Mail Stop 4561
June 30, 2006
R. Jordan Greenhall
Chief Executive Officer and Chairman
DivX, Inc.
4780 Eastgate Mall
San Diego, California 92121
Re: DivX, Inc.
Amendment No. 1 to Form S-1
Filed on June 15, 2006
File No. 333-133855
Dear Mr. Greenhall:
We have reviewed your amended filing and have the following
comments. Please note that all references to prior comments
relate
to our prior letter dated June 1, 2006.
General
1. Please note that pursuant to Rule 310 of Regulation S-T, your
next
amendment and any other amendments to the registration must be
marked
to identify paragraphs where changes were made and filed on EDGAR.
The marked copy that is filed electronically is in addition to the
unmarked copy that you will file.
Prospectus Summary page 1
2. Please refer to prior comment 16. Quantify the "material
portion"
of revenues generated from licenses to manufacturers in China.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 38
3. Please refer to prior comment 22. We note your revisions to
the
prospectus indicating that the 180 million downloads of your codec
over the past four years were made by consumers and your
discussion
in this section regarding the impact of this on your financial
condition and results of operations. Please expand your
disclosure
in this section, consistent with your response, to specifically
disclose that the downloads to which you refer include all codecs
distributed for a fee, for free, for free trials and for upgrades
or
support to existing end users.
Critical Accounting Policies
Stock-Based Compensation, page 46
4. We note your response to prior comments 26 and 45 where you
explain the significant factors, assumptions, methodologies used
in
determining fair value at each grant date. Please disclose the
significant assumptions (discount rates, marketability discounts,
etc.), valuation methodologies and factors contributing to the
difference between the fair value of common stock as of the date
of
each grant and the estimated IPO price.
Business, page 65
4. Please refer to prior comment 31. For those third-party
sources
not publicly available free of charge or at a nominal fee, which
you
continue to reference in your registration statement, please file
the
consents as exhibits to the registration statement. See Rule
436(a).
Alternatively, we will not object if you remove any such
references
for which you do not file a consent and revise the disclosure to
express the statements as DivX`s views, based on its market
research
and analysis.
5. Please refer to prior comment 33. We note your added
disclosure
in Management`s Discussion and Analysis and the financial
statements.
Please include information in the business section pursuant to
Item101(d) of Regulation S-K for geographical information.
Alternatively, you may include a cross-reference to the note to
the
financial statements that addresses geographical information.
Exhibits
6. Please refer to prior comment 54. We note your response that
you
consider the Philips agreement to be an agreement entered into in
the
ordinary course of business and that it is not viewed by the
Company
as a contract on which you are "substantially dependent." While
Item
601(b)(10)(ii) relates to contracts made in the ordinary course of
business, Item 601(b)(10)(ii)(B) specifically requires the filing
of
all contracts upon which the registrant`s business is
substantially
dependent. Any contract that provides a stream of revenue that is
over ten percent of the company`s revenues is typically one on
which
the filer is "substantially dependent." In light of the fact that
approximately 13% of your revenues in the last fiscal year was
generated under your agreement with Philips, we consider the
agreement to be one on which DivX is "substantially dependent" and
is
required to be filed.
Financial Statements
Note 1. Organization and Summary of Significant Accounting
Policies
Revenue Recognition, page F-9
7. We note your response to prior comment 37 and your disclosure
on
page 45 where you indicate that a minimum portion of fees is
recognized upon receiving competent evidential documentation from
your reporting systems. You further indicate that you recognize
the
remaining fees in the period you receive final sales reports from
the
customer. Please explain to us what you mean by a minimum portion
of
fees and the basis for recognizing these fees "immediately."
Also,
explain to us the nature of performance targets established by
Google
and how these targets impact timing of revenue recognition.
8. We note your response to prior comment 39. It appears from
your
response that the Company`s method for recognizing royalty expense
differs for the MPEG-4 license and the MP-3 license. Explain why
the
royalty expense for the MPEG-4 license computed based on annual
payments for the license and royalty expense for the MP3 license
is
computed based on the total value of the contract.
9. We note your response to prior comment 40 where you indicate
the
customers with a minimum royalty obligation to the Company may
ship
units in excess of their contractual obligations to pay for those
units for a particular reporting period. It appears from your
response that the customer pays its minimum royalty obligation by
shipping excess units. Please clarify your response. We further
note you refer to such customers as having extended payment terms,
that collectibility of the resulting receivable is not reasonably
assured for these customers and that revenue is recognized upon
the
due date of the invoice. Explain your basis for recognizing
revenue
upon the due date of invoice considering collection is not
reasonably
assured. Further tell us the revenue from extended payment term
arrangements for each of the periods presented.
Net Income (Loss) per share data, page F-12
10. We note from your response to prior comment 42 that the
Company
has determined redeemable convertible preferred stock and
convertible
preferred stock should be considered participating securities.
Considering this, explain why the Company has not applied the two-
class method in computing basic earnings per share. We refer you
to
Issue 7 of EITF 03-6.
Stock-based compensation, page F-15
11. We note your response to prior comment 45. Explain the basis
for
the marketability discounts (approximately 23%, 23% and 16%)
applied
in the Private Company Scenario and the discount rates (55%, 40%
and
34%) used in the Sale/Merger and IPO Scenarios. In addition
explain
how the Company determined that the marketability discounts and
discount rates were reasonable and the factors contributing to
changes in these assumptions at each valuation date.
Note 9. Segment Information, page F-32
12. You indicate in response to prior comment 52 that the Company
operates in one segment. Explain why Technology licensing and
Media
are not considered separate segments considering gross margin
information is presented for these products/services in the
Consolidated statements of operations. Address your consideration
of
paragraph 10 of SFAS 131 in your response.
* * * * * * * *
You may contact Kari Jin at 202-551-3481 or Thomas Ferraro at
202-551-3225, if you have questions regarding comments on the
financial statements and related matters. Please address all
other
comments to Maryse Mills-Apenteng at 202-551-3457. If you require
further assistance you may contact Anne Nguyen, Special Counsel,
at
202-551-3611. If you still require further assistance, please
contact the undersigned at 202-551-3730.
Sincerely,
Barbara C. Jacobs
Assistant Director
cc: Via facsimile: 858-550-6420
Steven M. Przesmicki, Esq.
Jason L. Kent, Esq.
Cooley Godward LLP
R. Jordan Greenhall
DivX, Inc.
June 30, 2006
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