WATERTOWN, MA. ( TheStreet) -- A few weeks ago, health care information company AthenaHealth ( ATHN) announced what seemed like a minor account hiccup.

On Thursday night, another accounting hiccup for AthenaHealth surfaced, and the health care information company announced that it will be postponing its fourth-quarter earnings.

Investors now fear that the seemingly isolated accounting events, one right on top of the other, could snowball.

AthenaHealth was down by double digits after the market close on Thursday, and by 14% within minutes of the open on Friday morning and had already doubled its average daily volume of shares traded, as panicky investors sold and short sellers covered.

AthenaHealth investors have good reason to be nervous, also. The former CFO and one of the founders of the company, Carl Byers, resigned at the end of 2009 and moved to Chile.

Whenever there is a change in CFO -- Timothy Adams replaced Byers at the beginning of the year -- there is always the opportunity for a new CFO to come in and review all the accounting procedures and interpretations and decide that revisions are required in accounting practices. "If the old CFO were still here, we probably wouldn't even know about these issues," said one health-care analyst who did not want to speculate on the AthenaHealth issues.

The first accounting issue was related to the way in which AthenaHealth reports net income on a non-GAAP basis. Brean Murray Carret & Co. analyst Bret Jones had estimated that potential AthenaHealth earnings restatement to equal 17% of 2009 earnings and 10% of 2010 estimated earnings.

The accounting issue that has led AthenaHealth to postpone its earnings for at least two weeks is related to what AthenaHealth calls implementation revenue -- revenue derived during the implementation period of clients taking on new services.

AthenaHealth has been defining the implementation revenue as deferred revenue for a period of one year, the initial contract length with a client -- and thereafter changing its revenue to a monthly extended performance period. However, now AthenaHealth has indicated that the amortization period for the implementation period may need to be longer.

Both accounting issues would result in a restatement of earnings, and most importantly for investors, an overstatement of past earnings.

Brean Murray analyst Bret Jones estimates that the implementation revenue could be spread out over a period of three years, as opposed to one year. This change would reduce the implementation revenues by $2 million annually. The earnings per share difference could be a current overstatement of 4 cents per share annually, the Brean Murray analyst estimates.

AthenaHealth may also have to go as far back as 2006 in restating earnings and reducing quarterly earnings per share related to the implementation revenues booked within one year.

While that 4 cents per share in terms of a potential overstatement of earnings might not seem a game-changer, the fear is that with two outstanding accounting issues related to overstatement of earnings, and a former CFO -- the only CFO the company has ever had -- now residing at the other end of the world, in Chile, there is reason for investors to be duly concerned.

Brean Murray's Jones said it was clear that the new CFO wasted little time in "cleaning up" the non-GAAP reporting issue, but it was impossible to know whether the implementation revenue issue was prompted by the new CFO Adams or outside auditors.

What's more, the Brean Murray analyst noted that this is not the first time that implementation revenues have surfaced as an issue for AthenaHealth.

In the fourth quarter of 2008, auditors questioned how AthenaHealth was accounting for implementation revenues specifically from physicians who joined physician groups that were already clients of the health care information company. AthenaHealth made a change in the fourth quarter of 2008 related to implementation revenue for that specific group of physicians, but it is possible that the auditors could have requested a change to all of accounting. The new CFO could have come in and said, "Why are we still doing implementation revenues based on this interpretation?"

There is no way to know that's these are the last questions the new CFO will ask about the accounting practices, either.

Brean Murray's Jones said that investors seemed to give AthenaHealth a pass with the first accounting issue, and chalked it up to a one-time event, but investors have clearly shown in Thursday night and Friday morning selling that they won't be giving the company a pass this time.

Brean Murray has had a hold on the stock since December, and the analyst said Brean Murray is not changing its view, but that there is too much uncertainty about AthenaHealth, and investors can't rule out that there could be additional shoes to drop. "I honestly believe this is an issue of accounting interpretation, and it doesn't seem unreasonable to tie the implementation revenues to a one year period," Jones said.

Stifel Nicolaus analyst Todd Weller wrote in a research note on Friday morning, "Simply put, our experience suggests that in these circumstances investors often act with a 'where there's smoke there's Fire' mentality, and we believe at this point it is tough to have confidence that this represents the last of Athena's issues. Even with the expected weakness in the stock, valuation remains tilted to the expensive side. We also find it hard to become more constructive on the stock given the uncertainties onthe accounting front."

What happens now? AthenaHealth filed for a 15-day extension to report its earnings, which analysts indicated would mean an earnings report, or at least a conference call, by March 16, if AthenaHealth wants to remain a timely filer. However, since de-listing of a stock can be a very long process, it would be possible for AthenaHealth to stretch out this accounting investigation over a longer period of time than the two week extension for which it currently has filed with the Securities and Exchange Commission.

Brean Murray's Jones said he believes that some in the market will take Friday's selloff as a sign to buy. However, given the runup in health information stocks last year and aggressive expectations for AthenaHealth in 2009 and 2010, Brean Murray does not believe this selloff is the time to buy.

Brean Murray titled its piece on the latest accounting issue from AthenaHealth, Only the Penitent Man Shall Pass.

Investors are asking on Friday morning when AthenaHealth will pass the latest crisis, and some aren't hanging around for an answer to this question.

JMP Securities and Robert W. Baird & Co. downgraded AthenaHealth to hold, which is the typically prudent move by research firms when an accounting investigation is unfolding at a former 'buy' stock.

-- Reported by Eric Rosenbaum in New York.

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