SecProbe.io

CORRESP
1
filename1.htm

    seccommentresponse_012008.htm

    1/10/2008

    Securities
      and Exchange Commission

    100
      F
      Street, NE

    Washington,
      D.C. 20549

    Attn:
      Brian R. Cascio, Accounting Branch Chief, Division of Corporation
      Finance

    RE:           Response
      to SEC Comment Letter dated 12/21/07

    Dear
      Mr.
      Cascio,

    We
      received a letter from you dated December 21, 2007 with an additional comment
      to
      our response letter filed on October 18, 2007.  (File No.
      0-32501).

    We
      are
      pleased to provide the following response to your comment.

    SEC
      Comment:

    Form
      10-K for the fiscal year ended December 31, 2006

    We
      refer
      to your response to comment 3 from our letter dated September 27,
      2007.  Please expand the future filings to further
      explain:

              ·

              Why
                you believe the proportional performance methodology is appropriate
                in
                your circumstances.

              ·

              How
                you identified the milestones, how they are consistent with the underlying
                agreements and why you believe they are
                substantive.

              ·

              Why
                you believe the relative values assigned to those milestones are
                appropriate, including a description of the objective evidence you
                considered in measuring those
                values.

              ·

              Why
                you believe the costs to be incurred in achieving the various milestones
                are subject to reasonable
                estimation.

    You
      indicate that the values assigned to the milestones involved substantial
      judgment.  Please provide clear disclosure of all significant
      assumptions and judgments on which these subjective allocations were
      based.

    Company
      response:

    We
      will
      expand our future filings to include language consistent with the following
      (in
      addition to the disclosure language noted in our previous response to Comment
      #3
      dated October 18, 2007):

    Proportional
      performance methodology was elected due to the nature of our development
      obligations and efforts in support of the Joint Venture (“JV”), including
      product development activities, and regulatory efforts to support the
      commercialization of the JV products. The application of this methodology uses
      the achievement of R&D milestones as outputs of value to the
      JV.  We received up-front, non-refundable payments in connection with
      these development obligations, which we have broken down into specific R&D
      milestones that are definable and substantive in nature, and which will result
      in value to the JV when achieved.  Revenue will be recognized as the
      above mentioned R&D milestones are completed.

        1

    We
      established the R&D milestones based upon our development obligations to the
      JV and the specific R&D support activities to be performed to achieve these
      obligations.  Our R&D milestones consist of the following primary
      performance categories:  product development, regulatory approvals,
      and generally associated pre-clinical and clinical
      trials.   Within each category are milestones that take
      substantive effort to complete and are critical pieces of the overall progress
      towards completion of the next generation product, which we are obligated to
      support within the agreements entered into with Olympus.

    To
      determine whether substantive effort was required to achieve the milestones,
      we
      considered the external costs, required personnel and relevant skill levels,
      the
      amount of time required to complete each milestone, and the interdependent
      relationships between the milestones, in that the benefits associated with
      the
      completion of one milestone generally support and contribute to the achievement
      of the next.

    Determination
      of the relative values assigned to each milestone involved substantial
      judgment.  The assignment process was based on discussions with
      persons responsible for the development process and the relative costs of
      completing each milestone.  We considered the costs of completing the
      milestones in allocating the portion of the “deferred revenues, related party”
account balance to each milestone.  Management believes that, while
      the costs incurred in achieving the various milestones are subject to
      estimation, due to the high correlation of such costs to outputs achieved,
      the
      use of external contract research organization (“CRO”) costs and internal labor
      costs as the basis for the allocation process provides management the ability
      to
      accurately and reasonably estimate such costs.

    You
      may
      contact us at (858) 458-0900 if you have any questions regarding our
      responses.

    Sincerely,

      /s/
        Christopher J. Calhoun

      Christopher
        J. Calhoun

      Chief
        Executive Officer

      /s/
        Mark E. Saad

      Mark
        E.
        Saad

      Chief
        Financial Officer

          2