A week ago, when its stock was trading at around 80,

ArthroCare

(ARTC)

announced a 2-for-1 stock split. Maybe if the company waited, the market would've caused the split to occur naturally. The stock had been drifting lower in recent days, but Thursday (June 15) it tumbled 15 3/4, or 21%, to 57 3/4 after

Banc of America Securities

analyst Kurt Kruger told his firm's sales force that ArthroCare had terminated its relationship with

Arthrex

, its primary international distributor.

ArthroCare CFO Christine Hanni wouldn't say whether it really did sever ties with Arthrex, which distributes ArthroCare's products in Europe, South Africa, South and Central America and Russia. But she did say the company changes distributors regularly, and that it's possible that ArthroCare could use Arthrex in one country and not the other.

The obvious question, of course, is why would a distributor be axed? Hanni wouldn't say, but rumblings in the short-selling community are that it would only happen if the distributor weren't meeting the sales targets set for this year. International sales last quarter came in well below analyst expectations, and

BancBoston Robertson Stephens

analyst Wade King, whose firm took ArthroCare public, subsequently lowered his international sales estimates for the remaining nine months by $1.5 million to $10.6 million.

Not that King's reaction came as any surprise to the shorts. ArthroCare's balance sheet has been flashing trouble for some time. Receivables have been rising faster than sales, and receivable days outstanding, or the amount of time customers are taking to pay for product, rose by 28 days last quarter to 88 days -- signs the company is giving distributors additional time to pay if they take more product. The trouble with that strategy is that if demand doesn't continue to increase at a rapid rate, the distribution channel gets stuffed and future sale slow.

Hanni, however, says receivables are up because rather than spread sales out throughout the quarter, as had been the case, distributors are now waiting until the end of the quarter to buy the bulk of their products. She also says many hospitals order directly from the company, and that quite a few carry thin inventories and use ArthroCare for just-in-time delivery. The result, she says, is many small orders that need to be tracked. "And to get attention from customers, that takes a lot of phone calls," she says. She adds the company is installing software to help with collection.

Meanwhile, ArthroCare sent a flyer out to doctors last week with the headline, "Announcing Arthrocare's June Promotion for the MultiVac 50 ArthroWand," a new and important product. Purchase three wands from June 8 to June 30 at the regular price, touts the promotion, and get a fourth one free. "This is a 25% savings," the flyer boasts. A 25% discount for one of the company's main products? Hanni says the company frequently offers such promotions to get docs focused on certain products. Perhaps, but one short-seller counters, "You don't discount products in the last few weeks of the quarter unless you can't make your sales." Time will tell.

Stay tuned for Part 2 of Herb on TheStreet (which I promise is worth the wait) later today.

Please join me and Paul McEntire, president of the Bearguard Fund, as we show you why the shorts can help you save your shirt at the first RealMoney.com Investor's Conference. McEntire, a veteran short-seller, started Bearguard last year. It's the first short-only stock mutual fund. We'll both share our tips on how to spot trouble, followed by my questions to Paul and your questions to both of us.

Surviving and profiting in treacherous markets

June 28th, 2000, Marriott World Trade Center, New York City

For information and registration, go to

Real Money Conferences .

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.