Perry Wu's article dated Aug 1, 2005 had some very malicious inaccuracies and a full retraction is warranted.

Mr Wu suggests that SOHU is playing accounting games. But anyone with a basic understanding of accounting principals can see that he is mistaken. Mr Wu insinuates that SOHU is cooking the books. His explanation of why SOHU shareholder equity only increased $1 million while profits were around $12 million was the following. "Sohu has never paid a dividend so the non-increase in shareholders' equity must come from another place. It probably means that Sohu is playing accounting games, using its shareholders' equity accounts to run through expenses that should be run through its profit and loss accounts"

Anyone however doing a few minutes of research will understand however that SOHU repurchased $12 million worth of stock which is the real reason for the change in shareholder equity.

Did Mr. Wu even contact the company before writing this slam article that was completely inaccurate? Perhaps before you let Mr. Wu do another slam piece on a publicly traded company you should require him to take 1 or 2 accounting classes.

To allow Mr. WU to insinuate fraud at a publicly traded company such as SOHU without more due dilligence is irresponsible. I took 2 account classes in college and quickly saw through his errors in mere minutes. Did he not check with anyone??

In fairness, I would encourage you to write a positive article on SOHU. Perhaps you could write an article on the growth of its Sogou search engine which continues to gain users and ranks 60% in market share among new internet users.

Thank you,

Evan Pelham

Carlin Financial

Hello Evan,

Thank you for your message. The Perry Wu writer is a certified public accountant, so we were disturbed by your message and decided to investigate this further after receiving your comments.

At Dec 31, 2004 total undiluted shares outstanding were 36,478,000 and decreased to 36,015,000 so even assuming this was all because of repurchase, then 463,000 were repurchased.

The stock price of Sohu during those six months hovered in the teens around 15-19 dollars. Assuming a price of 17, it cost 17*463,000=7.8 million dollars to repurchase.

So even assuming repurchase, you are still 12 million-7.8 million=4.2 million short of an adequate explanation for where Sohu put it.

You can find the financials around here: http://www.sohu.com/about/English/pdf/050727en.pdf

I hope this answers your questions.

Thank you,

Editor

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