There's absolutely nothing wrong with factoring, or selling, receivables to a bank. Companies do it all the time to raise cash in return for taking a slight haircut, or discount, on the amount they otherwise would have received. If they're sold without recourse -- as Art did -- the receivables can't come back and haunt the company if any of the customers turn out to be deadbeats, and therefore shouldn't be included in a calculation of the real receivables days outstanding (DSOs).

In the case of Art, based on its earnings report on Oct. 26, the real DSOs appeared fine if not great; they were flat at 64 days from the prior quarter. If DSOs had gone up it would've suggested that the company was pulling out stops to generate sales by offering incentives and generous payment plans to distributors and other customers. The result, of course, would have made a company's sales look better than they really were. That would have been especially alarming at a company such as Art, whose software is geared to the battered world of e-commerce and which (it just so happens) is trying to do a secondary offering, in which insiders are among the sellers.

There was no mention of the factoring in the company's earnings report last week. But what's really surprising is that the factoring wasn't mentioned in the original registration statement, which was filed the same day as earnings were released (when Art's stock got pounded on slower than expected revenue growth). I say "surprising" because the factoring deal was signed with a bank in September!

Instead, the factoring showed up in the 10-Q and an amended registration statement, which were both filed on Monday.

Investors don't like those kind of surprises, so they were left to interpret it based on the numbers, and this is what they came up with: Had the receivables not been sold, DSOs would've shot up to around 84 days. (Which can only make you wonder why.) What's more (and this is important for a fast-growing, cash-hungry company like Art in what has turned into a rocky industry) is that Art's cash burn from operations from the prior quarter would've been more like $15 million rather than $5.4 million. (Remember, they received $10 million from the factoring; without it cash and cash equivalents would've been lower.)

As word of the findings started to spread, Art's stock fell by 9% in the blink of an eye; I heard about it and mentioned it on the RealMoney.com Columnist Conversation. Another blink: the stock was down 19%.

Why did the company, in the face of an offering to raise cash, have to do factoring? And why wasn't the factoring disclosed in the original registration statement? I called the company and asked, and was told the CFO would return my call; she didn't. But she did hold a conference call with retail and institutional investors to discuss the upcoming roadshow for the offering.

It's not known whether the factoring issue came up, and if so, what was said. (Where's Reg FD when you need it?!) The real test for Reg FD will be today, as analysts for the deal's underwriters are asked by customers about the receivables. Will they ignore the old "quiet period" that usually surrounds a securities offering? Or will they try to skirt the old and new rules by making verbal comments?

Either way, with a stock sale in the balance, expect to see spin control outta control!

P.S: Moral of this story, for other companies faced with that kind of news, is to disclose, disclose, disclose. The sooner, the better! In this case the issue could've been dealt with on the company's conference call. (Can't wait to see the day this kind of info is in earnings releases. Until then, the 10-Q will have to do!)

"The problem with the shorts' assessment of Manugistics is not that it's wrong," says Mark Gomes, manager of investment research firm, AMR Research, who does not own Manugistics shares. "In fact, I don't disagree with anything that was written in your article. The problem is that MANU's accounting is not the key investment consideration; its growth is. And from that standpoint, MANU looks great...

"MANU is currently trading at less than 13 times next year's revenue. Not cheap, but hardly exorbitant, especially in comparison to similarly sized companies with similar rates of growth. Indeed, if MANU simply holds on to its market share (it's been gaining a lot of share this year), it'll be a $1 billion entity by 2004 and investors will have long forgotten the few pennies of EPS that MANU's accounting afforded them back in 2000." Assuming where there's smoke there's not fire...

Hooray for Hollywood: Reader Larry Anderson wants to know where you normally find a disclosure that a company has given a loan to an officer. (His question was prompted by a mention here that cash-starved Hollywood Entertainment (HLYW:Nasdaq - news - boards) had given a loan to its CEO, Mark Wattles.)

Larry, most loans are disclosed in the company's proxy, but they can actually be in any document. The loan to Wattles was included in a "related party transactions" footnote to the company's latest 10-Q... And what's this?: According to posters on the Lernout & Hauspie (LHSP:Nasdaq - news - boards) message board on Yahoo!, I have left TheStreet.com (TSCM:Nasdaq - news - boards). Well, if so, nobody told me!

Brian Harris assisted with the reporting of this column.

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