The debate continues over whether the strong IPO market this year speaks to a robust offering of tech start-ups or signals the kind of indiscriminate buying that lays the groundwork for a full-fledged stock mania.

For those fearing the latter, darker interpretation, there are clear signs that can serve as warnings: recent IPO candidates seeing their stocks soar despite fishy financials, companies dressing themselves up with last-minute deals to improve their bottom-line numbers, and executives exploiting every opportunity to take the money and run.

All of those signs seem to be present in

InnerWorkings

(INWK) - Get Report

, a Chicago-based "provider of print procurement solutions" founded in 2001 and backed by Silicon Valley venture-capital luminaries such as New Enterprise Associates and Benchmark Capital. The company was taken public last year with Morgan Stanley as the lead underwriter.

Last August, InnerWorkings sold 7 million shares at $9 each, but it was very coy about how it would use the money it was so keen on raising: Management "will have significant flexibility in applying our net proceeds of this offering," the prospectus read.

That kind of language is not designed to build investor confidence.

Coinciding with the IPO, insiders sold 3.5 million shares, 2.8 million of which were sold by

InCorp

, an entity largely controlled by Elizbeth Kramer Lefkofsky and Robert Heise that pulled down $25 million in the IPO.

Pretty nice -- so nice that in January, before the expiration of the lockup period, Morgan Stanley steered InnerWorkings back to the trough, selling 3 million shares at $13.50 each. Insiders sold another 5 million shares, more than 3 million of which were sold by InCorp.

All told, InCorp and its controllers made off with $77 million, almost as much as the $94 million InnerWorkings raised itself. It wasn't clear why InnerWorkings needed the second offering since it had $35 million in cash and $62 million in working capital, but it's clear that insiders got a rare chance to cash out before the lockup period expired.

Barron's

subsequently ran a story calling InnerWorkings "a glorified broker of print jobs" and pegging Lefkofsky's husband, Eric Lefkofsky, as having "a history of busting investors after promising to radically transform bricks-and-mortar industries."

InnerWorkings said Lefkofsky was a former consultant, but the story's author discovered he had an office at the company.

InnerWorking's stock fell to $11 from $16 in the following months, but a seemingly robust first-quarter earnings report has revived it back to $16. Revenue surged 162% to $58.9 million, while net profit rose to 5 cents a share from a penny a share in the year-ago quarter.

But dig a little deeper beneath the company's rosy numbers, and things don't look so strong. Much of InnerWorking's growth is coming from a series of acquisitions -- management is shy about breaking out organic growth rates -- that have played hell with cash flow.

For the full year 2006, cash flow from operations swung to a negative $9.9 million from a positive $967,000, largely because of accounts receivables at companies bought by Innerworkings after its IPO. Free cash flow, which includes capital expenditures, was negative $11.2 million in 2006, excluding acquisitions such as Graphography, and negative $22 million if acquisitions are included.

Cash flow improved in the first quarter to a positive $1.1 million. But free cash flow was much weaker: $643,000 excluding acquisitions, compared with a $2.6 million net profit. Including ongoing costs of older acquisitions like Graphography, free cash flow was minus $4.3 million.

So InnerWorkings is growing revenue and profit by leaps and bounds, but according to the most trusted measure of a company's ability to generate cash -- and therefore shareholder value -- it's not doing that well. And this is a company with a historical

P/E of 67 and a 2008 P/E of 32.

Then there's the curious footnote that appeared in InnerWorkings' first prospectus: that a legal but last-minute licensing deal was made to fluff up the bottom line. In March 2006, InnerWorkings sold a license to "certain noncore applications" of Innerworkings' software to

SNP

, a Singapore-based printing company.

According to the prospectus, SNP paid InnerWorkings $1 million in five monthly payments -- as it happens, the five months before InnerWorkings went public. Licensing deals normally involve no cost of sales or operating costs, so it's possible the deal boosted InnerWorkings' net income during two crucial quarters.

For its troubles, SNP was allowed to buy $254,000 shares for $4.92 each, or about $1.25 million in total. Those shares are now worth more than $4 million.

This is genius, actually. A win-win deal for the textbooks. InnerWorkings gets a miracle transaction that pushes up its profit right in time for the IPO, while SNP gets a million dollars to buy a stake that has now quadrupled in value. At the same time, InnerWorkings Chairman John Walter (who also serves, rather conveniently, on SNP's board) received an extra 100,000 options, also priced at $4.92.

None of this is scandalous per se, but neither is it the kind of stuff that makes sensible investors sleep well at night.

It shows InnerWorkings as an overvalued stock with more than enough reason to move to the downside over time. What's more troubling for the broader market is that so few investors are willing to acknowledge it, if they see it at all.