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November 22, 2014

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Las Vegas tech company hammered by Barron’s

Shares of Las Vegas-based PurchasePro fell more than 17 percent this morning after an article in Barron's ripped the Las Vegas Internet company's accounting practices and questioned its stock valuation.

PurchasePro responded quickly, saying the Barron's article was "riddled with inaccuracies and innuendo." Still, it wasn't enough to stop a sell-off in PurchasePro stock -- this morning, PurchasePro traded at $20.81, down $4.31.

"Anyone considering investing in PurchasePro has to consider the general business climate for the online business-to-business universe, which is undergoing a reassessment by the investment community as growth slows, pricing pressures loom and a shakeout is all but certain," the article said.

Barron's then raised questions about PurchasePro's "liberal accounting practices," which resulted in a restatement of second-quarter results; its lack of a chief financial officer; "its inexperienced management team full of buddies"; its "inability to retain some high-profile partnerships," such as Office Depot and Sprint; and its reliance on revenues from Hilton Hotels Corp.

Barron's noted that, of $8.4 million in transactions conducted on PurchasePro's online marketplace in the third quarter, the company retained $84,000 in fees. "Peanuts," Barron's said.

"Many of PurchasePro's business partnerships are based only on a handshake," the article noted. "In the world of B2B (business-to-business), such partnerships are often dubbed 'Barney agreements' because they generally amount to businesses proclaiming 'I love you, you love me,' and not much more," the magazine said.

PurchasePro officials were not quoted in the article; the magazine said officials had put off the reporter until fourth-quarter earnings could be released.

Reaction from PurchasePro was swift and harsh, as PurchasePro Chairman and Chief Executive Charles Johnson claimed many of the article's facts were incorrect and had not been checked with the company.

"I think every Purchase Pro marketplace owner, member and investor should take a personal affront to Barron's depiction in this article," Johnson said.

The company said its financial statements are prepared in accordance with generally accepted accounting principles, and that its financial condition is disclosed in "all material respects." PurchasePro also pointed out that it has had a CFO, James Clough, since April 2000.

PurchasePro denied its management team was inexperienced, stating that "the company has created a top-tier management team," with a president and executive vice president that are "five-year veterans of an industry that is only five years old." It pointed out top executives have previously served with Office Depot, Sprint, Starwood Hotels, Prudential Securities and BellSouth.

PurchasePro also denied the existence of "handshake deals," saying all partnerships could be reviewed in Securities and Exchange Commission documents. "As is normal in the business cycle, certain agreements with partners have expired," PurchasePro said. It said it continues to do business with both Office Depot and Sprint.

Analysts were quick to jump to PurchasePro's defense -- in a note issued this morning, SG Cowen analyst Christin Armacost said the article "misses the mark," and that it "does not present any new information and misrepresents several facts."

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