March 7, 2008
Mr. Jim B. Rosenberg
Mr. Gus Rodriguez
Ms. Mary Mast
United States Securities and Exchange Commission
Division of Corporation Finance
100 F. Street, N.E.
Washington, DC 20549
Re: Encorium Group, Inc.
Form 10-K for the fiscal year ended December 31, 2006
Lady and Gentlemen:
This letter is a follow up response to the Securities and Exchange Commission’s initial letter dated September 26, 2007 and our follow-up responses thereto dated October 9, 2007, December 12, 2007 and February 8, 2008. Our response to your latest comments, as listed below, follows the text of your comment.
Note 2. Summary of Significant Accounting Policies Revenue Recognition, page F-8
Please address the following regarding your prior response and your future disclosure regarding comment one.
| • | Though you stated in your response that you do not have performance based milestones, you intend to disclose in your proposed future disclosures that you have performance based billing milestones. Please revise your proposed disclosures to clearly indicate that you do not have any sort of performance based milestones, if such is the case, or clarify the contraction in your response and proposed disclosure. |
As noted in our prior responses to your comments, we do not have performance based milestones. Please see Exhibit A, attached hereto, regarding our proposed changes to our future Revenue Recognition disclosures.
| • | The examples of milestones in the last sentence appear to indicate that you have substantive milestones. If your milestones are not substantive, please clarify that fact and delete reference to the milestone or clarify why they are not substantive. |
As noted in our previous responses to your comments, our milestones are not substantive. All references to milestone payments have been deleted from our proposed future disclosures regarding Revenue Recognition.
| • | Please clarify that you do not recognize revenue in excess of cash received or receivable as you appear to indicate in your response to our fourth bullet point in comment one. |
For the purpose of clarity, we do not recognize revenue in excess of cash received or recorded receivables.
We trust that we adequately have addressed all of the comments contained in the Securities and Exchange Commission’s initial letter dated September 26, 2007 and your follow-up comments. If you have any further questions, please contact me directly at (610) 989-4208.
| Sincerely, |
/s/ Lawrence R. Hoffman |
| Lawrence R. Hoffman |
| Executive Vice President & Chief Financial Officer |
EXHIBIT A
| • | CRITICAL ACCOUNTING POLICIES AND ESTIMATES |
Revenue Recognition
New Fourth Paragraph to Our Disclosures on Revenue Recognition.
There are no standard billing and payment provisions which are present in each contract. Each contract has separate and distinct billing and payment terms which are the result of a negotiation between us and the client.Billings and the related payment terms from fixed price contracts are generally determined by provisions in the contract that may include certain payment schedules and the submission of required billing detail. The payment schedule in the contract reflects the value of the services to be performed by us at the initiation of the contract. The payment schedule may include the value of certain interim deliverables as well as periodic payments which are reasonably assured at the start of the contract and which we expect to receive during the duration of the contract. Accordingly, cash receipts, including the receipt of up front payments, periodic payments and payments related to the achievement of certain deliverables, do not necessarily correspond to costs incurred and revenue recognized on contracts. A contract’s payment structure typically requires an up front payment of 10% to 20% of the contract value at or shortly after the initiation of the contract, a series of periodic payments over the life of the contract and payments based upon the achievement of certain agreed upon deliverables. The upfront payments are deferred and recognized as revenues as services are performed under the proportional performance method. Periodic payments, including payments related to the achievement of certain deliverables, are invoiced pursuant to the terms of the contract once the agreed upon services criteria have been achieved.Interim deliverable payments are included in the value of the contract because we expect to receive them during the term of the contract. All payments received pursuant to the contract are recognized in accordance with the proportional performance method. In a comprehensive full service drug development program, the client would not generally purchase certain deliverables separately but as an integrated, full service arrangement in connection with the development of the drug.
The above enhanced disclosure will also be included in Note 1 to the financial statements under the caption Revenue Recognition.
