Wall Street has been curious about SFBC's ( SFCC) books for some time.

In November's third-quarter earnings conference call, Jefferies analyst David Windley wanted answers on SFBC's days' sales outstanding, or DSOs. Investors track DSOs, a measure of how fast a company collects on its accounts receivable, to check on sales trends. A high number can mean underlying sales are weak.

Windley had just heard SFBC say the number had dropped by nearly half from one year earlier. But with the company's receivables on the rise, that figure seemed to make no sense.

"Can you walk me through the calculation?" Windley asked. "I don't see how you get to 50 days on that."

CFO David Natan said the company had subtracted advance payments from its accounts receivable total when reaching the DSO number. Moreover, he indicated, those advances had enabled the company to report positive cash flow for the period.

Short-sellers have since pounced on those comments.

"Either its billed DSOs are higher than Natan explains, and that begs a question about collectability," one says. "Or its A/R is overstated with respect to working capital -- which investors, debtholders in particular, look to as a measure of financial stability. ... Something doesn't add up."

The news comes as new management struggles to revive the hard-hit stock in the wake of a Bloomberg expose of the company's practices in its key clinical trial business. SFBC is due to post fourth-quarter earnings after the bell Thursday.

The company's media spokesman and investor relations firm both failed to answer questions for this story.

'Just Not Right'

DSOs can be calculated by taking a company's accounts receivable, dividing it by revenue and then multiplying the result by 90 days to cover the quarter involved. SFBC reported receivables of $120.8 million and revenue of $109.9 million in the latest period. That gives a reading of 99.

Only by subtracting all of the company's $58.6 million in reported advances -- including some $36.5 million that has yet to be listed as current -- could DSOs of roughly 50 be reached.

But Charles Mulford, a professor of accounting at Georgia Tech, says that investors should reject the latter formula.

"You don't do that when measuring days sales outstanding," says Mulford, author of Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance. "It's just not right."

Yet Natan suggested that SFBC had done just that during the company's third-quarter conference call. At the same time, it appears, SFBC continued to include those advances in the receivables listed among the current assets on its balance sheet just a couple of weeks later. If that is the case, SFBC wound up boasting working capital -- or current assets minus current liabilities -- that was nearly 50% higher than it would have otherwise been.

SFBC's recent advances helped the company with another crucial metric as well. Notably, those advances accounted for all of the company's cash flow from operations -- and then some -- in the latest quarter.

"In other words, this supposedly highly profitable contract research organization would have had negative CFFO had it not been for client advances," one short-seller notes. "But was that really cash flow?"

The advances should not be counted as cash, the short-seller adds, if they have been included in receivables -- as suggested by the company's financial statements -- and, by definition, have yet to be received.

Tulsa money manager Fredric E. Russell tends to agree.

"That doesn't look like cash under generally accepted accounting principles -- or even under any common sense view," says Russell, who has no position in SFBC's stock. "And it's not smart to play games. Eventually, people will find out."

Critics further question why SFBC has so many long-term advances at all. After all, the company's major competitors, such as Covance ( CVD) and Charles River Laboratories ( CRL), carry no such advances on their own balance sheets. Moreover, some say, SFBC's short-term trials should not be generating long-term advances and even its long-term business -- operated by recently acquired PharmaNet -- should not be generating so much.

To be fair, PharmaNet already had $15 million worth of long-term advances listed on its books when the company joined forces with SFBC in late 2004. However, that figure has more than doubled after just one year under the SFBC corporate umbrella.

Busy CFO

Some critics have taken a closer look at SFBC's finance department as a result.

Natan recently survived a big management shakeup -- with a promotion -- after four years as the company's CFO. But he arrived at the company with a string a failed business ventures behind him.

Prior to joining SFBC, Natan spent seven years as the CFO for a company first known as Top Source and later reinvented as Global Technovations before it ultimately filed for bankruptcy protection. SFBC's outside counsel, Michael D. Harris, shows up in official documents as the "registered agent" for both of those companies. Harris, one of two people designated to field ethics complaints from SFBC employees, served as the registered agent for troubled companies run by ousted SFBC founder Gerald Seifer as well.

Natan also worked as the CFO of Jewelmasters before it, too, went out of business. In addition, he served as CFO for the U.S. division of a company once described by Global Technovations as a "$4 billion multinational conglomerate." That would be MBf USA, a latex glove supplier that -- with Natan controlling finances -- placed a misguided bet on Playboy-brand condoms and disappeared after he left.

Natan came to SFBC in 2002 as the replacement for Nick Tootle, who spent just eight months at the company before returning to work at his old auditing firm. That firm, Kaufman Rossin, stopped auditing SFBC's books after Tootle came back.

Tootle failed to return a phone call from TheStreet.com about his brief tenure at SFBC.

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