with reckless disregard for th e

olidated Class Action ComplaintNo : CV-S-O1-0483-JLQ 72

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truth in that they failed to ascertain and to disclose such facts, even though sam e

were available to them .

173 . Further, defendant Andersen through its position as outside auditor

knew, or would have known in the absence of reckless disregard of the facts alleged

herein, the actual financial and operating condition of the Company, and the

Company's improper revenue recognition, but failed to ensure that the public

statements for which it was responsible accurately reflected the actual financial and

operating condition of PurchasePro .

174 . In ignorance of the adverse facts concerning PurchasePro's busines s

operations and earnings, and in reliance on the integrity of the market, plaintiffs and

the members of the Class acquired PurchasePro common stock at artificially inflated

prices and were damaged thereby .

175 . Had plaintiffs and the members of the Class known of the materiall y

adverse information not disclosed by the defendants, they would not have purchased

PurchasePro common stock at all or not at the inflated prices paid .

176 . By virtue of the foregoing, defendants have violated § 10(b) of the 193 4

Act and Rule I Ob-5 promulgated thereunder .

COUNT IIVIOLATION OF SECTION a OF THE EXCHANGE

ACT AGAINST THE INDIVIDUAL DEFENDANTS

177 . Plaintiffs repeat and reallege each and every allegation contained in th e

foregoing paragraphs as if fully set forth herein .

178 . This count is asserted against the Individual Defendants and is based

upon §20(a) of the 1934 Act .

179 . The Individual Defendants, by virtue of their office, directorship, stock

ownership and specific acts was, at the time of the wrongs alleged herein and as set

forth in Count I, are controlling persons of PurchasePro within the meaning of §20(a )

of the 1934 Act . The Individual Defendants had the power and influence an d

olidated Class Action ComplaintNo: CV-S-01-0483-JLQ 73

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exercised the same to cause PurchasePro to engage in the illegal conduct an d

practices complained of herein by causing the Company to disseminate the false and

misleading information referred to above .

180 . The Individual Defendants' positions made them privy to and provided

them with actual knowledge of the material facts concealed from plaintiffs and th e

Class .

181 . By virtue of the conduct alleged in Count I, the Individual Defendant s

are liable for the aforesaid wrongful conduct and are liable to plaintiffs and the Class

for damages suffered.

PRAYER FOR RELIEF

WHEREFORE , plaintiffs demand judgment :

1 . Determining that the instant action is a proper class actio n

maintainable under Rule 23 of the Federal Rules of Civil Procedure ;

2 . Awarding compensatory damages and/or rescission as appropriat e

against defendants, in favor of plaintiffs and all members of the Class for damage s

sustained as a result of defendants' wrongdoing ;

3 . Awarding plaintiffs and members of the Class the costs an d

disbursements ofthis suit, including reasonable attorneys', accountants' and experts '

fees ; and,

4 . Awarding such other and further relief as the Court may dee m

I just and proper .

Dlidated Class Action ComplaintNo: CV-s-01-0483-JLQ 74

III JURY DEMAND

2 Plaintiffs demand a trial by jury .

3 Dated : February 7, 200 2

4 By;Ma-rk A! rig sc~

5 William H. Stoddard, Esq .C . Adam Buck Esq .

6 Albright, Stoddard, Warrick&A lbri ht

7 801 S. Kancho DriveQuail Park, Suite D-4

8 Las Vegas, NV 89106

9 Liaison Counsel for the Clas s

10 Kevin J. YourmanVahn Alexander

1 I Jennifer WilliamsWEISS & YOURMAN

12 10940 Wilshire Blvd., 24th FloorLos Angeles, CA 90024

13Nadeem Faruqi

14 Shane T. RowleyAntonio Vozzolo

15 FARUQI & 'ARUQI, LLP320 East 39' Street

16 New York, NY 10016

17 Co-Lead Counsel for the Clas s

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olidated Class Action Complaint7

5No : CV-S-O1-0483-JLQ

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CERTIFICATE OF MAILIN G

I hereby certify that on the 5 day of February, 2002, I served a true an d

correct copy of the Amended Complaint in the United States mail, postage prepaid

and addressed to the following : .

Kevin J . Yourman, Esq.Vahn Alexander, Esq .Jennifer R . Williams, Esq.Weiss & Yourman24th Floor10940 Wilshire BoulevardLos Angeles, California 90024Attorneys for Edward Blosser

Sandy A . Liebhard, Esq .Michael S . Egan, Es q .Bernstein Liebhard & Lifshitz, LLP10 East 40th StreetNew York, New York 10016Attorneys for Ezra Birnbaum

Mark Gardy, Esq .Nancy Kaboolian, Esq .212 East 39th StreetNew York, New York 10016Attorneys for Hector Velazquez

Gregory M . Nespole, Esq .Wolf Haldenstein Adler Freeman &Herz LLP270 Madison AvenueNew York, New York 10016Attorneys for Terry Sherbondyand 10. Hoggard

Rabin & Peckel LLPMarvin L . Frank, Es

qJoseph V. McBride, Esq .34th Floor275 Madison AvenueNew York, New York 10016Attorneys for Stanley Myatt

Michael D . Braun, Esq.Patrice L. Bishop, Esq.Stull, Stull & BrodySuite 230010940 Wilshire BoulevardLos Angeles, California 90024Attorneys for Dash Limited

Eduard Korsinsky Esq.Beatie & Osborn, LLP521 Fifth AvenueNew York, New York 10175Attorneys for Hector Velasquez

Law Offices of Bruce G. MurphyBruce G . Murphy, Esq .265 Llywds LaneVero Beach, Florida 32963Attorney for Terry Sherbondy

Law Offices of Kenneth A. ElanKenneth A. ElanSuite 606217 BroadwayNew York, New York 10007Attorney for Stanley Myat t

Jules Brody, Esq .Stull, Stull & Brody6 East 45th StreetNew York, New York 10017Attorneys for Dash Limited

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William S . Lerach, Esq.Darren J. Robbins, Esq~Milberg Weiss Bershad Hyne s

Lerach LLPSuite 180 0600 West BroadwaySan Diego, California 92101Attorneys for Michael GreenLouis Martin , Jr. ; Thomas H .Tallant;

Alfred G . Yates, Jr., Esq .Law Offices of Alfred G. Yates, Jr .

& 519 Allegheny Building429 Forbes AvenuePittsburgh, Pennsylvania 15219Attorne for Michael Green andLouis Martin, Jr.

and

Leelon Jones and Hans Kapur ; andSamer Maani

Seeger Weiss LLPChristopher A . Seeger, Esq .One William StreetNew York, New York 10004-2502Attorneys for Michael Green andLouis Martin, Jr .

Marc A . Topaz, Esq.Schiffrin & Barroway LLPSuite 400Three Bala Plaza Eas tBala Cynwyd, Pennsylvania 19004\Attorney for Christopher Colvi n

Law Offices of Richard J . Vita, P .C .Suite 30077 Franklin StreetBoston, Massachusetts 02110Attorneys for Anthony V . Demarco

Bets C . Manifold, Esq .Wolt Haldenstein Adler Freeman& Herz LLPSymphony Towers, Suite 2770750 B StreetSan Diego, California 92101Attorneys for Joseph Villar i

Brodsky & Smith , L .L .C .Evan J . Smith, Esq .Suite 3 911 Bala AvenueBala Cynwyd, Pennsylvania 19004Attorneys for Chris Grater

Jonathan M . Stein, Esq .Cauley Geller Bowman & Coates LLPSuite 421 A2255 Glades RoadBoca Raton Florida 33431Attorneys fo r Christopher Colvin

Thomas G . Shapiro, EsQShapiro Haber & Urnl LLP75 State StreetBoston , Massachusetts 02109Attorneys for Anthony V . Demarco

Robert Finkel, Esq.Wolf Popper LLP845 Third AvenueNew York, New York 10022Attorneys for Anthony V. Dearco

Nadeem Faruqi, Esq .Faruqi & Faru9 i320 East 39th StreetNew York, New York 10016Attorneys for Joseph Villari

Law Office of Bernard M. GrossDeborah Gross, Esq .Suite 60 01500 Walnut Stree tPhiladelphia, Pennsylvania 19102Attorneys for Chris Grater

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Law Offices of Brian FelgoiseBrian Felgoise, Esq.Suite 404230 South Broad StreetPhiladelphia, Pennsylvania 19102Attorney for Chris Grate r

Bull & Lifshitz, LLPJoshua M. Lifshitz, Esq.246 West 38th StreetNew York, New York 10018Attorneys for Hagop Wanesia n

Kaplan, Kilsheimer & Fox LLPLaurence D. King, Esq.26th Floor100 Pine StreetSan Francisco, California 9411Attorneys for Thomas H . Tallant

Cohen , Milstein , Hausfeld& Toll, P .L .L.C .Steven J . Toll, Esq .Andrew N. Friedman, Esq.1100 New York Avenue N .W .Washington , D.C . 20005Attorneys for George Stei l

Pomerantz Haudek Block Grossman& Gross, LLPStanley M. Grossman, Esq .Marc 1 . Gross, Esq.100 Park AvenueNew York, New York 10017Attorneys for Loretta Lin

Law Offices of Marc S . HenzelMarc S . Henzel, Esq .273 Montgomery Square Ave.Suite 202Bala Cynwyd, PA 19004Attorney for J. O. Hoggard

Kaplan, Kilsheimer & Fox LLPFrederic S . Fox, Esq .22nd Floor805 Third AvenueNew York, New York 10022Attorneys for Thomas H. Tallan t

Berger & Montague, P .C .Sherrie R. Savett, Es c-LCarole A . Broderick, Esq .Jacob A . Goldberg, Esq .1622 Locust Stree tPhiladelphia, Pennsylvania 19103Attorneys for Esteban Munne

Schatz & Nobel, P .C .Andrew M . Schatz, Esq .Jeffrey S . Nobel, Esq.Patrick A . Klingman, Esq .330 Main Street, 2nd FloorHartford , Connecticut 06106-1851Attorneys for Mazen Gharaibe h

Pomerantz Haudek Block Grossman& Gross, LLPPatrick V. Dahlstrom, Esq .Suite 22 5One North LaSalle StreetChicago, Illinois 60602Attorneys for Loretta Lin

Law Offices of Leo W . Desmond Suvinder S . Ahluwalia, E~sg .Leo W. Desmond, Esq . Sklar Warren Conway & WilliamsSuite 204 LLP2161 West Palm Beach Lake Blvd . 221 North Buffalo Drive, Suite AWest Palm Beach, Florida 33409 Las Vegas, Nevada 89145Attorneys for Samer Maani Attorneys for Defendan t

Purchasepro .com, Inc.

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Christopher McGrath, Esq .Brobeck Phleger & Harrison, LLP12390 El Camino RealSan Diego, California 92130Attorneys for Defendants

Wilson, Sonsini, Goodrich & Rosati650 Page Mill RoadPalo Alto, California 9404-1050Attorneys for Defendant Charles E.Johnson, Jr.

John W. Muije, Esq .Muije & VarricchioSuite 55 0302 East Carson AvenueLas Vegas, Nevada 89101Attorneys for Teachers RetirementSystem of Louisiana

John H. Musser IV, Esq .614 Tchoupitoulas StreetNew Orleans, Louisiana 7013 0-3212Attorneys for Teachers RetirementSystem of Louisiana

J . Stephen Peek, Esq .Hale, Lane, Peek , Dennison,Howard & AndersonSuite 800, Box 82300 West Sahara AvenueLas Vegas, Nevada 89102Attorneys for Defendant Charles E .Johnson, Jr.

Bader and Bader1 . Walton Bader, Esq .Benedict Bader, Esq .65 Court StreetWhite Plains, New York 10601Attorneys for Teachers RetirementSystem of Louisian a

William T . Reeves, Esq .General Counse lTeachers Retirement System ofLouisiana8501 United Plaza BoulevardBaton Rouge, LouisianaAttorneys for Teachers RetirementSystem of Louisian a

That there is regular communication by mail between the place of mailingand the places so addressed.

2r-rapld-~M10Qn mp oyee o rig t, to ar ,

Warnick & Albright