Sogou Inc.
Annual Report 2018

Plain-text annual report

Morningstar® Document Research℠ FORM 20-FSOGOU INC. - SOGOFiled: March 28, 2019 (period: December 31, 2018)Annual and transition report of foreign private issuers under sections 13 or 15(d)The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 20-F (Mark One) ooREGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGEACT OF 1934 OR xxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018 OR ooTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 OR ooSHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 Commission file number: 001-38279 SOGOU INC.(Exact name of Registrant as specified in its charter) N/A(Translation of Registrant’s name into English) Cayman Islands(Jurisdiction of incorporation or organization) Level 15, Sohu.com Internet PlazaNo. 1 Unit Zhongguancun East Road, Haidian DistrictBeijing 100084People’s Republic of China+86 10-5689-9999(Address of principal executive offices) Joe ZhouChief Financial OfficerLevel 15, Sohu.com Internet PlazaNo. 1 Unit Zhongguancun East Road, Haidian DistrictBeijing 100084People’s Republic of ChinaTelephone: (86 10) 5689-9999Email: IR@sogou-inc.com(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: (Title of each class)(Name of each exchange on which registered)American Depositary Shares, each representing one Class Aordinary share, par value US$0.001 per shareNew York Stock Exchange LLC Securities registered or to be registered pursuant to Section 12(g) of the Act: None Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:118,400,500 Class A Ordinary Shares, par value $0.001 per share, and 278,757,875 Class B Ordinary Shares, par value $0.001 per share, as of December 31,2018. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.o Yes x No If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934.o Yes x No Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934from their obligations under those Sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.x Yes o No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).x Yes o No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See thedefinitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer x Non-accelerated filer o Emerging growth company o If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected notto use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of theExchange Act. o † The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its AccountingStandards Codification after April 5, 2012. Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing. U.S. GAAP x International Financial Reporting Standards as issuedby the International Accounting Standards Board o Other o If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.o Item 17 o Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yes x No (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmed by a court.o Yes o No Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents TABLE OF CONTENTS PageNumberINTRODUCTION FORWARD-LOOKING INFORMATION PART I Item 1.Identity of Directors, Senior Management and Advisers3Item 2.Offer Statistics and Expected Timetable3Item 3.Key Information3Item 4.Information on the Company29Item 4A.Unresolved Staff Comments59Item 5.Operating and Financial Review and Prospects59Item 6.Directors, Senior Management and Employees75Item 7.Major Shareholders and Related Party Transactions80Item 8.Financial Information84Item 9.The Offer and Listing84Item 10.Additional Information85Item 11.Quantitative and Qualitative Disclosures About Market Risk93Item 12.Description of Securities Other than Equity Securities94 PART II Item 13.Defaults, Dividend Arrearages and Delinquencies95Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds95Item 15.Controls and Procedures95Item 16A.Audit Committee Financial Expert96Item 16B.Code of Ethics96Item 16C.Principal Accountant Fees and Services96Item 16D.Exemptions from the Listing Standards for Audit Committees97Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers97Item 16F.Change in Registrants’ Certifying Accountants97Item 16G.Corporate Governance97Item 16H.Mine Safety Disclosure97 PART III Item 17.Financial Statements97Item 18.Financial Statements97Item 19.Exhibits98 Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents INTRODUCTION In this annual report, except where the context otherwise requires and for purposes of this annual report only: · “ADSs” refers to American depositary shares; · “Amended and Restated Articles of Association” refers to our Third Amended and Restated Articles of Association; · “Amended and Restated Memorandum of Association” refers to our Seventh Amended and Restated Memorandum of Association; · “China” or the “PRC” refers to the People’s Republic of China, and for the purpose of this annual report, excludes Hong Kong, Macau, and Taiwan; · “Class A Ordinary Shares” refers to our Class A Ordinary Shares, par value of $0.001 per share, carrying one vote per share; · “Class B Ordinary Shares” refers to our Class B Ordinary Shares, par value of $0.001 per share, carrying ten votes per share; · “China Literature” refers to China Literature Limited, China’s largest online literature platform; · “DAU,” for active users quoted from iResearch, for any given month, refers to the average number of active users per day during that month. A userwho uses the applicable product more than once in any such day is counted as one active user for that day. Each distinguishable device orapplication is treated as a separate user for purposes of calculating such DAU; · “MAU,” for active users quoted from iResearch, for any given month, refers to the number of active users during that month. A user who uses theapplicable product more than once in any such month is counted as one active user for that month. Each distinguishable device or application istreated as a separate user for purposes of calculating such MAU; · “Mobile DAU” for our Sogou Mobile Keyboard (the mobile application of Sogou Input Method), for any given month, refers to the average numberof active users per day during that month. A user who uses Sogou Mobile Keyboard more than once in any such day is counted as one active userfor that day. We treat each distinguishable device as a separate user for purposes of calculating such DAU, although it is possible that some peoplemay use more than one device, and multiple people may share one device; · “Mobile MAU” for our Sogou Mobile Keyboard, for any given period, refers to the number of active users during the last month of such givenperiod. A user who uses Sogou Mobile Keyboard more than once in that month is counted as one active user for that month. We treat eachdistinguishable device as a separate user for purposes of calculating such MAU, although it is possible that some people may use more than onedevice, and multiple people may share one device; · “Mobile MAU” for our Sogou mobile search, for any given period, refers to the number of active users during the last month of such given period. Auser who uses Sogou mobile search more than once in that month is counted as one active user for that month. We treat each distinguishablemobile browser or each Sogou mobile search application as a separate user for purposes of calculating such MAU, although it is possible that onany given device, some people may use more than one mobile browser, and multiple people may share one mobile browser or one Sogou mobilesearch application; · “Paid clicks” refers to the number of paid clicks, including clicks by our users on advertisers’ promotional links displayed on our search resultpages and other Internet properties and third parties’ Internet properties; · “PC DAU” for our Sogou Input Method, for any given month, refers to the average number of active users per day during that month. A user whouses Sogou Input Method more than once in any such day is counted as one active user for that day. We treat each distinguishable device as aseparate user for purposes of calculating such DAU, although it is possible that some people may use more than one device, and multiple peoplemay share one device; · “Pre-IPO Class A Ordinary Shares” refers to our Class A ordinary shares, carrying one vote per share, that were authorized and outstanding prior tothe completion of our initial public offering; · “Pre-IPO Class B Ordinary Shares” refers to our Class B ordinary shares, without voting rights, that were authorized and outstanding prior to thecompletion of our initial public offering; 1Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents · “Pre-IPO Ordinary Shares” refers to our Pre-IPO Class A Ordinary Shares and our Pre-IPO Class B Ordinary Shares; · “Pre-IPO Series A Preferred Shares” refers to our Series A preferred shares, carrying one vote per share, that were authorized and outstanding prior tothe completion of our initial public offering, and were categorized as “mezzanine equity” in our consolidated financial statements appearingelsewhere in this annual report; · “Pre-IPO Series B Preferred Shares” refers to our Series B preferred shares, carrying one vote per share, that were authorized and outstanding prior tothe completion of our initial public offering, and were categorized as “mezzanine equity” in our consolidated financial statements appearingelsewhere in this annual report; · “Pre-IPO Preferred Shares” refers to our Pre-IPO Series A Preferred Shares and our Pre-IPO Series B Preferred Shares, collectively; · “RMB” refers to Renminbi, or Yuan, the official currency of the PRC; · “Sogou” refers to Sogou Inc., a Cayman Islands company, and unless the context requires otherwise, includes its subsidiaries and variable interestentities, or VIEs; · “Sohu.com Limited” refers to our ultimate parent and controlling shareholder, whose ADSs representing Sohu.com Limited’s ordinary shares arelisted on the Nasdaq Global Select Market under the symbol “SOHU”; · “Sohu” refers to Sohu.com Limited and its subsidiaries and VIEs, not including Sogou and its subsidiaries and VIEs; · “Sohu Group” refers to Sohu.com Limited and its subsidiaries and VIEs, including Sogou and its subsidiaries and VIEs; · “Tencent” or “Tencent group” refers to Tencent Holdings Limited and its subsidiaries under International Financial Reporting Standards; · “we,” “us,” “our company,” and “our” refer to Sogou Inc. and, unless the context requires otherwise, include its subsidiaries and VIEs; · “Weixin Official Accounts” refers to Weixin/WeChat accounts where individuals and enterprises, as account owners, provide content and services tosubscribers; and · “Zhihu” refers to Zhihu Technology Limited and its affiliates, the leading online knowledge-sharing platform in China. This annual report on Form 20-F includes our audited consolidated statements of comprehensive income for the years ended December 31, 2016, 2017,and 2018 and audited consolidated balance sheets as of December 31, 2017 and 2018. We completed an initial public offering of our ADSs on November 13, 2017. Our ADSs are traded on the New York Stock Exchange under the symbol“SOGO.” FORWARD-LOOKING INFORMATION This annual report on Form 20-F contains “forward looking statements.” These statements are made under the “safe harbor” provisions of the U.S.Private Securities Litigation Reform Act of 1995. Whenever you read a statement that is not simply a statement of historical fact (such as when we describewhat we “believe,” “expect,” or “anticipate” will occur, and other similar statements), you must remember that our expectations may not be correct, eventhough we believe that they are reasonable. We do not guarantee that the transactions and events described in this annual report will happen as described orthat they will happen at all. You should read this annual report completely, with the understanding that actual future results may be materially different fromwhat we expect. See “Item 3 - Key Information—Risk Factors.” The forward-looking statements made in this annual report relate only to events as of the date on which the statements are made. We undertake noobligation, beyond that required by law, to update any forward-looking statement to reflect events or circumstances after the date on which the statement ismade, even though our situation will change in the future. Whether actual results will conform with our expectations and predictions is subject to a number of risks and uncertainties, many of which are beyondour control, and reflect future business decisions that are subject to change. Some of the assumptions, future results, and levels of performance expressed orimplied in the forward-looking statements we make inevitably will not materialize, and unanticipated events may occur which will affect our results. 2Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents These forward-looking statements include: · our ability to maintain and strengthen our position as a leader in China’s Internet industry and an innovator in AI; · our expected development and launch, and market acceptance, of our products and services; · our various initiatives to implement our business strategies to expand our business; · our future business development, results of operations, and financial condition; · the expected growth of and change in the online search industry in China; and · PRC laws, regulations, and policies relating to the Internet and Internet content providers, including online search and search-related servicesproviders. PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not Applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not Applicable. ITEM 3. KEY INFORMATION Selected Consolidated Financial Data The following selected consolidated statements of comprehensive income data and selected consolidated statements of cash flow data for the threeyears ended December 31, 2016, 2017 and 2018 and selected consolidated balance sheet data as of December 31, 2017 and 2018 have been derived from ouraudited consolidated financial statements included in this annual report beginning on page F-1. The selected consolidated statements of comprehensiveincome data for the years ended December 31, 2014 and 2015 and our consolidated balance sheet data as of December 31, 2014, 2015 and 2016 have beenderived from audited consolidated financial statements that are not included in this annual report. Our consolidated financial statements are prepared andpresented in accordance with U.S. GAAP. You should read the following information in conjunction with our consolidated financial statements and relatednotes and “Item 5. Operating and Financial Review and Prospects” below. Our historical results do not necessarily indicate results to be expected for anyfuture period. 3Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Selected Consolidated Statements of Comprehensive (Loss)/Income Data For the Year Ended December 31,2014 2015 2016 2017 2018(US$ in thousands, except for per ADS data)Revenues:Search and search-related advertising revenues357,839539,521597,213801,5511,023,132Other revenues28,54352,28263,195106,806101,026Total revenues386,382591,803660,408908,3571,124,158Cost of revenues 165,650248,279302,736457,401693,470Gross profit220,732343,524357,672450,956430,688Operating expenses:Research and development 123,339131,072138,364172,829201,739Sales and marketing 78,07493,998123,119156,420146,194General and administrative 51,24416,66624,56727,82138,072Total operating expenses252,657241,736286,050357,070386,005Operating (loss)/income(31,925)101,78871,62293,88644,683Interest income2,7735,3325,1989,1268,037Foreign currency exchange (loss)/gain(149)6675,346(7,082)5,725Other income/(expenses), net2,4621,142(26,027)69241,489(Loss)/income before income tax expenses(26,839)108,92956,13996,62299,934Income tax expenses—9,4302714,4221,153Net (loss)/income(26,839)99,49956,11282,20098,781Net (loss)/income per ADS—basic(0.41)(0.04)0.120.220.25Net (loss)/income per ADS—diluted(0.41)(0.04)0.110.200.25 Share-based compensation expense included in:Cost of revenues1,092330171540669Research and development21,0116,8625,61516,47010,313Sales and marketing4,1419431,8164,2991,327General and administrative37,7982,2445,2592,4141,89564,04210,37912,86123,72314,204 Selected Consolidated Balance Sheet Data As of December 31,2014 2015 2016 2017 2018(US$ in thousands)Cash and cash equivalents224,273244,484286,078694,207185,175Total current assets280,682306,444359,9241,121,2421,222,118Total assets339,173413,971524,8181,321,0361,462,844Total current liabilities232,250300,909358,556412,795456,339Total liabilities232,250300,909358,556412,795456,339Total mezzanine equity 263,577244,426244,404——Total shareholders’ (deficit)/equity (156,654)(131,364)(78,142)908,2411,006,505 Presented giving effect to the redesignation on a one-for-one basis upon the completion of our initial public offering of all Pre-IPO Series APreferred Shares into Class A Ordinary Shares and all Pre-IPO Series B Preferred Shares into Class B Ordinary Shares. 4(1)(1)(1)(1)(1)(1)(1)(1)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Risk Factors Risks Related to Our Business The online search industry in China is extremely competitive, and if we are unable to compete successfully, it will be difficult for us to maintain orincrease our revenues and profitability. We operate our business in an extremely competitive industry. We face intense competition in every aspect of our business, including competitionfor users, advertisers, technology, and talent. We face competition for our search and search-related services in China primarily from Baidu Inc., or Baidu, andShenMa, operated by UCWeb Inc., or UCWeb, which is a subsidiary of Alibaba Group Holding Limited, or Alibaba. Both Baidu and Alibaba haveconsiderably greater financial and technical resources available to them than we do. We also face competition for both users and advertisers from websitesand mobile applications that provide specialized search services in China, including travel services and information platforms such as Ctrip and Qunar;group-buy platforms such as Meituan Dianping; online classified advertisement platforms such as 58.com; and newsfeeds such as Toutiao. We compete foradvertisers not only with Internet companies, but also with other types of advertising media such as newspapers and magazines, billboards and busadvertisements, television, and radio. It is also possible that multinational businesses with considerably greater financial and other resources than ours couldexpand their offerings in China, making it harder for us to gain market share. Our existing and potential competitors compete with us for users and advertisers on the basis of the quality and quantity of search results; thefeatures, availability, and ease of use of products and services; and the number and quality of advertising distribution channels. They also compete with usfor talent with technological expertise, which is critical to the sustained development of our products and services. If we are unable to differentiate ourselvesfrom our competitors in each of these areas, we may not be able to maintain or increase our user and advertiser base, which would have an adverse impact onour business, results of operations, and growth potential. In addition, we may have difficulty in successfully promoting and differentiating our new products,services, and features as a result of the market power of our competitors. We must expand our user base to grow our business, and we must continually innovate and adapt our business in an evolving online search industry inorder to do so. If we fail to continue to innovate and introduce products and services to enhance user experience, we may not be able to generatesufficient user traffic to remain competitive. The Internet industry in general and the online search industry in particular have been undergoing rapid changes in technology and in userpreferences. Our future success in expanding our user base will depend on our ability to respond to, as well as anticipate and apply, rapidly evolvingtechnologies. We must adapt our existing products and services and develop new products and product areas that will meet the evolving demands of users,deliver attractive experiences for our users that enhance user engagement, and cause our users to return to our services and increase the frequency of theirsearches on our platforms. Our development and introduction of new products, features, and services are subject to additional risks and uncertainties.Unexpected technical, operational, distribution, or other problems could delay or prevent the development and introduction of one or more of our currentlyplanned and any future new products and services. There are constant innovations in the market regarding search services, search and search-relatedadvertising, and providing information to users. If we are unable to predict user preferences or industry changes, or if we are unable to modify our productsand services on a timely basis, we may lose users. Our operating results will also suffer if our innovations are not responsive to the needs of our users, are notappropriately timed with market opportunity, or are not effectively brought to market. As search technology continues to develop, there may be offered in theChina market products and services that are, or that are perceived to be, substantially similar to or better than those generated by our search services. Asworldwide focus on the development of AI technologies has intensified, it has become increasingly important to apply AI technologies to online searchproducts and features in order to attract and retain users, and we cannot be sure that we will be able to apply such technologies successfully. Our competitors may develop and offer new products, services, and features that are similar to ours and may introduce them to the market before wecan, and such new offerings from our competitors may be found by users to be more attractive than ours. Moreover, we cannot be sure that any of our newproducts, services, and features will attract additional users and lead to the generation of incremental revenue. As users increasingly use mobile devices to access search services and other Internet services in China, we will need to continue to design, develop,promote, and operate new products and services tailored for mobile devices. Our design and development of new products and services that are optimized formobile devices may not be successful. We may encounter difficulties with the installation and delivery of such new products and services, and they may notfunction smoothly. As new mobile devices are released or updated, we may encounter problems in developing and upgrading our products and services forthe new releases and updates, and we may need to devote significant resources to such development and upgrades. If we are not successful in adapting ourofferings for mobile devices as described above, maintenance and growth of our business will be impeded. 5Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents If our collaboration with Tencent is terminated or curtailed, our business and prospects for growth will be adversely affected. We have extensive collaboration with Tencent, one of our largest shareholders. We are the default general search engine in various Tencent productsthat provide general search offerings, such as Mobile QQ Browser, qq.com, and the PC Web directories daohang.qq.com and hao.qq.com. Approximately 36%of our total search traffic, measured by page views, was contributed by Tencent’s Internet properties in December 2018. Sogou Weixin Search is currently thesole general search engine with access to all content published on Weixin Official Accounts, but it is possible that Tencent will grant such access to othergeneral search engines. We cannot assure you that we will be able to maintain the current level of cooperation with Tencent in the future. If our collaborativerelationship with Tencent is terminated or curtailed due to Tencent’s initiating its own general search service or partnering with other search enginecompanies, or if any of the commercial terms were to be revised or made less favorable to us, or if Tencent does not continue to deliver to us an adequate levelof access to its platforms or adequately promote our products and services, our business and prospects will be adversely affected. For a detailed discussion ofour collaborative arrangements with Tencent, see “Related Party Transactions - Business Collaboration with Tencent.” Our efforts to expand our collaboration with Tencent may not be successful. In September 2018, we and Tencent agreed to extend until September 2023 the period during which Sogou Search will be the default general searchengine for Tencent’s products that provide general search offerings in accordance with our existing business collaboration arrangements with Tencent. Inaddition, we and Tencent have agreed to continue from September 2018 until September 2019 our initiative for the integration into the existingWeixin/WeChat search service of a search function powered by Sogou Search that allows Weixin/WeChat users to access Internet information outsideWeixin/WeChat and have agreed that Sogou Search will be the preferred third-party search function to power such a Weixin/WeChat search function for thatperiod provided Sogou Search meets “Tencent’s requirements for user experience,” and that the arrangement may be extended for additional successive one-year periods through September 2023 if offering Sogou Search will not “harm the user experience.” See “Related Party Transactions—Business Collaborationwith Tencent.” It is difficult for us to predict the potential impact of the integration of Sogou Search to power such a Weixin/WeChat search functionmeasured under the standards of “Tencent’s requirements for user experience” and/or “harm the user experience.” The potential for growth of our businessthrough such integration will be limited if Tencent does not make Sogou Search the preferred search function or decides not to extend the arrangement forsuch integration and a Tencent search function or a search function of one of our competitors is given priority over ours in Weixin/WeChat. Our existing business and our expansion strategy depend on certain additional key collaborative arrangements, and any inability to maintain ordevelop such relationships could have an adverse effect on our business and prospects for growth. Our existing business, and our strategy for developing our business, involve maintaining and developing various types of collaborations with thirdparties, which provide us with access to additional user traffic, search services, products, and technology. For example, our Sogou Wise Doctor delivershealthcare information, and receives healthcare data, through partnerships that provide us with access to articles written by physicians and to a PRC-government sponsored healthcare encyclopedia; our partnership with Zhihu provides us with access to a knowledge-sharing platform; our partnership withMicrosoft’s Bing provides us with the technology to provide our users with English content on the Internet that we translate to Chinese in connection withour cross-language search service; and our partnership with China Literature enables our users to access literature from a large online collection. In addition,our various partnerships with third-party Internet properties provide our advertisers significant exposure to users beyond our core search user base. Weconsider these collaborations to be important to our ability to deliver attractive service, product, and content offerings to our users, in order to maintain andexpand our user and advertiser bases, and we believe that it will continue to be important for us to develop similar partnerships in the future. Our inability tomaintain and grow such relationships could have an adverse impact on our existing business and our growth prospects. We also have existing, and hope to develop additional, relationships with mobile device manufacturers for pre-installation of our search, inputmethod, and related applications. If we are unable to maintain and expand such relationships, the quality and reach of delivery of our services will beadversely affected, and it may also be difficult for us to maintain and expand our user base and enhance awareness of our brand. In addition, our competitorsmay establish the same relationships as those we have, which would tend to diminish any advantage we might otherwise gain from these relationships. If we fail to maintain and expand our collaborations with third-party operators of Internet properties, our revenues and growth may be adverselyaffected. We place certain of our advertisers’ promotional links on the Internet properties of third parties, thereby expanding the base of users accessing theadvertisements beyond our own user base, and increasing our pay-for-click revenues. If these third parties decide to use a competitor’s or their own onlinesearch services, or do not prominently display our advertisements in comparison to those of other advertisers on their properties, or if we fail to attractadditional third-party operators of Internet properties, our advertising revenues and growth may be adversely affected. 6Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We may not be able to sustain our historical growth or successfully manage any future growth. We have grown significantly over a relatively short period. Our total Web search page views grew by 22.3%, and our mobile Web search page viewsgrew by 47.0%, on an annualized basis for the two-year period from December 2015 to December 2017, but that growth slowed to 13.6% for total Web searchpage views and to 22.6% for mobile Web search page views on an annualized basis for the two-year period from December 2016 to December 2018. Ourrevenues grew from US$660.4 million for the year ended December 31, 2016, to US$908.4 million for the year ended December 31, 2017, and toUS$1.124 billion for the year ended December 31, 2018. Our 2016 revenues were affected by tightened PRC regulation of the online advertising industryduring 2016, which had an adverse impact on the search and search-related advertising market in China in general. The growth in our revenues during 2018was affected by slower growth in the mobile search market in China in 2018, coupled with unfavorable macroeconomic conditions that impacted the onlineadvertising industry in general, and regulatory headwinds in certain sectors such as online games. In addition, as traffic acquisition costs continue to trendhigher due to increasingly intensifying competition for channel partnerships, it could be difficult for us to sustain expenditures for traffic acquisition at thesame level as our competitors, which could result in slower or flat growth, or even a reduction, in our user traffic, which would have a negative impact on ourrevenues and revenue growth prospects. We may not be able to sustain a rate of growth in future periods similar to that we experienced in the past, and ourrevenues may even decline. Accordingly, you should not rely on the results of any prior period as an indication of our future financial and operatingperformance. We are exploring and implementing, and expect to continue to explore and implement in the future, new business initiatives, including in industriesin which we have limited or no experience, as well as new business models. Developing new businesses and initiatives requires significant investments oftime and resources, and may present new and difficult technological, operational, and legal challenges, as well as subject us to additional regulatory risks. Forexample, we have initiated a pilot online lending and microcredit program using our own credit risk management. The risk of nonpayment of loans isinherent in the finance business, and we are subject to credit risks resulting from defaults by consumers. Any failure to effectively manage these risks maylimit our future growth and hamper our business strategy. We depend on online advertising for a significant majority of our revenues. If we fail to retain existing advertisers or attract new advertisers for ouronline advertising services, our business and growth prospects could be harmed. We earn most of our revenues from our search and search related advertising services. Advertisers will not use our services if they do not find them tobe effective in producing a sufficient volume of click-throughs and desired results for advertisers. Our advertisers are generally able to terminate theirrelationships with us at any time without penalty if they are not satisfied with our services, choose our competitors for similar services, or advertise in mediachannels other than Internet search. Therefore, it could be difficult for us to maintain or increase our advertiser base, and our revenues and profits coulddecline or fail to increase. We rely on third-party advertising agencies for most of our online advertising revenues. We rely heavily on third-party advertising agencies for our sales to our advertisers. It is important that we maintain good relationships with theseagencies. We do not enter into long-term agreements with any of the advertising agencies and cannot assure that we will continue to maintain favorablerelationships with them. Further, we provide various types of discounts and rebates to advertising agencies in order to incentivize them to maximize thevolume of advertising business that they bring to us. In order to retain or properly incentivize our advertising agencies, it may become necessary in the futurefor us to increase the levels of such rebates and discounts, which could have an adverse effect on our results of operations. If we fail to maintain and enhance awareness of and loyalty to our brand, it will be difficult for us to maintain and increase our user and advertiserbases. It is critical for us to maintain and further enhance our brand if we are to succeed in expanding our user and advertiser bases. Our success inpromoting and enhancing our brand, and our ability to remain competitive, will depend on our success in delivering superior user experience and on ourmarketing efforts. Enhancing our brand awareness may require substantial marketing and promotion expenses. If we are unable to maintain and enhance ourbrand, or incur significant marketing and promotion expenses that do not achieve anticipated business growth, or are subject to negative publicity that harmsour brand, our business and results of operations may be adversely affected. Our success depends on the continuing efforts of our senior management team and key employees, and our business may be harmed if we losetheir services. Our business heavily depends upon the services of our key executives, particularly Xiaochuan Wang, our Chief Executive Officer. If any of our keyexecutives is unable or unwilling to continue in his or her present position, joins a competitor, or forms a competing company, our business may be severelydisrupted. Although executive officers have entered into employment agreements, confidentiality agreements, and non-competition agreements with us, thedegree of protection afforded to an employer pursuant to confidentiality and non-competition undertakings by persons employed in the PRC may be morelimited when compared to the degree of protection afforded with respect to employees in some other jurisdictions. We do not maintain key-man life insurancefor any of our key executives. We also rely on key highly-skilled personnel for our business. Given the competitive nature of the industry, and in particular our competitors’increasingly aggressive efforts to provide competitive compensation packages to attract talent in the markets where we operate, it may be difficult for us torecruit and retain qualified personnel, and the risk of members of our key staff leaving us is high. Any such departure could have a disruptive impact on ouroperations, and if we are unable to recruit, retain and motivate key personnel, we may not be able to grow effectively. 7Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Our strategy of investments in and acquiring complementary businesses and assets may fail, which could result in impairment losses. In addition to organic growth, we may take advantage of opportunities to invest in or acquire additional businesses, services, assets or technologies.However, we may fail to select appropriate investment or acquisition targets, or we may not be able to negotiate optimal arrangements, includingarrangements to finance any acquisitions. Acquisitions and the subsequent integration of new assets and businesses into our own could require significantmanagement attention and could result in a diversion of resources away from our existing business. Investments and acquisitions could result in the use ofsubstantial amounts of cash, increased leverage, potentially dilutive issuances of equity securities, goodwill impairment charges, amortization expenses forother intangible assets and exposure to potential liabilities of the acquired business, and the invested or acquired assets or businesses may not generate thefinancial results we expect. Moreover, the costs of identifying and consummating these transactions may be significant. In addition to obtaining thenecessary corporate governance approvals, we may also need to obtain approvals and licenses from relevant governmental authorities for the acquisitions tocomply with applicable laws and regulations, which could result in increased costs and delays. Requirements of U.S. GAAP regarding the recognition of share-based compensation expense may adversely affect our results of operations and ourcompetitiveness in the employee marketplace. Our performance is largely dependent on talented and highly-skilled individuals. Our future success depends on our continuing ability to identify,develop, motivate, and retain highly-skilled personnel. We have a history of using low or nominally-priced employee share options as an importantcomponent of competitive pay packages, in order to align our employees’ interests with the interests of our company and our shareholders and to encouragequality employees to join and remain with us. We have adopted guidance on accounting for share-based compensation that requires the measurement andrecognition of compensation expense for all share-based compensation based on estimated fair values. As a result, our operating results contain charges forshare-based compensation expense related to employee share options. The historical and future recognition of share-based compensation in our statements ofcomprehensive income has had and will have an impact on our results of operations. On the other hand, if we alter our employee share incentive plans tominimize the corresponding share-based compensation expense, it may limit our ability to continue to use share-based awards as a tool to attract and retainour employees, and it may adversely affect our operations. In addition, there may be future changes in the U.S. GAAP requirements for recognition of share-based compensation expense, which could have similar effects on our results operations and our competitiveness in the market for key employees. Our user metrics and other estimates are subject to inherent challenges in measuring our operating performance, which may harm our reputation. We regularly review MAU, DAU, number of advertisers, page views, and other operating metrics to evaluate growth trends, measure our performance,and make strategic decisions. These metrics are calculated using internal company data, have not been validated by an independent third party, and may notbe indicative of our future financial results. While these numbers are based on what we believe to be reasonable estimates for the applicable period ofmeasurement, there are inherent challenges in measuring how our platforms are used across a large population in China. For example, we may not be able todistinguish individual users who have multiple accounts. Errors or inaccuracies in our metrics or data could result in incorrect business decisions and inefficiencies. For instance, if a significantunderstatement or overstatement of active users were to occur, we might expend resources to implement unnecessary business measures or fail to takerequired actions to remedy an unfavorable trend. If partners or investors do not perceive our user, geographic, or other operating metrics to accuratelyrepresent our user base, or if we discover inaccuracies in our user, geographic, or other operating metrics, our reputation may be harmed. We have not independently verified the accuracy or completeness of data, estimates, and projections in this annual report that we obtained from thirdparty sources, and such information involves assumptions and limitations. Certain facts, forecasts, and other statistics relating to the industries in which we compete contained in this annual report have been derived fromvarious public data sources and commissioned third-party industry reports. In connection with our preparation of this annual report, we commissioned CVSCTNS Research (“CTR”) to update market research concerning the online search and AI industries in China, and we also referred to market research reports ofiResearch and IDC that we had previously commissioned concerning the same industries in the United States. In deriving the market size of these industries,these industry consultants may have adopted different assumptions and estimates for certain metrics, such as MAU. While we generally believe such reportsto be reliable, we have not independently verified the accuracy or completeness of such information. Such reports may not be prepared on a comparable basisor may not be consistent with other sources. Industry data and projections involve a number of assumptions and limitations. Our industry data and market share data should be interpreted in thelight of the defined industries in which we operate. Any discrepancy in the interpretation of such data could lead to different measurements and projections,and actual results could differ from the projections. 8Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We may not be able to prevent others from making unauthorized use of our intellectual property, which could harm our business and competitiveposition. We regard our patents, copyrights, trademarks, trade secrets, and other intellectual property as critical to our business. Unauthorized use of ourintellectual property by third parties may adversely affect our business and reputation. We rely on a combination of intellectual property laws and contractualarrangements to protect our proprietary rights. It is often difficult to register, maintain, and enforce intellectual property rights in the PRC. Statutory laws andregulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutoryinterpretation in the PRC. In addition, contractual agreements may be breached by counterparties, and there may not be adequate remedies available to us forany such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Policingany unauthorized use of our intellectual property is difficult and costly and the steps we have taken may be inadequate to prevent the misappropriation of ourintellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and adiversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may beleaked or otherwise become available to, or be independently discovered by, our competitors. Pending or future litigation could have an adverse impact on our financial condition and results of operations. From time to time, we have been, and may in the future be, subject to lawsuits brought by our competitors, individuals, or other entities against us.We are currently involved in several lawsuits in PRC courts where our competitors instituted proceedings or asserted counterclaims against us and weinstituted proceedings or asserted counterclaims against our competitors. For example, there are various legal proceedings currently pending between us andBaidu in which we allege that Baidu’s input method infringes certain of our patents relating to Sogou Input Method and seek monetary damages, whileBaidu has asserted in counterclaims or in legal proceeding that it has initiated against us that Sogou Input Method infringes certain of its patents, and seeksmonetary damages. There is also a lawsuit pending against us in which Shanghai Cishu Publications Ltd. has alleged that we used vocabulary contentwithout permission and seeks monetary damages. In addition, we are subject to ongoing unfair competition claims against us brought by Baidu, UCWeb, andQihoo 360 Technology Co., Ltd., or Qihoo360, separately, in which they allege that certain functions of our Sogou Input Method unfairly divert users to us,and seek monetary damages and cessation of the alleged unfair competitive practices. There are also four putative class action lawsuits that have been filedagainst us in the United States, three in a State court in the State of California and one in the United States District Court for the Southern District of NewYork, that allege violations of U.S. securities laws in connection with our IPO in 2017. Where we can make a reasonable estimate of the liability relating to pending litigation against us and determine that an adverse liability resultingfrom such litigation is probable we record a related contingent liability. As additional information becomes available, we assess the potential liability andrevise estimates as appropriate. However, due to the inherent uncertainties relating to litigation, the amount of our estimates may be inaccurate, in which caseour financial condition and results of operation may be adversely affected. In addition, the outcomes of actions we institute may not be successful orfavorable to us. Lawsuits against us may also generate negative publicity that significantly harms our reputation, which may adversely affect our user andadvertiser base. In addition to the related cost, managing and defending litigation and related indemnity obligations can significantly divert ourmanagement’s and Board of Directors’ attention from operating our business. We may also need to pay damages or settle lawsuits with a substantial amountof cash. While we do not believe that any currently pending proceedings are likely to have a material adverse effect on our business, financial condition,results of operations, and cash flows, if there were adverse determinations in legal proceedings against us, we could be required to pay substantial monetarydamages or adjust our business practices, which could have an adverse effect on our financial condition and results of operations, and cash flows. We are currently subject to, and in the future may from time to time face, intellectual property infringement claims, which could be time-consuming andcostly to defend, and could have an adverse impact on our financial position and results of operations, particularly if we are required to pay significantdamages or cease offering any of our products or curtail any key features of our products. We cannot be certain that the products, services and intellectual property used in our normal course of business do not or will not infringe validpatents, copyrights or other intellectual property rights held by third parties. We currently are, and may in the future be, subject to claims and legalproceedings relating to the intellectual property of others in the ordinary course of our business, and may in the future be required to pay damages or to agreeto restrict our activities. See “—Pending or future litigation could have an adverse impact on our financial condition and results of operations.” In particular,if we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, may be ordered to paydamages, and may incur licensing fees or be forced to develop alternatives. We may incur substantial expense in defending against third-party infringementclaims, regardless of their merit. Successful infringement claims against us may result in substantial monetary liability or may materially disrupt the conductof our business by restricting or prohibiting our use of the intellectual property in question. We may not have exclusive rights to technology, trademarks, and designs that are crucial to our business. We have applied for various patents relating to our business. While we have succeeded in obtaining some patents, some of our patent applicationsare still under examination by the State Intellectual Property Office of the PRC. Approvals of our patent applications are subject to determinations by theState Intellectual Property Office of the PRC and relevant overseas authorities that there are no prior rights in the applicable territory. In addition, we haveapplied for initial registrations in the PRC and overseas, and/or changes in registrations relating to transfers of our Sogou logos and other of our keytrademarks in the PRC, and the corresponding Chinese versions of the trademarks, so as to establish and protect our exclusive rights to these trademarks.While we have succeeded in registering the trademarks for most of these marks in the PRC under certain classes, the applications for initial registration,and/or changes in registrations relating to transfers, of some marks and/or of some of trademarks under other classes are still under examination by theTrademark Office of the State Administration for Industry and Commerce (the “SAIC”), and relevant overseas authorities. Approvals of our initial trademarkregistration applications, and/or of changes in registrations relating to such transfers, are subject to determinations by the Trademark Office of the SAIC andrelevant overseas authorities that there are no prior rights in the applicable territories. We cannot assure you that these patent and trademark applications willbe approved. Any rejection of these applications could adversely affect our rights to the affected technology, marks, and designs. In addition, even if theseapplications are approved, we cannot assure you that any issued patents or registered trademarks will be sufficient in scope to provide adequate protection ofour rights. 9Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents If our search results contain information that is inaccurate or harmful to our users, our business and reputation may be adversely affected. We could be exposed to liability arising from our search results listings if information accessed through our services contains errors, and third partiesmay make claims against us for losses incurred in reliance on that information. Investigating and defending such claims could be expensive even if they didnot result in liability, and we do not carry any liability insurance against such risks. In addition, if users do not perceive information that they access through our search services to be authoritative, useful, and trustworthy, we may notbe able to retain these users or attract additional users, and our reputation, business, and results of operation may be harmed. In addition, if such contentcontains inaccuracies, it is possible that users will seek to hold us liable for damages, because we provide links to such content, even though such content isprovided by third parties and any negative publicity regarding the accuracy of such content could harm our reputation, and reduce user traffic. In addition,any negative publicity or incident involving our peer companies could have an adverse impact on our industry as a whole, which in turn could harm ourreputation and reduce our user traffic. For example, in early 2016 it was widely reported that an unsuccessful experimental cancer treatment had beenpromoted in a sponsored search listing on a third party’s Internet property. Even though our search results listings were not involved, we believe that thebroad negative publicity surrounding the incident adversely affected the reputation of the online search industry in China in general with an adverse impacton our user traffic and results of operations in 2016. We may be subject to regulatory investigations and sanctions for inappropriate or illegal content that is accessed through our search results. The online search industry in China is subject to extensive regulation. If content accessed through our search services includes information that PRCgovernmental authorities find illegal or inappropriate, we may be required to curtail or even shut down our search services, and we may be subject to otherpenalties. Although we seek to prevent fraudulent or otherwise illegal or inappropriate websites and information from being included in our search results,such measures may not be effective. For example, we suspended part of our advertising services for 10 days in July 2018 in order to implement remedialmeasures to ensure compliance with government regulations following a government investigation into certain non-compliant advertisements created by athird party unrelated to us and displayed on our platform in June 2018. See “—Risks Related to China’s Regulatory and Economic Environment—Regulation and censorship of information distribution in China may have an adverse effect on our business”; and “—Risks Related to China’s Regulatoryand Economic Environment—The PRC government may prevent us from distributing, and we may be subject to liability for, content that it believes isinappropriate.” We may be subject to potential liability for claims that search results violate the intellectual property rights of third parties. It is possible that content that is made available by us through our search results may violate the intellectual property rights of third parties. PRClaws and regulations are evolving, and uncertainties exist with respect to the legal standards for determining the potential liability of online search serviceproviders for search results that provide links to content on third-party websites that infringes copyrights of third parties. In December 2012, the SupremePeople’s Court of the PRC promulgated a judicial interpretation providing that PRC courts will place the burden on Internet service providers to remove notonly links or content that has been specifically-mentioned in notices of infringement from persons and entities claiming copyright in such content, but alsolinks or content that the providers “should have known” contained infringing content. This interpretation could subject us to significant administrativeburdens and might expose us to civil liability and penalties. Further, we rely on content provided by professional researchers and writers, either developed bythe outlets themselves or adapted from content of parties separate from such outlets, and it is difficult for us to fully monitor such content, which could makeus more vulnerable to potential infringement claims. We may be subject to legal liability associated with online activities on our platforms. We host and provide a wide variety of products and services that enable advertisers to advertise products and services, and users to exchangeinformation and engage in various online activities. We may be subject to claims, investigations, or negative publicity relating to such activities. PRC lawsand regulations relating to the liability of providers of online products and services for activities of their users are undeveloped, and their current and futurereach are unclear. Also see “—We may be subject to regulatory investigations and sanctions for inappropriate or illegal content that is accessed through oursearch results.” We also place advertisements on third-party Internet properties, and we offer products and services developed or created by third parties. Wemay be subject to claims concerning these products and services based on our involvement in providing access to them, even if we do not offer the productsand services directly. We could be required to spend considerable financial and managerial resources defending any such claims, and they could result in ourhaving to pay monetary damages or penalties or ceasing certain aspects of our business, which could have an adverse effect on our business and resultsof operations. 10Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Privacy concerns or security breaches relating to our platforms could damage our reputation, deter current and potential users and advertisers fromusing our products and services, and expose us to legal penalties and liability. We collect, process, and store on our servers significant amounts of data concerning our users. While we have taken steps to protect our user data, oursecurity measures could be compromised, because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally arenot recognized until they are launched against a target, and we may be unable to anticipate these techniques or to implement adequate preventativemeasures. In addition, we are subject to various regulatory requirements relating to the security and privacy of such data, including restrictions on thecollection and use of personal information of users and steps we must take to prevent personal data from being divulged, stolen, or tampered with. Regulatoryrequirements regarding the protection of such data are constantly evolving and can be subject to significant change, making the extent of our responsibilityin that regard uncertain. For example, the PRC Cybersecurity Law became effective in June 2017, but it is unclear as to the circumstances and standard underwhich the law would apply and violations would be found, and there are great uncertainties as to the interpretation and application of the law. It is possiblethat our data protection practice is or will be inconsistent with regulatory requirements. See “PRC Regulation—Provision of Internet Content—InformationSecurity and Censorship.” Complying with such requirements could cause us to incur substantial expenses or to alter or change our practice in a manner thatcould harm our business. Any systems failure or compromise of our security, including through employee error, that results in the release of our user datacould seriously harm our reputation and brand, impair our ability to retain and attract users and advertisers, expose us to liability to users whose data isreleased, and subject us to sanctions and penalties from governmental authorities. We also could be liable for any security breaches of our advertisers’confidential information. Any security breaches exposing such information could damage our reputation and deter current and potential users and advertisersfrom using our services. Our network operations may be vulnerable to hacking and viruses, which may reduce the use of our products and services and expose us to liability. Our user traffic may decline if any well-publicized compromise of security occurs. “Hacking” involves efforts to gain unauthorized access toinformation or systems or to cause intentional malfunctions or loss or corruption of data, software, hardware, or other computer equipment. Techniques usedby hackers to obtain unauthorized access or sabotage systems change frequently and often are not recognized until launched against a target, which meansthat we may be unable to anticipate new hacking methods or implement adequate security measures. Hackers, if successful, could misappropriate proprietaryinformation or cause disruptions in our service. We may be required to expend capital and other resources to protect our Internet platforms against hackers,and measures we may take may not be effective. In addition, the inadvertent transmission of computer viruses could expose us to a risk of loss or litigationand possible liability, as well as damage our reputation and decrease our user traffic. Our business may be adversely affected by third-party software applications or practices that interfere with our receipt of information from, orprovision of information to, our users, which may impair our users’ experience. Our business may be adversely affected by third-party software applications, which may be unintentional or malicious, that make changes to ourusers’ PCs or mobile devices and interfere with our products and services. These software applications may change our users’ experience by hijacking queries,altering or replacing our search results, or otherwise interfering with our ability to connect with our users. Such interference can occur without disclosure to orconsent from users, and users may associate any resulting negative experience with our products and services. Such software applications are often designedto be difficult to remove, block, or disable. Further, software loaded on or added to mobile devices on which our search or other applications, such as SogouInput Method, are pre-installed may be incompatible with or interfere with or prevent the operation of such applications, which might deter the owners ofsuch devices from using our services. In addition, third-party website owners, content providers, and developers may implement applications and systems that interfere with our ability tocrawl and index their webpages and content, which is critical to the operation of our search services. If we are unable to successfully prevent or limit any suchapplications or systems that interfere with our products and services, or if a significant number of third-party website owners, content providers, anddevelopers prevent us from indexing and including their webpages and content in our search results, our ability to deliver high-quality search results and asatisfactory user experience will be impeded. Adoption of Internet advertisement blocking technologies may have an adverse impact on our business and results of operations. The development of software that blocks Internet advertisements before they appear on a user’s screen may hinder the growth of online advertising.Since our advertising revenues are generally based on user click-throughs, the expansion of advertisement-blocking on the Internet may decrease ouradvertising revenues, because when advertisements are blocked they are not downloaded from the server, which means such advertisements will not betracked as a delivered advertisement. In addition, advertisers may choose not to advertise on the Internet or on or through our sites because of the use by thirdparties of Internet advertisement blocking measures. In addition, increasing numbers of browsers include technical barriers designed to prevent Internetinformation service providers such as us to track the browsing history of their Internet users, which is also likely to adversely affect the growth of onlineadvertising and hence our business and growth prospects. 11Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents If we fail to detect click-through fraud, we could lose the confidence of our advertisers and our revenues could decline. Our business is exposed to the risk of click-through fraud on our paid search results. Click-through fraud occurs when a person clicks paid searchresults for a reason other than to view the underlying content of search results. If we fail to detect significant fraudulent clicks or otherwise are unable toprevent significant fraudulent activity, the affected search advertisers may experience a reduced return on their investment in our pay-for-click services andlose confidence in the integrity of our pay-for-click service systems, and we may have to issue refunds to our advertisers and may lose their future business. Ifthis happens, we may be unable to retain existing advertisers and attract new advertisers for our pay-for-click services, and our search revenues could decline.In addition, affected advertisers may also file legal actions against us claiming that we have over-charged or failed to refund them. Any such claims or similarclaims, regardless of their merit, could be time-consuming and costly for us to defend against and could also adversely affect our brand and our searchadvertisers’ confidence in the integrity of our pay-for-click services and systems. Web spam and content farms, as well as our attempts to block them, could decrease the quality of our search results, and could deter our current andpotential users from using our products and services. The proliferation of search engine spam websites, commonly referred to as Web spam, which attempt to manipulate search indexing to cause them toappear higher in search results ranking hierarchies than they would without such manipulation, can have the effect of weakening the integrity of our searchresults and causing users to lose confidence in our search products and services. “Content farm” websites, which commission very large amounts of content,often of low quality, for the purpose, similar to that of Web spam, of causing such content farms’ links to obtain relatively high ranking in Internet providers’search results, can have similar adverse effects. While we use, and continually improve, technology designed to detect and block Web spam, the algorithms we apply may nevertheless result inexcessive filtering that blocks desirable websites from our search results. Therefore, both the existence of Web spam and content farms, and our attempts toblock them, could deter our current and potential users from using our products and services. In addition, as some of our third-party Internet-propertycollaborators could include Web spam or content farm websites, our advertising revenues could be reduced by our efforts to filter such websites. If our effortsto combat these and other types of index spamming are unsuccessful, our reputation for delivering relevant information could be diminished. This couldresult in a decline in user traffic, which would damage our business. The successful operation of our business depends upon the performance and reliability of the Internet infrastructure in China. Our growth will depend in part on the PRC government and state-owned telecommunications services providers maintaining and expanding Internetand telecommunications infrastructure, standards, protocols, and complementary products and services to facilitate our reaching a broader base of Internetusers in China. Almost all access to the Internet in China is maintained through China Mobile, China Unicom and China Telecom under the administrative controland regulatory supervision of the Ministry of Industry and Information Technology, or MIIT. We rely on this infrastructure and China Mobile, ChinaUnicom, and China Telecom to provide data communications capacity primarily through local telecommunications lines. Although the government hasannounced aggressive plans to develop the national information infrastructure, this infrastructure may not be developed and the Internet infrastructure inChina may not be able to support the continued growth of Internet usage. In addition, we will be unlikely to have access to alternative networks and serviceson a timely basis, if at all, in the event of any infrastructure disruption or failure. Interruption or failure of our information technology and communications systems may result in reduced user traffic and harm to our reputationand business. Interruption or failure of any of our information technology and communications systems or those of the operators of third-party Internet propertieswith which we collaborate could impede or prevent our ability to provide our search and search-related services. In addition, our operations are vulnerable tonatural disasters and other events. Our disaster recovery plan for our servers cannot fully ensure safety in the event of damage from fire, floods, typhoons,earthquakes, power loss, telecommunications failures, hacking, and similar events. If any of the foregoing occurs, we may experience a partial or completesystem shutdown. Furthermore, our servers, which are hosted at third-party Internet data centers, are also vulnerable to break-ins, sabotage and vandalism.Some of our systems are not fully redundant, and our disaster recovery planning does not account for all possible scenarios. The occurrence of a naturaldisaster or a closure of an Internet data center by a third-party provider without adequate notice could result in lengthy service interruptions. Any system failure or inadequacy that causes interruptions in the availability of our services, or increases the response time of our services, couldhave an adverse impact on our users’ experience and reduce our users’ satisfaction, our attractiveness to users and advertisers, and future user traffic andadvertising on our platform. Furthermore, we do not carry any business interruption insurance. To improve the performance and to prevent disruption of our services, we mayhave to make substantial investments to deploy additional servers or one or more copies of our Internet platforms to mirror our online resources. 12Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We face risks related to natural disasters, health epidemics, or terrorist attacks. Our business could be adversely affected by natural disasters, such as earthquakes, floods, landslides, and tsunamis, outbreaks of health epidemicssuch as an outbreak of avian influenza; severe acute respiratory syndrome, or SARS; Zika virus; or Ebola virus, as well as terrorist attacks, other acts ofviolence or war, or social instability. If any of these occurs, we may be required to temporarily or permanently close and our business operations may besuspended or terminated. Risks Related to Our Corporate Structure In order to comply with PRC regulatory requirements, we operate a portion of our business through our primary VIE, Beijing Sogou InformationService Co., Limited (“Sogou Information”), a company with which we have contractual relationships but in which we do not have an actual ownershipinterest, and its three direct and indirect wholly-owned subsidiaries. If these contractual arrangements and our current ownership structure were foundto be in violation of current or future PRC laws and regulations we could be subject to severe penalties. Various regulations in the PRC restrict or prohibit foreign-owned companies from operating in specified industries, such as the provision of Internetinformation, online games, mobile applications, Internet access, and certain other industries. As we are a Cayman Islands company and our direct and indirectwholly-owned subsidiaries Sogou (BVI) Limited, or Sogou BVI, Sogou Hong Kong Limited, or Sogou HK, and Vast Creation Advertising Media ServicesLimited, or Vast Creation, are incorporated in the British Virgin Islands and Hong Kong, our indirect wholly-owned PRC subsidiaries, Beijing SogouTechnology Development Co., Ltd. (“Sogou Technology”), and Beijing Sogou Network Technology Co., Ltd. (“Sogou Network”), are wholly foreign-ownedenterprises (“WFOEs”) under PRC law and are considered to be foreign-owned. In order to comply with PRC regulatory requirements, we conduct certain ofour Internet and other value-added telecommunication operations in the PRC through our VIE Sogou Information, which is incorporated in the PRC and isowned 10% by our Chief Executive Officer, 45% by our controlling shareholder Sohu, and 45% by a Tencent group entity; and through three direct andindirect subsidiaries of Sogou Information, which are also considered to be our VIEs. Through a series of contractual arrangements, Sogou Information, ofwhich we are the primary beneficiary, and Sogou Information’s three direct and indirect subsidiaries are effectively controlled by our subsidiary SogouTechnology. Revenues generated by our VIEs represented 24.1%, 28.3%, and 37.7%, respectively, of our total revenues for the years ended December 31,2016, 2017, and 2018. In addition, pursuant to Circular 6 and the Ministry of Commerce (the “MOFCOM”) Security Review Rules, a security review is required for mergersand acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire“de facto control” of domestic enterprises with “national security” concerns and prohibit foreign investors from bypassing the security review requirement bystructuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements, or offshore transactions. Thesenational security review-related regulations are relatively new and there is a lack of clear statutory interpretation regarding the implementation of the rules.PRC governmental authorities may interpret these regulations to mean that the transactions implementing our VIE structures should have been submitted forreview. For a discussion of these PRC national security review requirements, see “PRC Regulation—Regulation of M&A and Overseas Listings.” In the opinion of Commerce & Finance Law Offices, our PRC legal counsel, our current ownership structure, the ownership structure of our PRCsubsidiaries and VIEs and the contractual arrangements between our PRC subsidiaries, VIEs and its shareholders are in compliance with existing PRC laws,rules, and regulations. Our PRC legal counsel also advises us that there are uncertainties regarding the interpretation and application of current or futurePRC laws and regulations. Accordingly, we and our PRC legal counsel cannot assure you that PRC governmental authorities will not ultimately take a viewcontrary to that of our PRC legal counsel. If we were found to be in violation of any existing or future PRC laws or regulations relating to foreign ownershipof value-added telecommunications businesses, online search services, online games, other online information and content services, and security reviews offoreign investments in such businesses, governmental authorities with jurisdiction over the operation of our business would have broad discretion in dealingwith such a violation, including levying fines, confiscating our income, revoking the business or operating licenses of our PRC subsidiaries and/or VIEs,requiring us to restructure our ownership structure or operations, requiring us to discontinue or divest ourselves of all or any portion of our operations orassets, restricting our right to collect revenues, blocking our Internet platforms, or imposing additional conditions or requirements with which we may not beable to comply. Any of these actions could cause significant disruption to our business operations and have an adverse impact on our business, financialcondition, and results of operations. Further, if changes were required to be made to our ownership structure, our ability to consolidate our VIEs’ assets andoperating results into our consolidated financial statements could be adversely affected. 13Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We depend upon contractual arrangements with our VIE Sogou Information and its shareholders for the success of our business and thesearrangements may not be as effective in providing operational control as direct ownership of the entities and may be difficult to enforce. Due to the restrictions or prohibitions on foreign ownership over online search services, online games operations and other value-addedtelecommunication business in the PRC, we depend on our VIEs, in which we have no direct ownership interest, to provide those services through contractualagreements with our VIE Sogou Information and to hold some of our assets, including some of the domain names and trademarks relating to our business.These arrangements may not be as effective in providing control over our business operations as would direct ownership of our VIEs. For example, if we haddirect ownership of our VIEs, we would be able to exercise our rights as a shareholder to effect changes in their boards of directors, which in turn could effectchanges at the management level. Due to our VIE structure, we have to rely on contractual rights to affect control and management of our VIEs, whichexposes us to the risk of potential breach of VIE contracts by the VIEs or their shareholders, such as their failing to use the domain names and trademarks heldby them, or failing to maintain our Internet platforms, in an acceptable manner or taking other actions that are detrimental to our interests. In addition, as ourVIE Sogou Information is jointly owned by its shareholders, it may be difficult for us to change our corporate structure if such shareholders refuse tocooperate with us. In addition, some of our subsidiaries and VIEs could fail to take actions required for our business, such as entering into business contractswith potential suppliers or failing to maintain the necessary permits for the business. Furthermore, if the shareholders of Sogou Information were involved inproceedings that had an adverse impact on their shareholder interests in Sogou Information or on our ability to enforce relevant contracts related to the VIEstructure, our overall business, financial condition, and results of operations could be adversely affected. The shareholders of Sogou Information may breach, or cause Sogou Information to breach, the VIE contracts for a number of reasons. For example,their interests as shareholders of Sogou Information and the interests of our subsidiaries may conflict and we may fail to resolve such conflicts; theshareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders may otherwise act in bad faith. If anyof the foregoing were to happen, we may have to rely on legal or arbitral proceedings to enforce our contractual rights. In addition, disputes may arise amongthe shareholders of Sogou Information with respect to their ownership of Sogou Information, which could lead them to breach their agreements with us. Sucharbitral and legal proceedings and disputes may cost us substantial financial and other resources, and result in disruption of our business, and the outcomemight not be in our favor. For example, a PRC court or arbitration panel could conclude that our VIE contracts violate PRC laws or are otherwiseunenforceable. If the contractual arrangements with Sogou Information were found by PRC governmental authorities with appropriate jurisdiction to beunenforceable, we could lose control over the assets owned by Sogou Information and our other VIEs and lose our ability to consolidate such VIEs’ results ofoperations, assets, and liabilities in our consolidated financial statements and/or to transfer the revenues of our VIEs to our corresponding PRC subsidiarySogou Technology. As all of the contractual arrangements with Sogou Information and its shareholders are governed by PRC laws and provide for the resolution ofdisputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC laws and any disputes would be resolved inaccordance with PRC legal procedures. We would have to rely for enforcement on legal remedies under PRC laws, including specific performance, injunctiverelief, or damages, which might not be effective. For example, if we sought to enforce the equity interest purchase right agreement for the transfer of equityinterests in Sogou Information, if the transferee was a foreign company the transfer would be subject to approval by PRC governmental authorities such as theMIIT and the MOFCOM, and the transferee would be required to comply with various requirements, including qualification and maximum foreignshareholding percentage requirements. As these PRC governmental authorities have wide discretion in granting such approvals, we could fail to obtain suchapprovals. In addition, our VIE contracts might not be enforceable in China if PRC governmental authorities, courts or arbitral tribunals took the view thatsuch contracts contravened PRC laws or were otherwise not enforceable for public policy reasons. Furthermore, the legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in thePRC legal system could further limit our ability to enforce these contractual arrangements. In the event we were unable to enforce these contractualarrangements, we would not be able to exert effective control over our VIEs, and our ability to conduct our business, and our financial condition and resultsof operation would be severely adversely affected. The contractual arrangements between our subsidiary Sogou Technology and our VIE Sogou Information may result in adverse tax consequencesto us. PRC laws and regulations emphasize the requirement of an arm’s-length basis for transfer pricing arrangements between related parties. The laws andregulations also require enterprises with related party transactions to prepare transfer pricing documentation to demonstrate the basis for determining pricing,the computation methodology and detailed explanations. Related party arrangements and transactions may be subject to challenge or tax inspection by PRCtax authorities. Under a tax inspection, if our transfer pricing arrangements between our China-based subsidiary Sogou Technology and our VIE Sogou Informationare judged as tax avoidance, or related documentation does not meet the requirements for such arrangements, Sogou Information and Sogou Technology maybe subject to adverse tax consequences, such as a transfer pricing adjustment. A transfer pricing adjustment could result in a reduction, for PRC tax purposes,of adjustments recorded by Sogou Information, which could adversely affect us by (i) increasing Sogou Information’s tax liabilities without reducing SogouTechnology’s tax liabilities, which could further result in interest and penalties being levied on us for unpaid taxes or (ii) limiting the ability of our PRCcompanies to maintain preferential tax treatment and other financial incentives. In addition, if for any reason we need to cause the transfer of any of theshareholders’ equity interest in any Sogou Information to a different nominee shareholder, we might be required to pay individual income tax, on behalf ofthe transferring shareholder, on any gain deemed to have been realized by such shareholder on such transfer. 14Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents If one or more of our VIEs declare bankruptcy or become subject to a dissolution or liquidation proceeding, we may lose the ability to use and enjoyassets held by those VIEs. Our VIEs hold assets, such as our core intellectual property, licenses, and permits, that are critical to our business operations. Although the equityinterest purchase rights agreement among our PRC subsidiaries, our VIE Sogou Information, and the shareholders of Sogou Information contains terms thatspecifically obligate such shareholders to ensure the valid existence of Sogou Information and our other VIEs, in the event these shareholders breached theirobligations and voluntarily liquidated our VIEs, or if any of our VIEs declared bankruptcy and all or part of its assets became subject to liens or rights ofthird-party creditors, we might be unable to continue some or all of our business operations. Furthermore, if any of our VIEs were to undergo a voluntary orinvoluntary liquidation proceeding, their shareholders or unrelated third-party creditors might claim rights to some or all of such VIEs’ assets and their rightscould be senior to our rights under the VIE contracts with Sogou Information, which could hinder our ability to operate our business. Risks Related to China’s Regulatory and Economic Environment PRC regulations relating to sponsored search have had, and may continue to have, an adverse effect on our results of operations. On April 13, 2016, the SAIC and sixteen other PRC government agencies jointly issued a Notice of Campaign to Crack Down on Illegal InternetFinance Advertisements and Other Financial Activities in the Name of Investment Management, or the Campaign Notice, pursuant to which a campaign wasconducted between April 2016 and January 2017 targeting, among other things, online advertisements for Internet finance and other financial activitiesposted on online search portals such as ours. The Cyberspace Administration of China, or the CAOC, issued the Interim Measures for the Administration ofOnline Search, or the CAOC Interim Measures, which became effective on August 1, 2016 and require that providers of online search services verify thecredentials of pay-for-click advertisers, specify a maximum percentage that pay-for-click search results may represent of results on a search page, and requirethat providers of search services conspicuously identify pay-for-click search results as such. The SAIC issued the Interim Measures for the Administration ofOnline Advertising, or the SAIC Interim Measures, which became effective on September 1, 2016 and treat pay-for-click search results as advertisementssubject to PRC laws governing advertisements, require that pay-for-click search results be conspicuously identified on search result pages as advertisementsand subject revenues from such advertisements to a 3% PRC tax that is applied to advertising revenues. In order to comply with these regulations, we haveestablished more stringent standards for selecting advertisers for our pay-for-click services and have turned down certain existing advertisers, and havelowered the percentage that pay-for-click search results represent of results on our search pages, which had an adverse impact on our search and search-relatedrevenues and overall results of operations for 2016 and, along with the tax on advertising, are likely to continue to have such an impact. We cannot assureyou that PRC governmental authorities will not issue new laws or regulations specifically regulating sponsored search services, which could further impactour revenues. Political, economic, and social policies of the PRC government could affect our business. Substantially all of our business, operating assets, fixed assets and operations are located in China, and substantially all of our revenues are derivedfrom our operations in China. Accordingly, our business may be adversely affected by changes in political, economic or social conditions in China,adjustments in PRC government policies or changes in laws and regulations. The economy of China differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development in anumber of respects, including: · structure; · level of government involvement; · level of development; · level of capital reinvestment; · growth rate; · control of foreign exchange; and 15Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents · methods of allocating resources. Since 1949, China has been primarily a planned economy subject to a system of macroeconomic management. Although the PRC government stillowns a significant portion of the productive assets in China, economic reform policies since the late 1970s have emphasized decentralization, autonomousenterprises and the utilization of market mechanisms. We cannot predict the future effects of the economic reform and macroeconomic measures adopted bythe PRC government on our business or results of operations. Furthermore, the PRC government began to focus more attention on social issues in recent yearsand has promulgated or may promulgate additional laws or regulations in this area, which could affect our business in China. While the Chinese economy has grown significantly over the past 30 years, the growth has been uneven geographically among various sectors of theeconomy, and during different periods. The Chinese economy may not continue to grow, and if there is growth, such growth may not be steady and uniform;if there is a slowdown, such a slowdown may have a negative effect on our business. The Chinese economy experienced high inflation in 2010 and 2011, andto curb the accelerating inflation the PBOC, China’s central bank, raised benchmark interest rates three times in 2011. The level of exports from the PRC alsodeclined significantly recently. According to the National Bureau of Statistics of China, the growth rate of China’s gross domestic product, compared to thatof the same period in the previous year, slowed from 7.4% in 2014, to 6.9% in 2015, to 6.7% in 2016, to 6.9% in 2017 and to 6.6% in 2018. Variousmacroeconomic measures and monetary policies adopted by the PRC government to guide economic growth and manage inflation and the allocation ofresources may not be effective in sustaining the growth rate of the Chinese economy. In addition, such measures, even if they benefit the overall Chineseeconomy in the long run, may have an adverse effect on us if they reduce the amount of money that our existing or future advertisers devote to onlineadvertising. The PRC legal system embodies uncertainties that could limit the legal protections available to us and you, or could lead to penalties on us. The PRC legal system is a civil law system based on written statutes and regulations. Unlike common law systems, it is a system in which decidedlegal cases have little precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governingeconomic matters in general. Our PRC operating subsidiaries Sogou Technology and Sogou Network are WFOEs that are incorporated in China and whollyowned by our indirect offshore subsidiaries. As WFOEs, Sogou Technology and Sogou Network are subject to laws and regulations applicable to foreigninvestment in China. All of our subsidiaries and VIEs incorporated in China are also subject to all other applicable PRC laws and regulations. Because of therelatively short period for enacting such a comprehensive legal system, it is possible that the laws, regulations and legal requirements are relatively recent,and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to us and other foreigninvestors, including you. Such uncertainties may also make it easier for others to infringe our intellectual property without significant cost, and new entrantsto the market may tend to use gray areas to compete with us. In addition, uncertainties in the PRC legal system may lead to penalties imposed on us becauseof a difference in interpretation of the applicable laws between the relevant PRC governmental authorities and us. For example, under current tax laws andregulations, we are responsible for paying value-added tax. However, since there is no clear guidance as to the applicability of certain areas of preferential taxtreatment, we may be found to be in violation of the tax laws and regulations based on the interpretation of competent PRC tax authorities with regard to thescope of taxable services and the applicable tax rates, and therefore might be subject to penalties, including monetary penalties. In addition, we cannotpredict the effect of future developments in the PRC legal system, particularly with regard to the Internet, including the promulgation of new laws, changes toexisting laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may adversely affect our business and resultsof operations. The Standing Committee of the National People’s Congress enacted the Labor Contract Law in 2008, and amended it on December 28, 2012. TheLabor Contract Law introduced specific provisions related to fixed-term employment contracts, part-time employment, probationary periods, consultationwith labor unions and employee assemblies, employment without a written contract, dismissal of employees, severance, and collective bargaining to enhanceprevious PRC labor laws. Under the Labor Contract Law, an employer is obligated to sign an unlimited-term labor contract with any employee who hasworked for the employer for ten consecutive years. Further, if an employee requests or agrees to renew a fixed-term labor contract that has already beenentered into twice consecutively, the resulting contract, with certain exceptions, must have an unlimited term, subject to certain exceptions. With certainexceptions, an employer must pay severance to an employee where a labor contract is terminated or expires. In addition, PRC governmental authorities havecontinued to introduce various new labor-related regulations since the effectiveness of the Labor Contract Law. Under the PRC Social Insurance Law and the Administrative Measures on Housing Fund, employees are required to participate in pension insurance,work-related injury insurance, medical insurance, unemployment insurance, maternity insurance, and housing funds and employers are required, togetherwith their employees or separately, to pay the social insurance premiums and housing funds for their employees. If we fail to make adequate social insuranceand housing fund contributions, we may be subject to fines and legal sanctions, and our business, financial condition and results of operations may beadversely affected. 16Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents These laws designed to enhance labor protection tend to increase our labor costs. In addition, as the interpretation and implementation of theseregulations are still evolving, our employment practices may not be at all times be deemed in compliance with the regulations. As a result, we could besubject to penalties or incur significant liabilities in connection with labor disputes or investigations. If we are found to be in violation of current or future PRC laws and regulations regarding Internet-related services and telecom-related activities, wecould be subject to penalties or restrictions on our business activities. The PRC has enacted laws and regulations that apply to Internet-related services and telecom-related activities. While many aspects of theseregulations remain unclear, they purport to require licenses on various aspects of the provision of Internet information and content, such as online video andmusic, online games, online publishing, and newsfeed services. Although we do not directly provide video and music content, our video and music link-aggregation services may be considered to be the provisionof Internet audio-visual programs, which would require us to obtain an Internet audio-visual program transmission license. None of our VIEs currently holdssuch a license. In addition, current PRC laws and regulations require an applicant for an Internet audio-visual program transmission license to be a whollystate-owned or state-controlled entity unless the applicant had been operating a business involving transmission of Internet audio-visual programs prior toDecember 20, 2007. None of our VIEs currently is an eligible applicant for such a license, as none of them was operating Internet audio-visual services priorto December 20, 2007. If our video and music link-aggregation services were found to violate the applicable laws and regulations, we could be subject tofines, forced to remove all of the audio-visual links from our platform, and subject to a penalty equal to one to two times our total investment in the affectedbusiness. As of the date of this annual report, we are in the process of negotiating to acquire an entity that holds a valid Internet audio-visual programtransmission license. Such negotiation is at a preliminary stage, and there is no assurance that we will be able to reach a deal on commercially reasonableterms in a timely manner, or at all. Current PRC laws and regulations require us to obtain an Internet publishing license for our online literature services and Sogou Ask. An Internetpublishing license may also be required for our image search services and the distribution of online games through our Sogou Game Center, as these servicesmay be considered to be “online publication services,” which require an Internet publishing license under current PRC laws and regulations. None of ourVIEs currently holds such a license. In addition, none of our VIEs currently holds an online news service license, which is required for our news search andnewsfeed services. Operating without an Internet publishing license and an online news service license may subject us to various administrative sanctions,including fines and suspension of our relevant services. We are in the process of preparing an application for an Internet publishing license as of the date ofthis annual report. While PRC laws and regulations require relevant governmental authorities to decide on an application for the Internet publishing licensewithin 60 days after receiving a completed application, and we believe that we meet the qualifications for obtaining such a license, the approval process maytake longer in practice, and we may not be able to receive approval for the license in a timely manner, or at all. As of the date of this annual report, we are alsoin the process of preparing applications for an online news search license. However, it appears that the competent governmental authority may not currentlybe accepting new applications for online news search licenses, except applications for the renewal of licenses previously obtained. We plan to submit anapplication for an online news search license as soon as it becomes clear that the competent governmental authority is accepting new applications. However,uncertainties remain as to when the relevant governmental authority will begin to accept new applications for online news search licenses and, even after wehave submitted an application if and when the governmental authority begins to accept applications, there is no assurance that we will be granted the licensein a timely manner, or at all. Although we are committed to complying with the above-described PRC laws and regulations applicable to Internet-related service and telecom-related activities, we cannot guarantee that we are now or will in the future be in full compliance with any such laws and regulations that apply to our servicesand activities. In the past, PRC governmental authorities have imposed warnings and fines on us for conducting business without the aforementionedlicenses. We cannot guarantee that PRC governmental authorities will not impose similar or greater penalties on us in the future, which may includewarnings, fines, mandates to remedy any violations, and/or cease providing all services and activities for which the licenses are required. The PRCgovernment may also promulgate new laws and regulations that require additional licenses, permits and/or approvals for the operation of any of our existingand/or future businesses. If we are unable to obtain such licenses, permits, and/or approvals in a timely fashion, we could be subject to further penalties andoperational disruption and our financial condition and results of operations could be adversely affected. PRC laws, rules, and regulations governing the online microcredit industry are developing and evolving rapidly. Although we are implementingmeasures to comply with applicable PRC laws and regulations governing our pilot online lending and microcredit program, PRC governmental authoritiesmay promulgate new rules and regulations regulating the online microcredit industry. Moreover, developments in the online microcredit industry may leadto changes in PRC laws, rules, and regulations or in the interpretation and application of existing laws, rules, and regulations that may limit or restrict theonline microcredit industry. Therefore, it is possible that our practices would be deemed by PRC governmental authorities or PRC courts to violate existingor any future PRC laws, rules, and regulations. Failure to comply with such laws, rules, and regulations could result in our being subject to, among otherthings, regulatory warnings, fines, or criminal penalties, and we could also be prohibited from conducting an online microcredit business in the future. 17Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The approval of the China Securities Regulatory Commission, or the CSRC, may have been required in connection with our corporate structure andour initial public offering, and the failure to obtain any required approval could have an adverse effect on our business and results of operations and thetrading price of our ADSs. In 2006, six PRC regulatory agencies, including the MOFCOM and the CSRC, jointly adopted the Rules on Mergers and Acquisitions of DomesticEnterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and were amended on June 22, 2009. See “PRCRegulation—Regulation of M&A and Overseas Listings.” Under the M&A Rules, the prior approval of the CSRC is required for the overseas listing ofoffshore special purpose vehicles that are directly or indirectly controlled by PRC companies or individuals and used for the purpose of listing PRC onshoreinterests on an overseas stock exchange. The application of the M&A Rules remains unclear. Currently, there is no consensus among the leading PRC lawfirms regarding the scope and applicability of the CSRC approval requirement. Our PRC legal counsel, Commerce & Finance Law Offices, has advised us thatbased on its understanding of the current PRC laws, rules and regulations and the M&A Rules, prior approval from the CSRC was not required under theM&A Rules for the listing and trading of our ADSs because, among other reasons, (i) Sogou Technology and Sogou Network were incorporated as whollyforeign-owned enterprises by means of direct investment rather than by merger or acquisition of equity interest or assets of a PRC domestic company ownedby PRC companies or individuals as defined under the M&A Rules that are the beneficial owners of the Company; and (ii) no provision in the M&ARules clearly classifies contractual arrangements as a type of transaction subject to the M&A Rules. Although we did not apply for approval from the CSRCfor our initial public offering based on the advice of our PRC legal counsel, we and our PRC legal counsel cannot assure you that the relevant PRCgovernment agencies, including the MOFCOM and the CSRC, would not reach a different conclusion. Commerce & Finance Law Offices has further advised us that uncertainties still exist as to how the M&A Rules will be interpreted and implementedand its opinions summarized above are subject to any current or future laws, rules and regulations or detailed implementations and interpretations in any formrelating to the M&A Rules. If the CSRC or other PRC regulatory agency subsequently determines that we needed to obtain CSRC approval for our initialpublic offering, either by interpretation, clarification, or amendment of the M&A Rules or by any new rules, regulations, or directives promulgated after thedate of this annual report, we may face sanctions by the CSRC or other PRC regulatory agency. These sanctions may include fines and penalties on ouroperations in China, limitations on our operating privileges in China, delays or restrictions on the repatriation of the proceeds from our initial public offeringinto the PRC, restrictions on or prohibition of the payment or remittance of dividends by our China-based subsidiaries, or other actions that could have anadverse effect on our business and results of operations, as well as the trading price of our ADSs. We cannot predict when the CSRC will promulgateadditional rules or other guidance. Moreover, additional rules or guidance, to the extent issued, may fail to resolve ambiguities under the M&A Rules.Uncertainties or negative publicity regarding the M&A Rules also could have an adverse effect on the trading price of our ADSs. PRC laws and regulations mandate complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it moredifficult for us to make acquisitions in China. PRC laws and regulations, such as the M&A Rules, and other relevant rules, established additional procedures and requirements that are expected tomake merger and acquisition activities in China by foreign investors more time-consuming and complex, including requirements in some instances that theMOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that theapproval from the MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquireaffiliated domestic companies. PRC laws and regulations also require certain merger and acquisition transactions to be subject to a merger control securityreview. In August 2011, the MOFCOM promulgated the Rules on Implementation of Security Review System, or MOFCOM Security Review Rules, effectivefrom September 1, 2011, further provide that, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subjectto a security review by the MOFCOM, the principle of substance over form should be applied and foreign investors are prohibited from bypassing thesecurity review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangementsof offshore transaction. Factors that the MOFCOM considers in its review are whether (i) an important industry is involved, (ii) such transaction involvesfactors that have had or may have an impact on national economic security and (iii) such transaction will lead to a change in control of a domestic enterprisethat holds a well-known PRC trademark or a time-honored PRC brand. If a business of any target company that we plan to acquire falls into the ambit ofsecurity review, we may not be able to successfully acquire such company. Complying with the requirements of the relevant regulations to complete any suchtransaction could be time-consuming, and any required approval process, including approval from the MOFCOM, may delay or inhibit our ability tocomplete such transactions, which could affect our ability to expand our business. We entered into a series of transactions with Tencent in 2013 that resulted in Tencent being our largest shareholder and a Tencent group entity alsoholding a 45% interest in Sogou Information. If Tencent’s investment in us ended due to competitive or regulatory reasons, our collaboration with Tencentmay also be adversely affected. The PRC government may prevent us from distributing, and we may be subject to liability for, content that it believes is inappropriate. The PRC has enacted regulations governing Internet access and the distribution of news and other information. In the past, the PRC government hasstopped the distribution of information over the Internet that it believes to violate PRC laws, including content that is obscene, incites violence, endangersnational security, is contrary to the national interest or is defamatory. In addition, we may not publish certain news items, such as news relating to nationalsecurity, without permission from the PRC government. Furthermore, the Ministry of Public Security has the authority to make any local Internet serviceprovider block any Website maintained outside the PRC at its sole discretion. Even if we comply with PRC governmental regulations relating to licensingand foreign investment prohibitions, if the PRC government were to take any action to limit or prohibit the distribution of information through our networkor to limit or regulate any current or future content or services available to users on our network, our business would be harmed. 18Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We are also subject to potential liabilities for content delivered through our services that is deemed inappropriate and for any unlawful actions ofusers of our products and services under regulations promulgated by the MIIT, such potential liabilities including the imposition of fines or even the shuttingdown of the Internet platforms. Furthermore, we are required to delete content that clearly violates PRC laws and report content that may violate PRC laws. We may have difficultydetermining the type of content that may result in liability for us and, if we are wrong, we may be prevented from operating our Internet platforms. Dividends we receive from our operating subsidiaries located in the PRC are subject to PRC profit appropriation and PRC withholding tax. PRC legal restrictions permit payment of dividends by our PRC subsidiaries only out of their accumulated profits, if any, determined in accordancewith PRC accounting standards and regulations. Under PRC law, our PRC subsidiaries are also required to set aside 10% of their after-tax profits each year tofund certain reserve funds until these reserves equal 50% of the amount of registered capital. These reserves are not distributable as cash dividends. Furthermore, the PRC Corporate Income Tax Law, or the CIT Law, provides that a withholding tax at a rate of up to 10% may be applicable todividends payable to non-PRC investors that are “non-resident enterprises,” to the extent that such dividends are derived from sources within the PRC. Underthe Arrangement Between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of FiscalEvasion with Respect to Taxes on Income (the “China-HK Tax Arrangement”), which became effective on January 1, 2007, the dividend withholding tax ratemay be reduced to 5% if a Hong Kong resident enterprise is considered a non-PRC resident enterprise and holds at least 25% of the equity interests in thePRC enterprise distributing the dividends, subject to approval of the competent PRC tax authorities. However, if the Hong Kong resident enterprise is notconsidered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividends may remain subject to withholding tax at arate of 10%. In addition, on February 20, 2009, the State Administration of Taxation (the “SAT”) issued the Circular on Issues in Tax Treaties RegardingDistribution of Dividends, which stipulates that a company that is established primarily for purposes of tax evasion will not be regarded as a beneficial ownerand will not qualify for treaty benefits such as preferential dividend withholding tax rates. The SAT issued an Announcement on Issues in Tax TreatiesRelating to “Beneficial Owner” (“SAT Announcement 9”), effective April 1, 2018, which provides guidance on determining whether an enterprise is a“beneficial owner” of dividends under China’s tax treaties and tax arrangements. SAT Announcement 9 provides that, in order to be a beneficial owner, anentity generally must be a direct owner of, and have the right to control, the income of the enterprise that is paying the dividends or must be a direct owner of,and have the right to control, the tangible or intangible assets generating such income, and also specifies that a company that is not organized for the purposeof engaging in substantive business activities may not be regarded as a beneficial owner. If any of our Hong Kong subsidiaries is, in the light of SATAnnouncement 9, determined by the SAT to not be a beneficial owner for purposes of the China-HK Tax Arrangement, any dividends paid to it by any of ourPRC subsidiaries would not qualify for the preferential dividend withholding tax rate of 5%, but rather would be subject to the regular withholding tax rate of10% under the CIT Law. Our offshore entities may need to rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash requirements thoseoffshore entities may have. Our offshore entities may not be able to obtain cash from distributions because our subsidiaries and VIEs in China aresubject to restrictions imposed by PRC law on paying such dividends and making other payments. Sogou Inc. is a holding company with no operating assets other than investments in Chinese operating entities through our intermediate holdingcompanies, our subsidiaries in the PRC, and our VIEs. Our offshore entities may need to rely on dividends and other distributions on equity paid by our PRCsubsidiaries for their cash requirements in excess of any cash raised from investors and retained by us or our other offshore entities. The primary source of anydividend payments to our offshore entities would need to be our PRC subsidiaries. It is possible that our PRC subsidiaries will not continue to receivepayments in accordance with our VIE contracts with Sogou Information if such payments become subject to restrictions imposed by PRC laws. If oursubsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make otherdistributions to us through the intermediate companies. In addition, dividends paid out of the PRC are generally subject to a withholding tax of 10%. The PRC government also imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance ofcurrencies out of the PRC. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currencies. If weor any of our subsidiaries are unable to receive the revenues from our operations through these service agreements and other arrangements, we may be unableto effectively fund any cash requirements we may have. 19Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Regulation and censorship of information distribution in China may have an adverse effect on our business. China has enacted regulations governing Internet access and the distribution of news and other information. Furthermore, the PropagandaDepartment of the Chinese Communist Party takes the responsibility to censor news published in China to ensure, supervise, and control a particular politicalideology. In addition, the MIIT has published implementing regulations that subject online information providers to potential liability for content includedin websites and the actions of users of their systems, including liability for violation of PRC laws prohibiting the distribution of content deemed to besocially destabilizing. Furthermore, because many PRC laws, regulations, and legal requirements with regard to the Internet are relatively new and untested,their interpretation and enforcement may involve significant uncertainties. As a result, in many cases an Internet platform operator may have difficultydetermining the type of content that may subject it to liability. Periodically, the Ministry of Public Security has stopped the distribution over the Internet of information which it believes to be sociallydestabilizing. Meanwhile, the Ministry of Public Security also has the authority to require any local Internet service provider to block any Websitemaintained outside China at its sole discretion. If the PRC government were to take action or exercise its authority to limit or eliminate our provision ofaccess to information or to limit or regulate current or future applications available to our users, our business would be adversely affected. The State Secrecy Bureau, which is directly responsible for the protection of state secrets of all PRC government and Chinese Communist Partyorganizations, is authorized to block any Website it deems to be leaking state secrets or failing to meet the relevant regulations relating to the protection ofstate secrets in the distribution of online information. Under the applicable regulations, we may be held liable for any content transmitted by us. Furthermore,where the transmitted content clearly violates the PRC laws, we will be required to delete it. Moreover, if we consider transmitted content suspicious, we arerequired to report such content. We must also undergo computer security inspections, and if we fail to implement required safeguards against securitybreaches, we may be shut down. As the implementing rules of these new regulations have not been issued, we do not know how or when we will be expectedto comply, or how our business will be affected by the application of these regulations. We may be subject to the PRC government’s ongoing crackdown on Internet pornographic content. The PRC government has stringent prohibitions on online pornographic information and has launched several crackdowns on Internet pornographyrecently. On December 4, 2009, the MIIT and other three PRC governmental authorities jointly issued the Incentives Measures for Report of Pornographic,Obscene and Vulgar Messages on Internet and Mobile Media, or the Anti-Pornography Notice, to further crack down on online pornography. Pursuant to thisAnti-Pornography Notice, monetary rewards will be provided to Internet users who report websites that feature pornography. On April 13, 2014, the NationalWorking Group on Anti-Pornography and three other PRC governmental authorities jointly issued the Anti-Pornography Proclamation, under which Internetservice providers, including search companies such as us, must put in place software or other filters to prevent from appearing in search results, andimmediately remove texts, images, video, advertisements, and other information that contain pornographic content. The relevant PRC governmentalauthorities may order enterprises or individuals who flagrantly produce or disseminate pornographic content to stop conducting business, and may revokerelevant administrative permits. It is possible that our users may engage in obscene conversations or activities on our platform that may be deemed illegalunder PRC laws and regulations, and there is no assurance that content considered vulgar by PRC governmental authorities will not appear through oursearch services in the future. We may be subject to fines or other disciplinary actions, including in serious cases suspension or revocation of the licensesnecessary to operate our platform, if we are deemed under PRC laws and regulations to have facilitated the accessing of inappropriate content through on ourplatform. In addition, if we are alleged by the government of providing access to vulgar content, our reputation could be adversely affected. PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capitalor distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability and penalties under PRC laws. In July 2014, SAFE promulgated Circular 37, which replaced Circular 75, promulgated by SAFE in October 2005. Circular 37 requires PRCresidents, including PRC institutions and individuals, to register with the local SAFE office in connection with their direct establishment or indirect controlof an offshore entity, referred to in Circular 37 as a “special purpose vehicle,” for the purpose of holding domestic or offshore assets or interests. PRCresidents must also file amendments to their registrations in the event of any significant changes with respect to the special purpose vehicle, such as increaseor decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division, or other material event. In February 2015, SAFEpromulgated the Circular for Further Simplifying and Improving Policies of Foreign Exchange Administration Applicable to Direct Investment, whichprovides that effective June 2015 designated local banks are delegated authority under Circular 37 to review and process PRC residents’ applications fortheir initial foreign exchange registrations or amendments to their registrations in connection with their overseas direct investments. Under these regulations,PRC residents’ failure to comply with specified registration procedures may result in restrictions being imposed on the foreign exchange activities of therelevant PRC entities, including the payment of dividends and other distributions to its offshore parent, as well as restrictions on capital inflows from theoffshore entity to the PRC entities, including restrictions on the ability to contribute additional capital to the PRC entities. 20Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We have requested all of our current shareholders and/or beneficial owners to disclose whether they or their shareholders or beneficial owners fallwithin the scope of Circular 37 and other related rules, and requested such shareholders and beneficial owners, upon learning they are PRC residents, to makethe necessary applications, filings and amendments as required under Circular 37 and other related rules prior to our initial public offering. However, we maynot be informed of the identities of all the PRC residents holding indirect interest in our company, and we cannot provide any assurances that these PRCresidents will comply with our request to make or obtain any applicable registrations or comply with other requirements required by Circular 37 or relatedrules. Failure by any of our current or future shareholders or beneficial owners who are PRC residents to comply with the SAFE regulations may subject usto fines or other legal sanctions, or limit our ability to contribute additional capital to our PRC subsidiaries, or limit our PRC subsidiaries’ ability to makedistributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects. It is possible that some or all of ourshareholders who are PRC residents will not comply with all the requirements required by Circular 37 or related rules. Any future failure by any of ourshareholders who is a PRC resident, or controlled by a PRC resident, to comply with relevant requirements under these regulations could subject us to fines orlegal sanctions imposed by the PRC government, including restrictions on our subsidiaries’ ability to pay dividends or make distributions to us and ourability to increase our investment in these subsidiaries and restrict our cross-border investment activities, which could in turn limit our ability to distributedividends to holders of our ordinary shares and ADSs. PRC regulatory requirements with respect to transfers by offshore holding companies, such as us, to their PRC subsidiaries and VIEs and governmentalcontrol of currency conversion may limit or delay our ability to transfer the net proceeds of our initial public offering to our PRC subsidiaries andVIEs, which could have an adverse effect on our ability to fund and expand our business. As a holding company incorporated in the Cayman Islands, we will need to comply with applicable PRC laws and regulations in order to transfer thenet proceeds of our initial public offering to our PRC subsidiaries, Sogou Technology and Sogou Network, which are WFOEs under PRC law and are treatedas FIEs, or to our VIEs in the PRC. We may contribute some or all of the net proceeds of our initial public offering to our PRC subsidiaries, and convert thecontributed net proceeds into RMB. In order to make a capital contribution to either of our PRC subsidiaries, and convert the contributed amount from U.S.dollars into RMB, we will need to increase the PRC subsidiary’s registered capital by registering and/or filing the increase with the MOFCOM or one of itslocal branches, the SAFE or one of its local branches, or an authorized bank. If we transfer any of the proceeds of our initial public offering to one of our PRCsubsidiaries or VIEs through loans, under current PRC law we will also need to register such loans with the SAFE or one of its local branches, and the amountthat we may convert into RMB and loan to one of these entities will be limited by applicable SAFE regulations, in the case of a loan to one of our PRCsubsidiaries, to the greater of (i) the difference between the subsidiary’s approved total investment and the subsidiary’s total registered capital and (ii) twotimes the PRC subsidiary’s net assets and, in the case of one of our VIEs, to two times the VIE’s net assets. The need to comply with such requirements could prevent us from making timely transfers of the net proceeds of our initial public offering to ourPRC subsidiaries and, in the event we wish to make such transfers through loans to our PRC subsidiaries or VIEs, will limit the amounts of the net proceedsthat we may transfer, which could limit our ability to fund or expand our business in accordance with our intended use of the proceeds of our initial publicoffering. The amounts of total investment and registered capital of Sogou Technology as of December 31, 2018 were approximately US$100.0 million andUS$40.0 million, and two times its net assets was equal to US$676.6 million, meaning that the limit on the proceeds of our initial public offering that wewould be permitted to loan to Sogou Technology as of December 31, 2018 would be US$676.6 million. The amounts of total investment and registeredcapital of Sogou Network as of December 31, 2018 were both approximately US$0.8 million, and two times its net assets was equal to US$6.4 million,meaning that amount of the proceeds of our initial public offering that we would be permitted to loan to Sogou Network would be US$6.4 million. Two timesthe net assets of our four VIEs was equal to US$59.5 million (Sogou Information), US$22.2 million (Shi Ji Si Su), US$0.9 million (Chengdu Easypay), andnegative US$3.8 million (Shi Ji Guang Su), respectively, as of December 31, 2018, which represent the respective statutory limits on the amounts of loans wewould be permitted to make to them as of December 31, 2018. On March 30, 2015, SAFE promulgated the Circular on Reforming Management of the Settlement of Foreign Exchange Capital of Foreign-InvestedEnterprises, or Circular 19, which replaced previous regulations limiting a foreign-invested company’s use of its RMB-settled registered capital. AlthoughCircular 19 has lifted certain restrictions on the use by a foreign-invested enterprise of its RMB registered capital converted from foreign currencies, itcontinues to apply certain limits, including that such registered capital must be used only for purposes within the foreign-invested enterprise’s approvedbusiness scope, and provides that violations of the regulations can result in severe penalties, including large fines. These regulations may limit our ability totransfer the net proceeds of our initial public offering through contributions or loans to our PRC subsidiaries and VIEs to invest in or acquire other businessesor establish additional VIEs as it is unclear whether the SAFE would consider such uses to be within the respective scopes of business of our PRC subsidiariesand VIEs. 21Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We may be subject to fines and legal sanctions if we or our employees who are PRC citizens fail to comply with PRC regulations relating to employeeshare options. Under the Administration Measures on Individual Foreign Exchange Control issued by the PBOC and the related Implementation Rules issued theSAFE, all foreign exchange transactions by a PRC citizen involving an employee incentive plan of an overseas publicly-listed company may be conductedonly with the approval of the SAFE. Under the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating inStock Incentive Plan of Overseas Listed Company, or the Offshore Share Incentives Rules, issued by the SAFE on February 15, 2012, PRC citizens who aregranted share options, restricted share units or restricted shares by an overseas publicly-listed company under such employee share incentive plans arerequired to register with the SAFE or its local offices and comply with a series of other requirements. The Offshore Share Incentives Rules also specifyrequirements for registration of share incentive plans, the opening and use of special accounts for the purpose of participation in incentive plans, and theremittance of funds for exercising options and gains realized from such exercises and sales of such options or the underlying shares, both outside and insidethe PRC. We, and any of our PRC employees or members of our board of directors who have been granted share options or other share-based awards, aresubject to the Administration Measures on Individual Foreign Exchange Control, the related Implementation Rules, and the Offshore Share Incentives Rules.In addition, pursuant to Circular 37, a privately-held special purpose vehicle’s grant of equity incentives to a PRC citizen is subject to foreign exchangeregistration and, prior to making an investment in or receiving a grant of a share-based award in such an entity, a PRC citizen is required to apply with therelevant PRC governmental authorities for foreign exchange registration of the investment. Our PRC employees who have been granted share-based awardsor held shares have not made the required registrations. We have registered our 2017 Share Incentive Plan with the SAFE, and we are in in process of applyingfor such registration of our 2010 Share Incentive Plan. If our 2010 Share Incentive Plan is not accepted for registration by the SAFE, we may not be able togrant further share-based awards to our PRC employees, we and those who have received awards may be subject to fines and legal sanctions, and our abilityto contribute additional capital to our PRC subsidiaries and our PRC subsidiaries’ ability to distribute dividends to us may be limited. If the status of certain of our PRC subsidiaries and VIEs as “High and New Technology Enterprises,” “Key National Software Enterprises,” or“Software Enterprises” is revoked or expires, we may have to pay additional taxes or make up any previously unpaid taxes and may be subject to ahigher tax rate, which would adversely affect our results of operations. The CIT Law generally imposes a uniform income tax rate of 25% on all enterprises, but grants preferential treatment to “High and New TechnologyEnterprises,” or HNTEs, pursuant to which HNTEs are instead subject to an income tax rate of 15%, subject to a requirement that they re-apply for HNTEstatus every three years. During this three-year period, an HNTE must conduct a qualification self-review each year to ensure it meets the HNTE criteria, andwill be subject to the regular 25% income tax rate for any year in which it does not meet the criteria. The CIT Law and its implementing rules provide that a“Software Enterprise” is entitled to an income tax exemption for two years beginning with its first profitable year before December 31, 2017 and a 50%reduction to a rate of 12.5% for the subsequent three years. An entity that qualifies as a “Key National Software Enterprise,” or KNSE, is entitled to a furtherreduced preferential income tax rate of 10%. Enterprises wishing to enjoy the status of Software Enterprises or KNSEs must perform a self-assessment eachyear to ensure they meet the relevant criteria for qualification. If at any time during the preferential tax treatment years an enterprise uses the preferential CITrates but the relevant PRC governmental authorities determine that it failed to meet applicable criteria for qualification, PRC governmental authorities mayrevoke the enterprise’s Software Enterprise or KNSE status, as applicable. There are uncertainties regarding future interpretation and implementation of the CIT Law and its implementing regulations. It is possible that theHNTE, Software Enterprise, and KNSE qualifications of our operating entities currently qualified as such, or their entitlement to an income tax exemption orrefund of their value-added tax, or VAT, will be challenged by higher-level tax authorities and be repealed, or that there will be future implementingregulations that are inconsistent with current interpretation of the CIT Law. For example, in 2016 the SAT issued a circular with new criteria for certifying aSoftware Enterprise. Therefore, it is possible that the qualification of one or more of our PRC Subsidiaries or VIEs as a Software Enterprise will be challengedin the future or that such companies will not be able to take any further actions, such as re-application for Software Enterprise qualification, to enjoy suchpreferential tax treatment. If those operating entities cannot qualify for such preferential income tax status, our effective income tax rate will be increasedsignificantly and we may have to pay additional income taxes to make up the previously unpaid taxes, which would reduce our net income. We may be deemed a PRC resident enterprise under the CIT Law and be subject to PRC taxation on our worldwide income. The CIT Law provides that enterprises established outside of the PRC whose “de facto management bodies” are located within the PRC areconsidered “resident enterprises” and are generally subject to the uniform 25% enterprise income tax rate on their worldwide income (including dividendincome received from subsidiaries). Under the Implementing Regulations for the Corporate Income Tax Law, “de facto management body” is defined as abody that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances andtreasury, and acquisition and disposition of properties and other assets of an enterprise. Since substantially all of our operational management is currentlybased in the PRC, it is unclear whether PRC tax authorities would require us to be treated as a PRC-resident enterprise. If we are treated as a resident enterprisefor PRC tax purposes, we will be subject to PRC taxes on our worldwide income at the 25% uniform tax rate, which could have an impact on our effective taxrate and an adverse effect on our net income and the results of operations, even though dividends distributed from our PRC Subsidiaries to us could beexempted from Chinese dividend withholding tax under the CIT Law for PRC-resident recipients. 22Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Dividends paid by us to our foreign investors and profits on the sale of our shares or ADSs may be subject to tax under PRC tax laws. Under the Implementing Regulations for the Corporate Income Tax Law, PRC income tax at the rate of 10% is applicable to dividends paid toinvestors that are “non-resident enterprises,” without an establishment or place of business in the PRC, or which do have such establishment or place ofbusiness but the relevant income is not effectively connected with the establishment or place of business, to the extent that such dividends have their sourceswithin the PRC. In addition, any profits realized through the transfer of shares by such investors are subject to 10% PRC income tax if such profits areregarded as income derived from sources within the PRC. It is unclear whether dividends we pay with respect to our shares, or the profits you may realize fromthe transfer of our shares, would be treated as income derived from sources within the PRC and be subject to PRC taxes if we were treated as a PRC residententerprise under the CIT Law. Non-resident individual investors may be liable for PRC income tax at a rate of 20% on dividend payments or in respect ofprofits on transfer of ADSs if such amounts are deemed to arise from sources within the PRC. In the case of dividend payments, we would be required towithhold the tax at source. Any PRC tax liability may be reduced under applicable tax treaties. If we are required under the Implementing Regulations for theCorporate Income Tax Law to withhold PRC income tax on dividends paid to our non-PRC investors that are “non-resident enterprises,” or if you arerequired to pay PRC income tax on the transfer of our ADSs, the value of your investment in our ADSs may be adversely affected. Restrictions on currency exchange may limit our ability to use our revenues effectively. Substantially all of our revenues and operating expenses are denominated in RMB. The RMB is not freely tradable in “capital account” transactions,which include foreign direct investment. Foreign exchange transactions classified as capital account transactions are subject to limitations and requireapproval from the SAFE. This could affect our China-based subsidiaries’ ability to obtain foreign exchange through debt or equity financing, including bymeans of loans or capital contributions from us. Further, the RMB is at present freely convertible in “current account” transactions, which include dividends, and trade and service-related foreignexchange transactions, and our China-based subsidiaries may purchase and retain foreign exchange for settlement of such transactions, including payment ofdividends, without the approval of the SAFE. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase and retainforeign currencies in the future. Since a significant amount of our future revenues are likely to be in the form of RMB, these existing restrictions, and any future restrictions, oncurrency exchange may limit our ability to use revenues generated in RMB to fund our business activities outside of the PRC, or to make expendituresdenominated in foreign currencies. We may suffer currency exchange losses if the RMB depreciates relative to the U.S. dollar, which could reduce the value on an investment in our ADSs. Our reporting currency is the U.S. dollar. However, substantially all of our revenues are denominated in RMB. If the RMB depreciates relative to theU.S. dollar, our revenues and assets as expressed in our U.S. dollar financial statements will decline in value. In addition, to the extent that we need to convertU.S. dollars we receive from our initial public offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverseeffect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of payingdividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on theU.S. dollar amount available to us. Risks Related to Our Class A Ordinary Shares and ADSs We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands lawthan that under U.S. law, our shareholders may have less protection for their shareholder rights than they would under U.S. law. Our corporate affairs are governed by our Amended and Restated Memorandum of Association and Amended Restated Articles of Association andwe are governed by the Companies Law of the Cayman Islands, and the common law of the Cayman Islands. The rights of shareholders to take legal actionagainst our directors and us, actions by minority shareholders, and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a largeextent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicialprecedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. Therights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be understatutes or judicial precedent in some jurisdictions in the United States, such as the State of Delaware where many United States-based corporations areorganized. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and provides significantly lessprotection to investors. In addition, shareholders of Cayman Islands companies may not have standing to initiate a shareholder derivative action inU.S. federal courts. As a result, our public shareholders may have more difficulty in protecting their interests through actions against us, our management, ourdirectors, or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States such as Delaware. 23Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents It may be difficult to enforce any civil judgments against us or our Board of Directors or officers, because most of our operating and/or fixed assets arelocated outside the United States. Although we are incorporated in the Cayman Islands, most of our operating and fixed assets are located in the PRC. As a result, it may be difficult forinvestors to enforce judgments outside the United States obtained in actions brought against us in the United States, including actions predicated upon thecivil liability provisions of the federal securities laws of the United States or of the securities laws of any state of the United States. In addition, certain of ourdirectors and officers (principally based in the PRC) and all or a substantial portion of their assets are located outside the United States. As a result, it may notbe possible for investors to effect service of process within the United States upon those directors and officers, or to enforce against them or us judgmentsobtained in United States courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States or of thesecurities laws of any state of the United States. We have been advised by our PRC legal counsel that, in their opinion, there are substantial uncertainties as tothe enforceability in the PRC, in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated solely uponthe federal securities laws of the United States or the securities laws of any state of the United States. From time to time, press reports in the United States questioning the VIE structure used by us and various Chinese companies publicly traded in theUnited States may create concern among investors that may cause our ADS price to fluctuate. In recent years various prominent Western news outlets have questioned the use by Chinese companies that are publicly traded in the United Statesof VIE structure as a means of complying with PRC laws prohibiting or restricting foreign ownership of certain businesses in China, including businesses weare engaged in such as sponsored search, Internet information and content, online advertising, online game, and value-added telecommunication services.Some of such news reports have also sought to draw a connection between widely-reported accounting issues at certain Chinese companies and the use ofVIE structure. Such news reports appear to have had the effect of causing concern among investors in several Chinese companies that are publicly traded inthe United States. While we are not aware of any causal connection between the reported accounting scandals and the use of VIE structure, it is possible thatinvestors in our ADSs will believe that such a connection exists. Any of such circumstances could lead to further loss of investor confidence in Chinesecompanies such as ours and cause fluctuations in the market prices of our ADSs and, if such prices were to drop sharply, could subject us to shareholderlitigation, which could cause the price for our ADSs to drop further. Proceedings instituted by the Securities and Exchange Commission (the “SEC”) against PRC affiliates of the “big four” accounting firms, including ourindependent registered public accounting firm, could result in our financial statements being determined to not be in compliance with the requirementsof the Securities Exchange Act of 1934 (the “Exchange Act”). Starting in 2011, the PRC affiliates of the “big four” accounting firms, including our independent registered public accounting firm, were affected by aconflict between U.S. and PRC law. Specifically, for certain U.S.-listed companies operating and audited in mainland China, the SEC and the U.S. PublicCompany Accounting Oversight Board (the “PCAOB”) sought to obtain from the PRC big four affiliate firms access to their audit work papers and relateddocuments. The firms were, however, advised and directed that under PRC law they could not respond directly to the U.S. regulators on those requests, andthat requests by foreign regulators for access to such papers in China had to be channeled through the CSRC. On December 7, 2018, the SEC and the PCAOBissued a joint statement highlighting continued challenges faced by these U.S. regulators in their oversight of financial statement audits of U.S.-listedcompanies with significant operations in China. However, it remains unclear what further actions the SEC and PCAOB will take to address the problem. In late 2012, the impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and under the Sarbanes-Oxley Actof 2002 against the PRC big four affiliate accounting firms, including our independent registered public accounting firm. A first instance trial of theproceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposedpenalties on the firms, including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pendingreview by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioners had taken place, the firms reached a settlement with theSEC. Under the settlement, the SEC accepted that future requests by the SEC for the production of documents would normally be made to the CSRC. Thefirms were to receive matching requests, and were required to abide by a detailed set of procedures with respect to such requests, which in substance requiredthem to facilitate production via the CSRC. If they failed to meet specified criteria during a period of four years starting from the settlement date, the SECretained authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Under the terms of the settlement,the underlying proceeding against the four China-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement. Thefour-year mark occurred on February 6, 2019. However, we cannot predict if the SEC will further challenge the four China-based accounting firms’compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results of such a challenge would result in the SECimposing penalties such as suspensions. If additional remedial measures are imposed on the Chinese affiliates of the “big four” accounting firms, includingour independent registered public accounting firm, we could be unable to timely file future financial statements in compliance with the requirements of theExchange Act. In the event the Chinese affiliates of the “big four” become subject to additional legal challenges by the SEC or the PCAOB, depending upon the finaloutcome, listed companies in the United States with major PRC operations could find it difficult or impossible to retain auditors in respect of their operationsin China. If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable totimely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determinednot to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ADSs and Class AOrdinary Shares from the New York Stock Exchange or termination of the registration of our ADSs and Class A Ordinary Shares under the Exchange Act, orboth, which would substantially reduce or effectively terminate the trading of our ADSs in the United States. If we fail to maintain an effective system of internal control over financial reporting, we may lose investor confidence in the reliability of our financialstatements. We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002,adopted rules requiring every public company to include a management report on the company’s internal control over financial reporting in its annual report,which contains management’s assessment of the effectiveness of our internal control over financial reporting. In addition, an independent registered publicaccounting firm must attest to and report on the effectiveness of our internal control over financial reporting. 24Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents If we fail to maintain effective internal control over financial reporting in the future, our management and our independent registered publicaccounting firm may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. This could inturn result in loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of our ADSs. Furthermore, wehave incurred and anticipate that we will continue to incur considerable costs, management time and other resources in our efforts to comply withSection 404 and other requirements of the Sarbanes-Oxley Act. We are a “controlled company” within the meaning of the New York Stock Exchange Listed Company Manual and as a result we are entitled to, and do,rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies. We also have invokedone of the “home country practice” exceptions to the corporate governance requirements of the New York Stock Exchange Listed Company Manualthat are available to foreign private issuers such as us, and we may invoke additional such exceptions in the future. Sohu, through its ownership of Class B Ordinary Shares and the Voting Agreement with Tencent, will have the power to appoint a majority of ourboard of directors. As a result, we will be a “controlled company” under the New York Stock Exchange Listed Company Manual. We will rely on certainexemptions that are available to controlled companies from NYSE corporate governance requirements, including the following, which we do not intend tomeet voluntarily: · that we have a majority of independent directors on our board; · that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’spurpose and responsibilities; and · for an annual performance evaluation of the nominating/corporate governance committee and the compensation committee. We are not required to and will not voluntarily meet these requirements. If we are no longer a “controlled company,” we may in the future invoke“home country” exceptions available to foreign private issuers, such as us, under the New York Stock Exchange Listed Company Manual which are similar tothe exemptions for controlled companies, and also include the possibility of additional exceptions from the New York Stock Exchange Listed CompanyManual, such as the requirement that equity-compensation plans be approved by shareholders. As a result of our use of the “controlled company”exemptions, and any future use by us of the “home country” exceptions, holders of our ADSs will not have the same protection afforded to shareholders ofcompanies that are subject to all of NYSE corporate governance requirements. Sohu, through its ownership of Class B Ordinary Shares and a voting agreement with Tencent, has the power to appoint a majority of our board ofdirectors and Sohu and Tencent together have the voting power to control the outcome of shareholder actions in our company. Our ordinary shares are divided into Class A Ordinary Shares and Class B Ordinary Shares. Holders of Class A Ordinary Shares are entitled to onevote per share, while holders of Class B Ordinary Shares are entitled to 10 votes per share. Sohu, through its ownership of Class B Ordinary Shares and avoting agreement with Tencent, has the power to appoint a majority of our board of directors. Sohu and Tencent together have indirect shareholdings totalingapproximately 71.2% of the total of our outstanding Class A and Class B Ordinary Shares and totaling approximately 96.1% of the total voting power of thecombined total of our outstanding Class A and Class B ordinary shares, due to the additional voting power of the Class B Ordinary Shares. Sohu’s andTencent’s combined voting power give them the power to control actions that require shareholder approval under Cayman Islands law, our Amended andRestated Memorandum of Association and Amended and Restated Articles of Association, and the New York Stock Exchange Listed Company Manual,including significant mergers and acquisitions and other business combinations, changes to our Amended and Restated Memorandum of Association andAmended and Restated Articles of Association, the number of shares available for issuance under share incentive plans, and the issuance of significantamounts of our ordinary shares in private placements. Due to the disparate voting powers attached to the two classes of our ordinary shares, Sohu and Tencent will continue to have this power even if, atsome point in the future, they hold considerably less than a majority of the combined total of our outstanding Class A and Class B ordinary shares. Sohu’s and Tencent’s voting control may cause transactions to occur that might not be beneficial to the holders of our ADSs, and may preventtransactions that would be beneficial to them. For example, Sohu’s and Tencent’s voting control may prevent a transaction involving a change of control ofus, including transactions in which a holder of our ADSs might otherwise receive a premium for such securities over the then-current market price. Inaddition, Sohu and Tencent are not prohibited from selling their interests in us to a third party. Subject to certain limitations, if Sohu or Tencent is acquiredor otherwise undergoes a change of control, or sells a controlling interest in us, any acquirer or successor will be entitled to exercise the voting control andcontractual rights of Sohu or Tencent, as applicable, and may do so in a manner that could vary significantly from that of Sohu or Tencent. 25Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We may have conflicts of interest with Sohu and Tencent, and such conflicts may not be resolved in our favor. Conflicts of interest may arise between Sohu and Tencent, on the one hand, and us, on the other hand, in a number of areas relating to our past andongoing relationships. Potential conflicts of interest that we have identified include the following: · Employee recruiting and retention. Because Sohu, Tencent, and we operate primarily in China and the main focus of the businesses of each of usis Internet services, we may compete with Sohu and Tencent in the hiring of new employees, in particular with respect to technology research anddevelopment. We have non-solicitation arrangements with Sohu and Tencent that would restrict either Sohu or Tencent, on the one hand, or us, onthe other hand from hiring any of the other’s employees. · Our board members and executive officers may have conflicts of interest. Dr. Charles Zhang, who is our Chairman of the Board, is currently alsoserving as Sohu’s chairman and chief executive officer. By virtue of the high-vote Class B Ordinary Shares held by Sohu and Tencent and thevoting agreement between Sohu and Tencent, Sohu will have the power and right to appoint a majority of our Board of Directors and Tencent willhave the right to appoint two of the member of our Board of Directors. These relationships could create, or appear to create, conflicts of interestwhen these persons are faced with decisions with potentially different implications for Sohu or Tencent and us. · Sale of shares in our company. Although there are restrictions in the Voting Agreement among us, Sohu, and Tencent on transfers by Sohu orTencent to competitors of ours, if the Voting Agreement were to terminate, Sohu or Tencent would no longer be subject to such transfer restrictionsand may decide to sell all or a portion of our shares that it holds to one of our competitors, thereby giving that third party substantial influenceover our business and our affairs. Such a sale could be contrary to the interests of certain of our shareholders, including our employees and holdersof our ADSs. · Allocation of business opportunities. Business opportunities may arise that both we and Sohu or Tencent find attractive, and which wouldcomplement our respective businesses. Sohu or Tencent may decide to take the opportunities itself, which would prevent us from taking advantageof the opportunity ourselves. · Developing business relationships with competitors of Sohu and Tencent. For so long as Sohu retains the power to appoint a majority of ourBoard of Directors and Sohu and Tencent voting together retain the power to decide all other matters put to a vote of our shareholders, we may belimited in our ability to do business with the competitors of either of them, such as other providers of various Internet services in China. This maylimit our ability to enter into business relationships that might be in our best interests and those of our shareholders other than Sohu or Tencent. Although we are a stand-alone entity separate from Sohu and Tencent, we expect to operate, for as long as Sohu has the right to appoint a majority ofour Board of Directors, as a part of the Sohu Group. Sohu may from time to time make strategic decisions that it believes are in the best interests of itsbusiness as a whole, including our company. These decisions may be different from the decisions that we would have made on our own. Sohu’s decisionswith respect to us or our business may be resolved in ways that favor Sohu and therefore Sohu’s own shareholders, which may not coincide with the interestsof shareholders other than Sohu. We may not be able to resolve any potential conflicts, and even if we do so, the resolution may be less favorable to us than ifwe were dealing with an unaffiliated shareholder. Even if both Sohu and we and Tencent seek to transact business on terms intended to approximate thosethat could have been achieved among unaffiliated parties, this may not succeed in practice. The market price for our ADSs may fluctuate. The trading price of our ADSs has been and may continue to be subject to fluctuations. During the period from November 9, 2017, the first day oftrading of our ADSs on the New York Stock Exchange, until March 15, 2019, the trading price of our ADSs ranged from US$4.80 to US$15.50 per ADS, andthe closing sale price on March 15, 2019 was US$6.26 per ADS. Among the factors that could affect the price of our ADSs are the various risk factorsdescribed in this annual report and other factors, including: · announcements of competitive developments by our competitors; · regulatory developments in our target markets affecting us, our customers or our competitors; · actual or anticipated fluctuations in our operating results; · failure of our financial and operating results to meet market expectations or failure to meet our previously announced guidance; · changes in financial estimates by securities research analysts; · changes in the economic performance or market valuations of other Internet companies; 26Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents · additions or departures of our executive officers and other key personnel; · announcements regarding litigation involving us or any of our directors and officers; · fluctuations in the exchange rates between the U.S. dollar and the RMB; · release or expiration of transfer restrictions on our outstanding ordinary shares and ADSs; · sales of our ordinary shares or ADSs in the market by Sohu or Tencent; and · sales or perceived sales of additional shares or ADSs. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operatingperformance of particular industries or companies. Such market fluctuations may have an adverse effect on the market price of our ADSs. Our dual-class ordinary share structure could have an adverse effect on the market price of our ADSs Our dual-class ordinary share structure, and the consequent concentration of voting power in Sohu and Tencent as a result of their ownership of ourClass B Ordinary Shares, could adversely affect perceptions of us in the equity capital markets and could result in a lower market price for our ADSs. Forexample, apparently as a result of public criticism by commentators and shareholder advisory firms of companies with classes of shares with disparate votingrights, certain providers of indexes of publicly-traded equity shares, including FTSE Russell, S&P Dow Jones, and MSCI, have recently announced that theyhave either implemented, or are considering implementing, policies excluding companies with certain types of multiple-class voting structures from some oftheir published equity indexes. If our ADSs were to be excluded from such indexes, the market price of our ADSs could be adversely affected. Holders of our ADSs may be subject to limitations on transfer of their ADSs. While Our ADSs are transferable on the books of the depositary, the depositary may close its transfer books at any time or from time to time when itdeems it expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSsgenerally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of anyrequirement of law or of any government or governmental body, or under any provision of the Deposit Agreement, or for any other reason. Holders of ADSs have limited voting rights and may not receive voting materials in time to be able to exercise their right to vote. Except as described in this annual report and in the Deposit Agreement, holders of our ADSs will not be able to exercise voting rights attaching tothe shares represented by our ADSs on an individual basis. Holders of our ADSs may instruct the depositary how to exercise the voting rights attaching to theshares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote, however, and it is possible that direct holdersof ADSs, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a vote. In addition, due tothe different voting powers attached to the two classes of our ordinary shares and a voting agreement between Sohu and Tencent, Sohu, our controllingshareholder, has the right to appoint a majority of our Board of Directors, Tencent has the right to appoint two of our directors, and Sohu and Tencenttogether control all other matters put to a shareholder vote. As a result, as a holder of our ADSs you will have no ability to affect the outcome of any mattersubject to shareholder vote. ADS holders’ right to participate in any future rights offerings may be limited, which may cause dilution to their holdings and ADS holders may notreceive cash dividends if it is impractical to make them available to such holders. We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights availableto ADS holders in the United States unless we register the securities to which the rights relate under the Securities Act of 1933, or the Securities Act, or anexemption from registration requirements is available. Also, under the Deposit Agreement, the depositary bank will not make rights available to ADS holdersunless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registrationunder the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such aregistration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act.Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings. In addition, the depositary bank for our ADSs has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receiveson our ordinary shares or other deposited securities after deducting its fees and expenses. ADS holders will receive these distributions in proportion to thenumber of ordinary shares such holders’ ADSs represent. However, the depositary bank may, at its discretion, decide that it is inequitable or impractical tomake a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain propertythrough the mail, or that the value of certain distributions may be less than the cost of mailing them, or that the distribution requires certain governmentalapproval, such as requirement for registration or approval for currency conversion. In these cases, the depositary may decide not to distribute that propertyand ADSs holders will not receive that distribution. 27Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents You will experience dilution as outstanding share options are exercised. You will experience dilution to the extent that additional Class A Ordinary Shares are issued upon settlement of outstanding share options or othershare-based awards that we may grant from time to time. As of March 15, 2019, there were options outstanding exercisable for the purchase of an aggregate of3,849,031 Class A Ordinary Shares. We may need additional capital and may sell additional ADSs or other equity securities or incur indebtedness, which could result in additional dilutionto our shareholders or increase our debt service obligations. We may require additional cash resources due to changed business conditions or other future developments, including any investments oracquisitions we may decide to pursue. If our cash resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debtsecurities or obtain a credit facility. The sale of additional equity securities or equity-linked debt securities could result in additional dilution to ourshareholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that wouldrestrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Substantial future sales of our ADSs or ordinary shares in the public market, or the perception that these sales could occur, could cause the price of ourADSs to decline. Additional sales of our ADSs or Class A ordinary shares in the public market, or the perception that these sales could occur, could cause the marketprice of our ADSs to decline. As of December 31, 2018 there were 118,400,500 Class A ordinary shares and 278,757,875 Class B ordinary shares outstanding.The ordinary shares held by our officers and directors and certain shareholders are available for sale, subject to volume and other restrictions as applicableunder Rule 144 under the Securities Act. In addition, Sohu, Tencent, and Photon Group Limited, a British Virgin Islands company of which Dr. Charles Zhang, the Chairman of or Board ofDirectors may be deemed to be the beneficial owner, which held approximately 33.0%, 38.2%, and 6.2% of the combined total of our outstanding Class Aand Class B Ordinary Shares as of March 15, 2019, are parties to a registration rights agreement that gives them rights that, if exercised, will permit them tosell some or all of their shares freely in the open market without regard to the restrictions of Rule 144 under the Securities Act. As of March 15, 2019, therewere options outstanding exercisable for the purchase of an aggregate of 3,849,031 Class A Ordinary Shares. We also may grant or issue additional shareoptions, restricted share units, or other share-based awards in the future under our share incentive plan to our management, employees and other persons, thesettlement and sale of which may further dilute our shares and drive down the price of our ADSs. We may be a passive foreign investment company, which could result in adverse U.S. federal income tax consequence to U.S. Holders of our ADSs orClass A Ordinary Shares. If we are a passive foreign investment company, or PFIC, for any taxable year during which a U.S. holder, as defined under “Taxation—United StatesFederal Income Taxation—Passive Foreign Investment Company”, held an ADS or a Class A Ordinary Share, certain adverse United States federal income taxconsequences likely would apply to the U.S. holder. See “Taxation—United States Federal Income Taxation—Passive Foreign Investment Company.” We expect that we will not be treated as a PFIC for U.S. federal income tax purposes for our taxable year ended November 30, 2018. Our expectationis based on our current and anticipated operations and the composition of our earnings and assets for the 2018 taxable year, including the current andexpected valuation of our assets based on the price of our ADSs in the market. However, we currently hold, and expect to continue to hold following the dateof this annual report, a substantial amount of cash, and the value of our other assets for this purpose may be based in part on the market price of our ADSs,which is likely to fluctuate in the future (and may fluctuate considerably given that market prices of Internet companies historically have been especiallyvolatile). Furthermore, it is not entirely clear how the contractual arrangements between us and our consolidated VIEs will be treated for purposes of the PFICrules. In addition, our PFIC status for any taxable year cannot be determined until the close of such taxable year. Accordingly, there is no guarantee that wewill not be a PFIC for any taxable year. U.S. holders and prospective holders of our ADSs or Class A Ordinary Shares are urged to consult their own tax advisors regarding the application ofthe PFIC rules to an investment in our ADSs or Class A Ordinary Shares. 28Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents ITEM 4. INFORMATION ON THE COMPANY History and Development of the Company Sogou Inc. was incorporated in the Cayman Islands in December 2005 by Sohu. Prior to February 2006, our search and search-related businesses were operated by various entities owned or controlled by Sohu. In February 2006,Sohu undertook a reorganization of its search and search-related businesses, whereby most of the business was transferred to us. As part of the reorganization,Sohu established Sogou BVI, Sogou Technology, and Sogou HK. In October 2010, Sohu undertook another reorganization in preparation for our issuance of Pre-IPO Series A Preferred Shares in a financingtransaction, and transferred other businesses and employees related to the search and search-related businesses to us. We then issued and sold 24,000,000,14,400,000, and 38,400,000 Pre-IPO Series A Preferred Shares to Alibaba, China Web, and Photon. In June 2012, Sohu repurchased the 24,000,000 Pre-IPOSeries A Preferred Shares held by Alibaba. In September 2013, Tencent invested an amount of US$448.0 million in cash in us and transferred its Soso search-related businesses and certainother assets to us, in exchange for which we issued 65,431,579 Pre-IPO Series B Preferred Shares and 79,368,421 Pre-IPO Class B Ordinary Shares to Tencent. In connection with Tencent’s investment, we also entered into (i) a repurchase option agreement with Sohu, exercisable commencing on March 16,2014, granting us the right to repurchase 24,000,000 Pre-IPO Series A Preferred Shares held by Sohu for an aggregate purchase price of US$78.8 million; (ii) arepurchase option agreement with Photon, also exercisable commencing on March 16, 2014, granting us the right to repurchase 6,400,000 Pre-IPO Series APreferred Shares held by Photon for an aggregate purchase price of US$21.0 million; and (iii) a repurchase/put option agreement with China Web, granting usthe right to repurchase at any time from March 16, 2014 to July 31, 2014, and granting China Web the right to put to us at any time prior to July 31, 2014,14,400,000 Pre-IPO Series A Preferred Shares held by China Web for an aggregate purchase price of US$47.3 million. Also in connection with Tencent’s investment, Sohu, Photon, our Chief Executive Officer Xiaochuan Wang, certain other members of ourmanagement, and Tencent entered into a shareholders’ agreement, which terminated upon the completion of our initial public offering. Sohu, Photon,Xiaochuan Wang, certain other members of our management, and we also entered into a voting agreement in which Photon, Xiaochuan Wang, and the othermembers of our management agreed to vote their Pre-IPO Series A Preferred Shares and Pre-IPO Class A Ordinary Shares to appoint Sohu’s designees to ourBoard of Directors. This voting agreement remained in effect following the completion of our initial public offering as to the Class A Ordinary Shares thatwere issued to the parties upon redesignation of their Pre-IPO Series A Preferred Shares and Pre-IPO Class A Ordinary Shares, but does not cover Class AOrdinary Shares that were acquired by Xiaochuan Wang in the public market following the completion of our initial public offering. In September 2013, also in connection with Tencent’s investment, we paid a special dividend to the three holders of Pre-IPO Series A PreferredShares in the aggregate amount of US$300.9 million, of which Sohu received US$161.2 million, Photon received US$43.0 million, and China Web receivedUS$96.7 million. Also in connection with its investment in us, in December 2013, Tencent acquired a 45% equity interest in our VIE Sogou Information forUS$1.5 million, and Sohu also acquired a 45% equity interest in Sogou Information for US$1.5 million. In December 2013, Tencent purchased 6,757,875 Pre-IPO Class A Ordinary Shares from various shareholders, a majority of whom were ouremployees. In March 2014, we repurchased 14,400,000 Pre-IPO Series A Preferred Shares from China Web for an aggregate purchase price of US$47.3 millionpursuant to the repurchase/put option agreement we had entered into in September 2013 with China Web. During the year ended December 31, 2014, we repurchased 4,185,800 Pre-IPO Class A Ordinary Shares from various shareholders, a majority ofwhom were our employees, for an aggregate purchase price of US$41.9 million. In September 2015, we repurchased from Sohu and Photon, pursuant to the repurchase option agreements we had entered into in September 2013,24,000,000 and 6,400,000 Pre-IPO Series A Preferred Shares of Sogou, for aggregate purchase prices of US$78.8 million and US$21.0 million, respectively. In August 2017, in preparation for our initial public offering, Sohu, Tencent, and we entered into a voting agreement that provides for theredesignation of all of our authorized and outstanding equity shares outstanding immediately prior to the completion of our initial public offering into eitherClass A Ordinary Shares or Class B Ordinary Shares effective upon the completion of our initial public offering and also provides, among things, that,effective upon the completion of such offering, subject to certain conditions, for so long as Sohu and Tencent together hold a majority of the combinedvoting power of our Class A Ordinary Shares and Class B Ordinary Shares, Sohu will continue to have the right to appoint a majority of our Board ofDirectors. The Class A Ordinary Shares are entitled to one vote per share, and the Class B Ordinary Shares, which will be held solely by Sohu and Tencent, areentitled to 10 votes per share. As a result, Sohu and Tencent together have the power to decide all matters that are put to a vote of our shareholders. See“Related Party Transactions—Voting Agreement Between Sohu and Tencent.” 29Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We completed an initial public offering of our ADSs on November 13, 2017. Our ADSs are traded on the New York Stock Exchange under thesymbol “SOGO.” Our principal executive offices are located at Level 15, Sohu.com Internet Plaza, No. 1 Unit Zhongguancun East Road, Haidian District, Beijing100084, People’s Republic of China. Our telephone number at this address is +86 10-5689-9999. Our registered office in the Cayman Islands is located at theoffices of Vistra (Cayman) Limited at P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1-1205 Cayman Islands. Ouragent for service of process in the United States is CT Corporation System, 111 Eighth Avenue, New York, New York 10011. Business Overview Our mission is to make it easy to communicate and get information. We are an innovator in search and a leader in China’s Internet industry. Our Sogou Search is the second largest search engine in China by mobilequeries, according to CTR, and we are the fourth largest Internet company in China based on MAU in December 2018, according to iResearch. Ourdifferentiated search services, our industry-leading Sogou Input Method, the robust ecosystem we have built and shared with Tencent and other strategicpartners, and significant breakthroughs in AI uniquely position us to capture opportunities in China’s search and Internet industry. Sogou Search had an 18.5% market share in China based on mobile queries in December 2018, according to CTR. Meanwhile, our mobile searchMAU increased from 545 million in December 2017 to 695 million in December 2018. We focused on delivering more authoritative search results to ourusers with highly relevant results that more accurately respond to user queries. We also enhanced our healthcare search services and established a healthcarecontent ecosystem that has become an industry benchmark. With the ongoing integration of AI technology, Sogou Search continued to evolve into anintelligent question answering (“Q&A”) engine. In addition, we have built and share a robust ecosystem with Tencent and other strategic partners. We deliver differentiated content to our usersthrough services such as search access to the vast content from Tencent’s Weixin Official Accounts, China Literature, and Zhihu. We have continued toenhance our user acquisition channels by collaborating with our strategic partners and third parties. During 2018, we deepened our collaboration withTencent. We renewed our framework business collaboration arrangement with Tencent. As part of the arrangement, Sogou Search will remain the defaultsearch engine for a range of Tencent products that offer general search functions over the next five years. Sogou Search will also continue to be the searchpartner with Weixin/WeChat as the preferred search engine for third-party search services to access external Internet content within Weixin/WeChat for thenext year, and Tencent intends to extend this partnership over the next five years on an annual basis. Sogou Input Method is the largest Chinese language input software by both mobile and PC MAUs in December 2018, according to iResearch, and isthe first cloud-based Chinese language input software. Sogou Mobile Keyboard is the third largest mobile app in China in December 2018, according toiResearch, and is China’s largest and most popular voice app, based on our internal data. In December 2018, Sogou Mobile Keyboard had 426 million mobileDAUs, and processed up to 540 million daily voice requests. Sogou Input Method interfaces with virtually all applications that involve Chinese languageinput, generating massive and high-quality data that is critical to our big data capabilities. Sogou Input Method has the ability to anticipate users’ searchintentions in real-time and allows users to search directly with Sogou Search through its embedded search function, generating a significant portion of ourorganic search traffic. We are at the forefront of AI development with a clear roadmap. Focusing on natural interaction and knowledge computing, we have become aleader in language-centered AI capabilities, including speech, computer vision, machine translation, dialogue, and Q&A. We are applying our AI technologyto empower our search and mobile keyboard businesses in a range of user cases based on our own product portfolio. We are also exploring AI applications inmultiple sectors and in various commercial settings. Our proven AI capabilities have allowed us to launch additional AI-enabled smart hardware products andwill facilitate our launch of more disruptive products and services, such as virtual personal assistants (“VPAs”), to serve users anytime, anywhere. We have recorded substantial revenue growth, with an increase from US$660.4 million in 2016 to US$908.4 million in 2017 and US$1.124 billion in2018. We generate revenues primarily from search and search-related advertising services, which represented 91.0% of our total revenues in the year endedDecember 31, 2018. 30Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Our Business Products and Services for Users Our suite of products and services for users focuses on search and search-related services that cover a wide variety of use cases, from online search toinput methods. Through our products and services, we have built a massive, engaged, and fast-growing user base. Sogou Search We make information easily accessible for Chinese Internet users. Through Sogou Search, we enable our users to conveniently find relevant, high-quality, and comprehensive information anytime, anywhere. We offer users general and vertical search services through our website sogou.com and ourmobile search application. In addition, Sogou Search is the default general search engine for popular Internet portals such as qq.com and sohu.com, andpopular browsers such as the Mobile QQ Browser and Sogou Browser. Sogou Search was the second largest search engine in China with an 18.5 market shareby mobile queries in December 2018, according to CTR. General Search Our general search is the core product of our search services. After a user types in a query in the search box, our search engine quickly returns a list ofranked search results (appearing as hypertexts), snippets, and sometimes direct answers in response to the user query. In many cases, the search snippetsappearing underneath the hypertexts, or the direct answers appearing at the top of the search result page, provide users with the desired information. In othercases, users click on the hypertexts to visit the linked websites. Search Features To help users find the information they desire more quickly and conveniently, Sogou Search offers the following features: · Query Suggestion: As the user is typing in the search box, a drop-down list will appear under the search box, offering dynamic predictions andrecommendations of search queries based on the words that the user is typing. Users can select the desired search query from the drop-down list toavoid typing in additional characters. · Query Correction: Many search queries contain errors. Erroneous search queries often produce fewer and/or inaccurate or less relevant searchresults, thereby adversely affecting the user experience. Our query correction identifies and corrects apparent errors in search queries to help delivera high-quality search experience. · Rich Search Snippets: Rich search snippets displayed on search result pages present content from webpages in the form of structured data to helpusers better understand the content and find the desired information directly in the snippet. For example, when a user searches a restaurant, oursearch engine will return structured data such as the address of the restaurant and reviews. · Webpage Translation: Chinese language information accounts for only a small fraction of the information available on the Internet. Atremendous amount of high-quality information, such as academic publications, is in English. To allow Chinese users to read English webpages,Sogou Search applies our machine translation technology to translate the content of English-language webpages into Chinese with just one click. · Search Result Recommendations: Using big data analytics and sophisticated algorithms, we recommend relevant and interesting products andservices to users based on search queries and display the recommendations on search result pages. Key Mobile Search Features Given the growing use of mobile devices, we have developed additional features that are optimal for mobile search to enhance user experience, suchas: · Direct Answers: Within the limited screen space on mobile devices, we offer direct and easy-to-read answers and recommendations in response toqueries submitted by users in question form by leveraging our Q&A technology. 31Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents · Multi-modal inputs: In addition to inputting search queries by typing, users can input queries by voice and image. For example, users can uploadan image of an item to search for where to buy it. Such input options give users a convenient and interactive mobile search experience. · Audio response: In response to search queries submitted through voice input, we can provide answers through audio response. · Local services information: We have integrated a wide range of third-party vertical services, such as travel information from Ctrip, into ourgeneral search to build a comprehensive service system that fully and accurately meets users’ search needs in verticals such as entertainment,sports, and travel. · Newsfeeds: On the Sogou Search homepage, we display personalized newsfeeds containing up-to-the-minute information and content tailored tousers’ interests. Users can also subscribe to newsfeeds on certain topics to ensure that they receive real-time updates on such topics. Vertical Search Services We strive to offer differentiated content in our search products and services in order to improve our search results and provide an enhanced searchexperience for our users. Through collaborations with industry-leading content providers, we offer the following vertical search services: · Sogou Weixin Search: Weixin/WeChat is China’s largest mobile community. With over 20 million accounts covering a wide range of topics,Weixin Official Accounts have become a key information platform for Chinese users. Sogou Weixin Search is the sole general search engine withaccess to search all content published on Weixin Official Accounts. · Sogou Healthcare Search: A large number of online searches in China relate to healthcare. Sogou Healthcare Search provides reliable andtrustworthy healthcare information through collaboration with national healthcare authorities and third-party healthcare information platforms.Through these partnerships, we can provide users with comprehensive information on such important topics as diseases, symptoms, and hospitals.We have also integrated a vast amount of interactive Q&A content from reputable doctors into our healthcare search results. · Sogou English: Supported by the technology of Microsoft’s Bing, Sogou English is our cross-language search service that enables Chinese usersto discover English content on the Internet by querying in Chinese and reading content that we have translated into Chinese. · Sogou Zhihu: Zhihu is the leading online knowledge-sharing platform in China, according to iResearch. Through our collaboration with Zhihu,we provide users with up-to-date knowledge, experience, and insights shared within the Zhihu community. 32Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents · Sogou Encyclopedia: Sogou Encyclopedia is an Internet-based encyclopedia compiled by netizens, offering search, browsing, editing, and otherservices to help users obtain information. It integrates rich forms of content, such as texts, audio, images, and videos. · Sogou Ask: Sogou Ask is a platform open to the general public for Q&A. Users ask each other questions and help other users solve problems.Sogou Ask also connects users with professionals. · Sogou Image Search: Sogou Image Search allows users to search for images by entering text, and provides users with advanced searchcapabilities to filter search results of images by color, file formats, and file sizes. Users can also upload an image or enter an image URL to searchfor an image’s source or search for similar images on the Internet. Sogou Image Search can automatically recognize certain elements embedded inonline images and search for similar elements in its image library. · Sogou Shopping Search: Sogou Shopping Search collects product data from e-commerce platforms in China. Users can search for products byentering the product brand, category, or model and can view product specifications and price. Sogou Shopping Search also provides users withreal-time product comparisons based on price, sales volume, reviews, and shipping information to help users make better purchasing decisions. · Sogou Video Search: We collect the metadata of videos from multiple Chinese video platforms to allow users to search from a large collection ofonline videos by title, actor, or genre and to filter search results by length, upload date, or source. · Sogou News Search: Sogou News Search allows users to search for the most up-to-date news by aggregating news from various online newsportals. Sogou Search App As one of the key mobile channels to access Sogou search services, the Sogou Search App enables users to access our general and vertical searchservices. The Sogou Search App supports text, voice, and image search to enhance the user experience, and also offers newsfeeds and reading services that aretailored to personal interests. Sogou Input Method The Chinese language is a logographic language, while traditional keyboards are designed for alphabetic languages. Due to the complexities ofinputting Chinese characters using alphabetic keyboards, Chinese language input software allows users to input Chinese using alphabetical letters based onthe Chinese pronunciation and select the correct Chinese character from a list of Chinese characters with the same pronunciation. We launched Sogou Input Method, the first cloud-based Chinese language input software, in 2006. Sogou Input Method has become anindispensable Chinese language input software tool for PC and mobile users. According to iResearch, as of December 31, 2018, Sogou Input Method was thesecond most widely used PC software in China by DAU and the number one Chinese language input software for PC users in terms of MAU inDecember 2018, with 242 million PC MAU, and had achieved a penetration rate of 98% among PC Internet users in China. According to iResearch, as of December 31, 2018, Sogou Mobile Keyboard, the mobile application for Sogou Input Method, was the third mostwidely used mobile application in China by DAU, and the number one Chinese language input application for mobile users in terms of MAU, with558 million mobile MAU, and had achieved a penetration rate of over 66% among mobile users of third-party Chinese language input applications. Our coreAI technologies, including voice, translation and conversation, have driven product innovation for Sogou Mobile Keyboard by providing more intelligentuser interactions and expressions. Sogou Mobile Keyboard processed as many as up to 540 million voice inputs in the fourth quarter of 2018, handledmillions of translation requests per day, and provided many AI-enabled functions, such as SmartShare, which generates a diverse range of automatedpersonalized response options for user chats. The diagrams below illustrate how Sogou Mobile Keyboard has made Chinese language input easy and efficient for mobile users. 33Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents In addition, Sogou Mobile Keyboard possesses a large library of language data, with over 100 billion Chinese character inputs per day that our usershave generated across a wide variety of Internet use cases, such as social media, news, entertainment, shopping, travel, and financial services. We are able toleverage such massive data to more accurately and rapidly predict user intent, which enables us to continually enhance and innovate our products andservices. Other Products Sogou Browser Sogou Browser is designed to make web navigation fast and easy. We continually upgrade the browser to expand functionality from a browsing toolto a content distribution platform for an enriched user experience. In addition to a range of vertical services, we also provide personalized newsfeedsleveraging our big data capabilities based on users’ browsing habits and history. Sogou Web Directory Sogou Web Directory, a content aggregation and distribution platform, is a one-stop shop for navigation of the Chinese Web. The platform consistsof a variety of services, including news aggregation, video content aggregation, and shopping assistance. Sogou Maps Sogou Maps provides Internet-based map and navigation services related to traffic options, routing optimization, and positioning calculation acrossPCs, mobile devices, and smart wearables. Sogou Maps has been pre-installed on third-party mobile devices and smart wearables for the Chinese market,including Google’s Android Wear smartwatch. Sogou Maps also supports a variety of car-smartphone connectivity protocols that allow users to stayconnected to their smartphone apps while driving. Sogou Smart Driving Assistant is an application that provides full voice-enabled in-vehicle services, andhas been built into in-vehicle assistant systems for industry partners such as automakers and map service providers. Sogou Mobile Assistant Sogou Mobile Assistant provides users with access to a large selection of mobile applications and online mobile games, which are authenticated byus in order to ensure the safety of the content for users’ phones. Sogou Game Center The Sogou Game Center, our gaming platform, offers web and mobile games developed by third parties. 34Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Sogou Translation Sogou Translation incorporates neural machine translation technology and a massive linguistic database to deliver language translation. It is web-based and also available as a mobile application. In addition to written text translation, the Sogou Translation mobile application supports speech, opticalcharacter recognition (“OCR”), and augmented reality translation. Sogou Reading Sogou Reading provides users with access to online literature and is available on the web and as a mobile application. We have access to a wealth ofcopyrighted literary works through our collaboration with third-party online reading platforms, including China Literature, a leading online literatureplatform in China. Sogou Reading has also launched its own original literature platform, where users are provided with exclusive access to original literaryworks. Smart Hardware In 2018, we upgraded our smart hardware strategy to better leverage Sogou’s AI capabilities and improve product competitiveness. As a result of thechange in strategy, we phased out legacy hardware products that were not AI-enabled and transitioned to products that integrate Sogou’s leading AItechnologies. Smart Devices for Children In 2014, we launched Teemo Watch, our self-developed smartwatch for children that has become one of the leading domestic brands forsmartwatches, according to IDC. In 2018, we focused on the latest generation of the Teemo Watch, which integrates additional AI capabilities to enhanceproduct competitiveness. Smart Translation Devices In 2018, we launched the Sogou Travel Translator and the upgraded version, the Sogou Translator Pro. Our translation devices are best known forsuperior offline and OCR translation capabilities and translation of conversations to and from multiple different languages. Smart Voice Devices In 2018, we rolled out the Sogou Smart Translation Recorder, which supports the recording, transcription, translation and interpretation of both real-time and recorded conversations. The device enables users to record information in classes, meetings, and other similar occasions, and simultaneouslytranslates spoken content into the target language via Sogou’s translation software. Monetization We generate revenue primarily from our search and search-related advertising services. Search and search-related advertising services enableadvertisers’ promotional links to be displayed on our search result pages and other properties and third parties’ Internet properties where the links are relevantto search queries and such properties. Our large user base and big data capabilities allow us to enhance the effectiveness of our targeted advertising services,thereby strengthening our monetization capabilities. We also generate revenue from other business by offering Internet value-added services, or IVAS, primarily with respect to our operation of gamesdeveloped by third parties and provision of online reading services, as well as by offering other products and services, including smart hardware products. Online Advertising Search and Search-Related Advertising Products and Services Search and search-related advertising services consist primarily of auction-based pay-for-click services, for which we charge advertisers on a perclick basis when users click on the advertisers’ promotional links displayed on our and third parties’ Internet properties. Revenue generated from our auction-based pay-for-click services accounted for 77.6%, 83.0%, and 83.8%, respectively, of the total revenue derived from our search and search-related advertisingservices in 2016, 2017, and 2018. The following are the types of advertising products and services that we offer: · Rising Sun Advertising: A majority of our auction-based pay-for-click advertising services are managed through our Rising Sun system.Advertisers choose and bid on keywords and set other parameters or criteria for when they want their advertisements to be triggered. Advertisers’promotional links will be ranked and displayed on our search results page according to our system’s computation, which takes into account thekeywords, price, and other information that advertisers have entered into the Rising Sun system. 35Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We have widely applied deep learning and reinforcement learning technologies in all aspects of search advertising. By applying suchtechnologies, we can retrieve relevant ads from hundreds of millions of ads in real time to generate more traffic for advertisers while ensuring aquality user experience, select more appealing ads to improve click through rate, and automatically match advertising materials, combined withaccurate user profiling based on Sogou’s big data capabilities, to interpret user behaviors in real time and recommend tailored dynamic advertisingcontent. · Rising Sun One-Stop Advertising Platform: Our Rising Sun system is a one-stop advertising platform that provides pay-for-click advertisingmanagement and related supporting services for Sogou’s entire commercial product line. Advertisers can log onto the platform through a singleaccount and use the same account to pay for various advertising products, such as search and newsfeed advertisements. Clients can introducecontent such as images, text links, and telephone numbers onto the platform, which is then automatically consolidated into Sogou’s variousadvertising products, thus boosting client’s advertising efficiency and reducing their maintenance costs. · Advertising on Third-Party Internet Properties: We work with a large number of third-party websites and mobile application providers toprovide additional high-quality avenues for our advertisers to market themselves. Under this advertising service, we typically charge ouradvertisers when users click on the advertisers’ promotional links displayed on such third parties’ Internet properties. The price per click istypically auction based. We share a portion of the revenue with the applicable third parties. · Milky Way Advertising: Milky Way Advertising is an online marketing solution that we offer to advertisers of certain vertical sectors such asonline games, e-commerce, financial services, and education. This advertising service provides various advertisement formats, organized andcustomized according to the advertisers’ industries in order to enhance the effectiveness of their advertisements. Milky Way advertisementsusually appear in the center of our search result pages. We charge advertisers on an auction-based pay-for-click basis. · Web Directory Advertising: We also offer advertising space on Sogou Web Directory. We charge advertisers based on the duration of theplacement of their advertisements or on a per-click basis. · Brand Advertising: Our brand advertising services primarily consist of Special Brand Zone, where advertisements are displayed in a prominentdesignated space on our search result pages; Brand Start Line, where advertisements appear in Sogou Input Method and on our search result pages;and Brand Landmark, where advertisements appear on the right side of our search result pages on PCs. Advertisers pay for such services based onthe duration of the placement of their advertisements on our search result pages. Advertisers and Sales Network Our advertisers consist of small and medium-sized enterprises, or SMEs, in China; and large domestic Chinese companies and multinationalcompanies, or Key Accounts. Our advertisers are from a broad range of industries, including healthcare, online games, e-commerce, merchant services, andbusiness services. Most of our advertisers are represented by third-party advertising agencies. We generally require the agencies representing SMEs to pre-pay for ouradvertising services, but we offer them discounts to incentivize their marketing efforts. For agencies representing Key Accounts, we ask for pre-payment on acase-by-case basis and offer discounts depending on the industry practice, the account, and our marketing goals at the time. Other Monetization Models Games We operate third-party games on Sogou Game Center and Sogou Mobile Assistant. We generate revenue by charging players for virtual items thatthey purchase in such games, and share a portion of the revenue with the game developers. We also operate third-party web-based games on third-party onlinegame platforms. These platforms charge players directly for virtual items and share a portion of the revenue with us. Reading Under our agreements with third-party online reading platforms and writers that provide us with access to a wealth of copyrighted literary works,users pay us to read certain copyrighted literary works on Sogou Reading, and we share a percentage of that payment with the third-party platforms andwriters. 36Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Smart Hardware We generate revenue from sales of Sogou’s various smart devices. We have established a nationwide online and offline distribution network in Chinathat includes third-party e-commerce platforms and retail stores. Technology Search Technologies Our search technologies consist primarily of the following: · Large-scale system (cluster, storage, distributed computation, and index): With large-scale cluster management capabilities, our cluster reachesover 10,000 servers and supports massive petabyte-level distributed data storage, 100 terabytes of daily data increments, and hundreds ofthousands of computational analysis tasks. Leveraging our large-scale system, we can access, store, and index information on the Chinese Internetand serve hundreds of millions of page views per day. · Webpage crawling, page analysis, and link analysis: Our intelligent and efficient distributed crawling system can crawl and index the ChineseInternet. It also allows us to index new Internet content within a few minutes after it is generated, and update all indexes in a few weeks. Byadopting big data and AI technologies, our page quality analysis algorithm can identify junk and spam and other low-quality webpages. Inaddition, we can evaluate the authority of webpages using link analysis technology in order to enhance the authenticity of search results. · Open data platform: Through input from website developers and owners, our open data platform allows certain previously unsearchableinformation on the Web to be picked up by our search engine, thereby providing users with additional sources of information and generating morevaluable traffic for these websites. · Information extraction: Information extraction can accurately analyze the content, structures, and styles of webpages and then extract structuredand unstructured data from them, including text, links, images, and other multimedia material. Besides the static content, our informationextraction technology can also quickly and accurately access and analyze the dynamic content of webpages through large-scalewebpage rendering technology. · Natural language processing: Our natural language processing technology applies computational linguistics, machine learning, data mining,and other algorithms to process, analyze, and understand natural language text, especially in users’ search queries and webpage content. Ournatural language processing technology includes word segmentation, part-of-speech tagging, name entity recognition, entity linking, syntax andsemantic analysis, sentiment analysis, and text generation. In search scenarios, natural language processing can enhance the understanding of userqueries and webpages, such as query classification, webpage classification, topic modeling, and semantic matching, and consequently, improveuser satisfaction of search results. For Q&A, natural language processing helps us to understand user questions submitted in natural language andto extract concise answers from webpages. · Search ranking: We rank search results according to our evaluation of how relevant and useful they are to a user’s query. Many factors areconsidered, such as matches between queries and webpages and freshness. Machine learning algorithms are employed to integrate these factors toreturn a list of search results. Artificial Intelligence We are at the forefront of AI development with a clear roadmap for future developments. Our strong AI capabilities center around natural interactionand knowledge computing. They are integrated in our proprietary natural interaction interface Zhiyin OS and our knowledge computing platform DeepIntelligence Engine, both of which can be applied in home, in-vehicle, and work environments. The goal of our AI development and investment is to identifydifferent use cases and bring effortless and human-like solutions to users in those cases. Below are further details on our key AI technologies: Natural interaction Natural interaction refers to a series of technologies that include speech, computer vision, machine translation, and dialogue. · Speech technology: Speech is the core technology enabling voice-based human-machine interaction. We have advanced speech recognition andsynthesis technology. In the fourth quarter of 2018, we processed up to 540 million voice inputs through Sogou Mobile Keyboard per day. Wereceived first place in the Word Error Rate and Speech Pause subcategories at the Blizzard Challenge 2018, a prominent global competition forspeech synthesis. 37Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents · Computer vision: Image is the core technology enabling vision-based human-machine interaction. Through deep learning and massive datagenerated from our core products, we have developed capabilities in handwriting recognition, OCR, image search, and facial recognition. We set anew world record in the Object Detection subcategory at Pascal VOC 2018, a prominent global challenge for computer vision. Our facialrecognition technology also ranked first in the 2018 MegaFace Million-Scale Face Recognition Challenge. · Machine translation: We have developed advanced machine translation technology. We successfully applied deep neural network technology tooptimize and commercialize real-time machine translation technology, with the ability to simultaneously recognize voice inputs and enablemultilingual translation. We were the global champion for both Chinese-to-English and English-to-Chinese machine translation at the 2017Workshop on Machine Translation, an international academic competition. In addition, we ranked first in the Baseline Model task during theInternational Workshop on Spoken Language Translation (IWSLT), a top-tier international machine interpretation competition. · Dialogue system: Dialogue is the key to human-machine interaction. With natural language processing and dialogue modeling techniques, weenable machines to understand the intentions in users’ text, voice, and image inputs. We were the champion of the Spoken LanguageUnderstanding Challenge at the International Conference on National Language Processing and Chinese Computing in 2018. Knowledge computing Knowledge computing refers to a series of technologies that include the representation, storage, retrieval, and reasoning of knowledge. We havedeveloped question answering, or Q&A, technology to answer complex natural language questions from users. · Question answering: Our Q&A technology finds answers to questions posed in natural language. Instead of limiting their search queries tokeywords, users can search using natural language, and in response, get direct answers in addition to a list of Web links. Since Q&A technologyimproves the efficiency of user access to information, we believe Q&A is an increasingly prevalent form of search. In January 2019, we came in firstin the Conversational Question Answering (CoQA) Challenge and set new records for all evaluation metrics. Our Q&A technology has narrowedthe gap between the average reading comprehension level of a machine and a human. We believe that this shows that our algorithms have thepotential to drive the application of Q&A technology in search. Our Q&A technology has been incorporated in various smart hardware products, such as our AI robot Wangzai, which was the first robot to defeathuman competitors in the popular Chinese TV quiz show “Who’s Still Standing?” In 2018, we partnered with third parties, including Tencent,Huawei, and Samsung, to integrate our intelligent Q&A services into some of their products. Additionally, in April 2016, we made a donation to Tsinghua University and jointly established with them the Tiangong Research Institute forIntelligent Computing, which is dedicated to research and development in the field of AI. Big Data Capabilities Hundreds of millions of users of our products and services have generated a vast amount of data across a wide variety of use cases. Our big datacapabilities include: · Data integration and management: We research and develop a multi-level and highly-reliable data access system and data warehouse to addressthe technological challenges in data acquisition, data preprocessing, and distributed storage of massive heterogeneous data; and to address real-time streaming data access and processing, as well as data security management. · Data mining and analytics: We continue to build and strengthen our user profile label system from massive data mined from multiple platformsand multiple scenarios that allow such information to be effectively used under different application scenarios. Our user profile labels can be sortedand applied to targeted advertising and personalized content recommendations. · Data application and services: We continue to improve and innovate our existing products by leveraging our big data capabilities. We alsodevelop a variety of data analysis products for individuals and business customers, such as marketing analytics products for advertisers. Intellectual Property We regard our patents, copyrights, service marks, trademarks, trade secrets, and other intellectual properties as critical to our success. We rely onpatents, trademarks, and copyrights; trade secret protection; and non-competition, confidentiality, and license agreements with our employees, customers,partners, and others to protect our intellectual property rights. Before we launch any new products or services, we apply for registration of related patents,trademarks, and software copyrights. Despite our precautions, it may be possible for third parties to obtain and use our intellectual properties withoutauthorization. Furthermore, the validity, enforceability, and scope of protection of intellectual property rights in Internet-related industries are uncertain andstill evolving. The laws of the PRC do not protect intellectual properties to the same extent as do the laws of the United States. 38Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents As of December 31, 2018, we have been issued 992 patents in China and 40 patents in countries and regions outside of China covering inventions,utility models, and designs; we have 1223 patent applications currently pending in China and 109 patent applications currently pending in countries andregions outside of China; we have submitted 90 international patent applications through the procedures under the Patent Cooperation Treaty, or PCT; andwe intend to apply for more patents to protect our core technologies and intellectual properties. As of December 31, 2018, we have registered 536 trademarkswith the Trademark Office of the State Administration for Industry and Commerce in China, including our company’s name “Sogou,” Sogou logos,trademarks relating to our products such as Sogou Input Method, Sogou Map and Teemo, and their corresponding Chinese version marks; and we are in theprocess of applying for the registration of 490 other trademarks. In addition, as of December 31, 2018, we are in the process of applying for recognition ofcertain of our marks as famous Beijing trademarks. We also have registered trademarks in various countries and regions, such as Taiwan, Hong Kong, Macau,Germany, Myanmar, Saudi Arabia, India, and the United Kingdom, and we are in the process of applying for the registration of trademarks in the UnitedStates, Australia, the European Union, the United Arab Emirates, Macau, Pakistan, Germany, the African Regional Intellectual Property Organization, SouthKorea, Canada, Spain, Myanmar, South Africa, Nigeria, Japan, Saudi Arabia, India, Indonesia, the United Kingdom, and Vietnam. As of December 31, 2018,we have 53 trademarks registered outside of Mainland China and we are in the process of applying for registration of 122 trademarks. As of December 31,2018, we are the registered owner of 179 software copyrights in China, each of which we have registered with the State Copyright Bureau of China. As ofDecember 31, 2018, we own the rights to 156 domain names that we use in connection with the operation of our business, including our Sogou websitesogou.com. Many parties are actively developing search and AI technologies. We expect these parties to continue to take steps to protect these technologies,including seeking patent protection. There may be patents issued or pending that are held by others and cover significant parts of our technology, businessmethods, or services. We cannot be certain that our products do not or will not infringe valid patents, copyrights, and other intellectual property rights heldby third parties. We may be subject from time to time to legal proceedings and claims relating to the intellectual property of others in the ordinary course ofour business. See “—Legal Proceedings”; and “Risk Factors—Risks Related to Our Business—We are currently subject to, and in the future may from time totime face, intellectual property infringement claims, which could be time-consuming and costly to defend, and could have an adverse impact our financialposition and results of operations, particularly if we are required to pay significant damages or cease offering any of our products or curtail any key features ofour products.” We have licensed 280 patents from Tencent and intend to continue to license technology from Tencent and other third parties. The market isevolving and we may need to license additional technologies to remain competitive. We may not be able to license these technologies on commerciallyreasonable terms, or at all. In addition, we may fail to successfully integrate any licensed technology into our services. Our inability to obtain or integrate anyof these licenses could delay product and service development until alternative technologies can be identified, licensed, and integrated. Technology Infrastructure We have built what we believe is a reliable and secure network infrastructure that will fully support our operations. As of December 31, 2018, weowned approximately 33,445 servers located in eight Internet data centers in China. We have also obtained what we believe is a sufficient amount ofconnectivity bandwidth to meet the current and anticipated needs of our operations, and have established a large-scale GPU service cluster to providecomputing power for our AI technologies. As of December 31, 2018, we had 48 technical support employees to maintain our current technology infrastructure and develop new softwarefeatures to further enhance the functionality of our management and security systems. We monitor the operation of our server network 24 hours a day, sevendays a week. Our remote control system allows us to discover and fix problems in the operation of hardware and software in our server network in atimely fashion. Marketing We focus on delivering superior user experience through better products and services, which we believe can expand our user base and enhance ourbrand. Since inception, our user base has grown primarily through word-of-mouth referrals; thus, we have built our brand with modest marketing costs. While we have benefitted significantly from word-of-mouth marketing, we have also launched marketing campaigns designed to further promote ourbrand, products, and technologies. In 2018, we focused on marketing our technology through practical applications in a range of different events andscenarios. This was designed to demonstrate our technological advantages; further promote our brand, products, and technologies; and enhance Sogou’sbrand image as a leading AI-based solution provider. Throughout 2018, we launched targeted marketing campaigns for some of our core AI capabilities. Forexample, in addition to supporting various industry summits, Sogou’s AI-powered machine simultaneous interpretation technology made its debut at anumber of international sports events, expanding the application of AI-enabled real-time interpretation technology. Sogou also launched the world’s first AIanchor together with Xinhua News Agency, representing a breakthrough in enabling more natural interactions between humans and machines. 39Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Competition Our business consists primarily of search and search-related services. We face intense competition in these areas primarily from Baidu and ShenMa.We also face competition for both users and advertisers from websites that provide specialized search services in China, including travel services andinformation platforms such as Ctrip and Qunar; group-buy platforms such as Meituan Dianping; online classified advertisement platforms such as 58.com;and newsfeeds such as Toutiao. We compete for advertisers not only with Internet companies, but also with other types of advertising media such asnewspapers and magazines, billboards and bus advertisements, television, and radio. Our existing and potential competitors compete with us for users and advertisers on the basis of the quality and quantity of search results; the features,availability, and ease of use of products and services; and the number and quality of advertising distribution channels. They also compete with us for talentwith technological expertise, which is critical to the sustained development of our products and services. Employees We had 2,101, 2,295, and 2,789 employees as of December 31, 2016, 2017, and 2018, respectively. We also employ independent contractors tosupport our research and development, product development, sales and marketing departments, and had approximately 224 independent contractors onaverage during the 2018 fiscal year. As of December 31, 2018, 38.7% of our employees held Master’s degrees or Ph.D.s, and 73.8% of our employees workedin the research and development department. None of our employees is represented under collective bargaining agreements. The table below sets forth thenumber of our employees in each functional area as of December 31, 2018. EmployeeBusiness operations127Research and development2,059Sales and marketing453General and administrative150Total2,789 We have entered into standard employment agreements with our employees, including our executive officers. These agreements may be terminatedby either party, and a terminated employee may be entitled to certain severance benefits upon termination, pursuant to the Labor Contract Law of the PRC.Under the Labor Contract Law, we must pay severance to all employees who are Chinese nationals and who are terminated without cause or terminate theiremployment with us for good reason, or whose employment agreements expire and we do not continue their employment. The severance benefits required tobe paid under the Labor Contract Law equal the average monthly compensation paid to the terminated employee (including any bonuses or other paymentsmade in the twelve months prior to the employee’s termination) multiplied by the number of years the employee has been employed with us, plus anadditional month’s salary if 30 days’ prior notice of such termination is not given. However, if the average monthly compensation to be received by theterminated employee exceeds three times the average monthly salary in the employee’s local area as determined and published by the local government, suchaverage monthly compensation is capped at three times the average monthly salary in the employee’s local area. In addition, our employees have entered into standard confidentiality and non-competition agreements with us. Under the confidentialityagreements, the employees agree not to disclose or otherwise use our confidential information while employed and indefinitely thereafter. Under the non-competition agreements the employees agree not to compete with us during and up to 24 months after the termination of employment with us as long as wepay additional compensation during the non-competition period. The non-competition agreements also provide that the employees’ work product is assignedto us. We believe the dedication and talent of our employees are critical for our business, and retention of employees is our priority. As part of ourretention strategy, we are committed to offering employees an attractive opportunity to work with us as a leading and reputable technology company,providing many opportunities for employees to participate in the development of our new technologies and products, and offering employees competitivesalaries and performance-based cash bonuses and equity incentives. Facilities We currently lease from Sohu, on an arms-length basis, approximately 18,228 square meters of office space at Sohu.com Internet Plaza in Beijing,China under a lease that expires on December 31, 2019 and may be renewed subject to terms agreed to by Sohu and us. In addition to the office space leasedfrom Sohu, we lease a total of approximately 18,871 square meters of office space in Beijing, Chengdu, Hangzhou, Hefei, and Tianjin, China from other thirdparties. 40Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Legal Proceedings From time to time, we become subject to legal proceedings and claims in the ordinary course of our business. We are currently involved in severallawsuits in PRC courts where our competitors instituted proceedings or asserted counterclaims against us or we instituted proceedings or assertedcounterclaims against our competitors. While we do not believe that such currently pending proceedings are likely to have a material adverse effect on ourbusiness, financial condition, results of operations, and cash flows, we cannot guarantee that they will be decided or resolved favorably for us, and suchpending proceedings or any future legal proceedings or claims, even if not meritorious, could result in our expenditure of significant financial, legal, andmanagement resources. For further information about our ongoing litigation, please see “Risk Factors—Risks Related to Our Business—Pending or futurelitigation could have an adverse impact on our financial condition and results of operations.” PRC Regulation The following is a summary of certain key laws and regulations relevant to our business activities in China. For a description of legal risks relating toour ownership structure and business, see “Risk Factors”. Value-added Telecommunications Services The Telecommunications Regulations of the People’s Republic of China, or the Telecom Regulations, implemented on September 25, 2000 andamended on July 29, 2014 and February 6, 2016, are the primary PRC law governing telecommunication services, and set out the general framework for theprovision of telecommunication services by domestic PRC companies. The Telecom Regulations require that telecommunications service providers procureoperating licenses prior to commencing operations. The Telecom Regulations draw a distinction between “basic telecommunications services,” which wegenerally do not provide, and “value-added telecommunications services.” The Telecom Regulations define value-added telecommunications services astelecommunications and information services provided through public networks. The Catalogue of Telecommunications Business, or the Catalogue, whichwas issued as an attachment to the Telecom Regulations and updated in February 2003 and December 2015, identifies information services, Internet datacenters, Internet access as value-added telecommunications services. We engage in business activities that are value-added telecommunications services asdefined and described by the Telecom Regulations and the Catalogue. On March 5, 2009, the MIIT issued the Measures on the Administration of Telecommunications Business Operating Permits, or the Telecom LicenseMeasures, which initially became effective on April 10, 2009 and was amended on July 3, 2017, effective on September 1, 2017, to supplement the TelecomRegulations. The Telecom License Measures confirm that there are two types of telecom operating licenses for operators in China, one for basictelecommunications services and one for value-added telecommunications services. A distinction is also made as to whether a license is granted for “intra-provincial” or “trans-regional” (inter-provincial) activities. An appendix to each license granted will detail the permitted activities of the enterprise to whichit was granted. An approved telecommunication services operator must conduct its business (whether basic or value-added) in accordance with thespecifications recorded in its Telecommunications Services Operating License. The business activities of Sogou Information include providing search services and content to mobile phone users through the platforms of China’smain three telecommunications operators, which will be regarded as information services under the Catalogue. On November 28, 2018, the MIIT issued toSogou Information renewed Value-Added Telecommunications Services Operating Licenses which authorize the provision of information services, Internetdata center and Internet access, which are classified as value-added telecommunication services. The licenses are subject to annual inspection. Foreign Direct Investment in Value-Added Telecommunications Companies Various PRC regulations currently restrict foreign-invested entities from engaging in value-added telecommunication services, including providingInternet information services and operating online games. Foreign direct investment in telecommunications companies in China is regulated by theRegulations for the Administration of Foreign-Invested Telecommunications Enterprises, or the FITE Regulations, which were issued by the PRC StateCouncil, or State Council, on December 11, 2001, became effective on January 1, 2002 and were amended on September 10, 2008 and February 6, 2016,respectively. The FITE Regulations stipulate that foreign invested telecommunications enterprises in the PRC (“FITEs”) must be established as Sino-foreignequity joint ventures. Under the FITE Regulations and in accordance with WTO-related agreements, the foreign party to a FITE engaging in value-addedtelecommunications services may hold up to 50% of the equity of the FITE, with no geographic restrictions on the FITE’s operations. On June 30, 2016, theMIIT issued an Announcement of the Ministry of Industry and Information Technology on Issues concerning the Provision of Telecommunication Services inMainland China by Service Providers from Hong Kong and Macau, or the MIIT Announcement, which provides that investors from Hong Kong and Macaumay hold more than 50% of the equity in FITEs engaging in certain specified categories of value-added telecommunications services. For a FITE to acquire any equity interest in a value-added telecommunications business in China, it must satisfy a number of stringent performanceand operational experience requirements, including demonstrating a track record and experience in operating a value-added telecommunications businessoverseas. FITEs that meet these requirements must obtain approvals from the MIIT and the MOFCOM or their authorized local branches, which retainconsiderable discretion in granting approvals. 41Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents On July 13, 2006, the MIIT issued the Notice of the Ministry of Information Industry on Intensifying the Administration of Foreign Investment inValue-added Telecommunications Services, or the MIIT Notice, which reiterates certain provisions of the FITE Regulations. Under the MIIT Notice, if a FITEintends to invest in a PRC value-added telecommunications business, the FITE must be established and must apply for a telecommunications businesslicense applicable to the business. Under the MIIT Notice, a domestic company that holds a license for the provision of Internet information services, or anICP license, is considered to be a type of value-added telecommunications business in China, and is prohibited from leasing, transferring or selling thelicense to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors to conductvalue-added telecommunications businesses illegally in China. Trademarks and domain names that are used in the provision of Internet content services mustbe owned by the ICP license holder or its shareholders. The MIIT Notice requires each ICP license holder to have appropriate facilities for its approvedbusiness operations and to maintain such facilities in the regions covered by its license. Our VIEs, rather than our subsidiaries, hold ICP licenses, own ourdomain names, and hold or have applied for registration in the PRC of trademarks related to our business and own and maintain facilities that we believe areappropriate for our business operations. In view of these restrictions on foreign direct investment in the value-added telecommunications sector, we established domestic VIEs to engage invalue-added telecommunications services. For a detailed discussion of our VIEs, please refer to “Our History and Corporate Structure” above. Due to a lack ofinterpretative materials from the relevant PRC governmental authorities, there are uncertainties regarding whether PRC governmental authorities wouldconsider our corporate structure and contractual arrangements to constitute foreign ownership of a value-added telecommunications business. See “RisksRelated to Our Corporate Structure.” In order to comply with PRC regulatory requirements, we operate a portion of our business through our VIEs, with whichwe have contractual relationships but in which we do not have an actual ownership interest. If our current ownership structure is found to be in violation ofcurrent or future PRC laws, rules or regulations regarding the legality of foreign investment in the PRC Internet sector, we could be subject to severepenalties. Provision of Internet Content Internet Information Services On September 25, 2000, the State Council issued the Measures for the Administration of Internet Information Services, or the ICP Measures. Underthe ICP Measures, entities that provide information to online users on the Internet, or ICPs, are obliged to obtain an operating license from the MIIT or itslocal branch at the provincial or municipal level in accordance with the Telecom Regulations described above. The ICP Measures further stipulate that entities providing online information services regarding news, publishing, education, medicine, health,pharmaceuticals and medical equipment must procure the consent of the national authorities responsible for such areas prior to applying for an operatinglicense from the MIIT or its local branch at the provincial or municipal level. Moreover, ICPs must display their operating license numbers in conspicuouslocations on their home pages. ICPs are required to police their Internet platforms and remove certain prohibited content. Many of these requirements mirrorInternet content restrictions that have been announced previously by PRC ministries, such as the MIIT, the MOC, and the SAPPRFT, that derive theirauthority from the State Council. On October 25, 2017, the Beijing Telecom Administration, or the BTA, issued to Sogou Information a renewed Telecommunications andInformation Services Operating License (“ICP license”). The ICP license is subject to annual inspection. In 2000, the MIIT promulgated the Internet Electronic Bulletin Service Administrative Measures, or the BBS Measures. The BBS Measures requiredICPs to obtain specific approvals before they provided BBS services, which included electronic bulletin boards, electronic forums, message boards and chatrooms. On September 23, 2014, the MIIT abolished the BBS Measures in a Decision on Abolishment and Amendment Certain Regulations and Rules.However, in practice certain local authorities still require operating companies to obtain approvals or make filings for the operation of BBS services. The ICPlicense held by Sogou Information includes such specific approval of the BBS services that we provide. Online News Search Services On May 2, 2017, the Administrative Regulations for Internet News Information Services, or the News Regulations, were promulgated by theCyberspace Administration of China to replace the previous Administrative Regulations for Internet News Information Services, or the Old NewsRegulations, issued by the SCIO and the MIIT on September 25, 2005, pursuant to which Internet news information services include services of collecting,editing, and releasing Internet news information, reposting such news information, and providing a platform to spread such news information. On May 22,2017, the Detailed Implementing Rules of Administration of Internet News Information Services Approval, or the Detailed Implementing Rules, werepromulgated by the Cyberspace Administration of China, effective on June 1, 2017. The News Regulations and the Detailed Implementing Rules require thegeneral Websites of non-news organizations to apply to the SCIO at the national level for approval after securing the consent of the SCIO at the provinciallevel before they commence providing news dissemination services. There is uncertainty as to whether the provision of news search services and aggregationof news links fit within the definition of news dissemination services. Sogou Information is currently in the process of applying for an online news servicelicense. 42Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Internet Publishing On February 4, 2016, the SAPPRFT and MIIT jointly issued the Rules for the Administration for Internet Publishing Services, or the InternetPublishing Rules, which took effect on March 10, 2016, to replace the Provisional Rules for the Administration for Internet Publishing that had been jointlyissued by the SAPPRFT and the MIIT on June 27, 2002. The Internet Publishing Rules define “Internet publications” as digital works that are edited,produced, or processed to be published and provided to the public through the Internet, including (a) original digital works, such as pictures, maps, games,and comics; (b) digital works with content that is consistent with the type of content that, prior to the Internet age, typically was published in media such asbooks, newspapers, periodicals, audio-visual products, and electronic publications; (c) digital works in the form of online databases compiled by selecting,arranging, and compiling other types of digital works; and (d) other types of digital works identified by the SAPPRFT. Under the Internet PublishingRules, Internet operators distributing such Internet publications via information network are required to apply for an Internet publishing license with therelevant governmental authorities and submit the application, if approved, to the SAPPRFT for approval before distributing Internet publications. SogouInformation plans to apply for an Internet publishing license. Internet Audio-visual Program Services On December 20, 2007, the SAPPRFT and MIIT jointly issued the Administrative Provisions for the Internet Audio-Video Program Service, or theAudio-visual Program Provisions, which came into effect on January 31, 2008 and was amended on August 28, 2015. The Audio-visual Program Provisionsdefine “Internet audio-visual programs services” as the production, edition and integration of audio-video programs, the supply of audio-video programs tothe public via the Internet, and the provision of upload and audio-video programs transmission services to a third party. Entities engaging in Internet audio-visual programs services must obtain an internet audio-visual program transmission license, which will only be issued to state-owned or state-controlledentities unless the license applicant has obtained an Internet audio-visual program transmission license prior to the promulgation of the Audio-visualProgram Provisions in accordance with the then-in-effect laws and regulations. According to the Categories of the Internet Audio-Video Program Servicespromulgated by SAPPRFT on March 10, 2017, “aggregation of Internet audio-visual programs”, which means “editing and arranging the Internet audio-visual programs on the same website and providing searching and watching services to public users”, falls into the definition of the aforementioned “Internetaudio-visual programs services.” Sogou information is currently in the process of negotiating with an entity that had obtained an Internet audio-visualprogram transmission license in order to acquire all of the equity interests in such entity. Online Cultural Products On May 10, 2003, the MOC issued the Provisional Regulations for the Administration of Online Culture, or the Online Culture Regulations, whichtook effect on July 1, 2003 and were amended on July 1, 2004. On February 17, 2011, the MOC issued the new Provisional Regulations for theAdministration of Online Culture, or the New Online Culture Regulations, which took effect on April 1, 2011, to replace the previous regulations. TheNew Online Culture Regulations apply to entities engaging in activities related to “Internet cultural products,” which include those cultural products that areproduced specially for Internet use, such as online music and entertainment, online games, online plays, online performances, online works of art and Webanimations, and those cultural products that, through technical means, produce or reproduce music, entertainment, games, plays and other art works forInternet dissemination. Pursuant to the New Online Culture Regulations, commercial entities are required to apply to the relevant local branch of the MOCfor an Online Culture Operating Permit if they engage in any of the following types of activities: · the production, duplication, importation, release or broadcasting of Internet cultural products; · the dissemination of online cultural products on the Internet or transmission thereof via Internet or mobile phone networks to users’ terminals suchas computers, fixed-line or mobile phones, television sets, gaming consoles and Internet surfing service sites such as Internet cafés for the purposeof browsing, using or downloading such products; or · the exhibition or holding of contests related to Internet cultural products. On July 1, 2016, the MOC issued a Notice on Strengthening the Administration of Online Performance, or the Online Performance Notice and onDecember 2, 2016, issued the Measures of Administration of Online Performance Operating Activities, or Online Performance Measures, which becameeffective on January 1, 2017. The Online Performance Notice and the Online Performance Measures both stipulate that online performance service providersmust obtain an Online Culture Operating Permit and that online performances must not contain any content that is horrific, cruel, violent, vulgar orhumiliating in nature, mocks persons with disabilities, includes photographs or video clips that infringe third parties’ privacy or other rights, features animalabuse, or presents characters and other features of online games that have not been registered and approved for publication by applicable PRC governmentalauthorities. On November 3, 2017, the MOC issued a renewed Online Culture Operating Permit to Sogou Information authorizing Sogou Information to providerelevant online services. 43Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Mobile Internet Applications Information Services On June 28, 2016, the CAOC issued the Provisions on the Administration of Mobile Internet Applications Information Services, or the APPProvisions, which became effective on August 1, 2016. Under the APP Provisions, mobile application providers and application store service providers areprohibited from engaging in any activity that may endanger national security, disturb the social order, or infringe the legal rights of third parties, and may notproduce, copy, issue or disseminate through mobile applications any content prohibited by laws and regulations. The APP Provisions also require applicationproviders to procure relevant approval to provide services through such applications and require application store service providers to register with localbranches of the CAOC within 30 days after they start providing application store services. Sogou information has filed an application for registration with thecompetent local branch of the CAOC with respect to our provision of application store services. Internet Map Services Under the Opinions on Strengthening the Supervision of Internet Map and Geographic Information Services and the Notices on FurtherStrengthening the Management of Internet Map Services Permit issued on February 25, 2008 and December 23, 2011, respectively, by the StateAdministration of Surveying, Mapping and Geo-information (the “SASMG,” formerly known as the State Bureau of Surveying and Mapping) and theAdministrative Regulations on Maps issued by the State Council on November 26, 2015, effective on January 1, 2016, any provider of Internet map servicesmust obtain the approval of the SASMG or its local branches and a Surveying and Mapping Qualification Certificate in order to provide such services. Inaddition, providers of Internet map services must use maps obtained through government-approved channels and display the SASMG approval number, theSurveying and Mapping Qualification Certificate number and the Telecommunications Services Operating License number in conspicuous locations ontheir Websites. On July 1, 2014, the SASMG issued new Administrative Regulations on Surveying and Mapping Qualification Certificate and ClassificationStandard on Surveying and Mapping Qualification Certificate , or the “SASMG Regulations and Standards,” effective on August 1, 2014, to replaceprevious regulations issued on February 16, 2004 and March 12, 2009. Under the SASMG Regulations and Standards, there are two types of Surveying andMapping Qualification certificates that may be issued to providers of Internet map services. A Class A certificate allows a holder to provide (i) map-locationservices, (ii) geo-information uploading and dimension services, and (iii) geo-information database development services, while a holder of a Class Bcertificate may only provide the first two types of services. On July 26, 2016, the SASMG and the Office of the Central Leading Group for Cyberspace Affairs (the “OCLGCA”) jointly issued a Notice onStandardizing the Usage of Maps by Internet Services Providers (the “Maps Usage Notice”), which stipulates that all the Internet service providers mustreview and use maps in accordance with the PRC Surveying and Mapping Law and Administrative Regulations on Maps. The Maps Usage Notice requiresthat maps displayed by Internet service providers be obtained through government-approved channels and identify their sources and censor numbers. Internetservice providers are prohibited from using maps obtained from unaccredited sources, including foreign Websites. All maps, other than scenic maps, blockmaps, subway maps and other simple maps, must be reviewed by PRC governmental authorities before they are published, and must not contain anyinformation or content specified as prohibited in the Maps Usage Notice. On January 1, 2015, Sogou Information obtained a renewed Class A Certificate of Surveying and Mapping Qualification from the SASMG. Internet Pharmaceuticals Information Dissemination Under the Measures for the Administration of Internet Pharmaceuticals Information Services (the “Pharmaceuticals Information ServicesMeasures”) issued by the State Food and Drug Administration (“SFDA”) on July 8, 2004, the formal approval of the SFDA or one of its local branches isrequired before a Website may disseminate information concerning pharmaceuticals. Under the Pharmaceuticals Information Services Measures, pharmaceutical (including medical equipment) information provided by Websites mustbe scientific and accurate. Furthermore, medical and pharmaceutical (including medical equipment) advertisements published by such Websites must bereviewed and approved by SFDA and must not exaggerate the efficacy or promote the medical uses of such products. Sogou Information received renewed SFDA approval on October 31, 2017. Online Advertising Services On April 24, 2015, the Standing Committee of the National People’s Congress enacted the Advertising Law of the People’s Republic of China (the“New Advertising Law”), which became effective on September 1, 2015 and was amended on October 26, 2018. The New Advertising Law, which was amajor overhaul of an advertising law enacted in 1994, increases the potential legal liability of providers of advertising services, and includes provisionsintended to strengthen identification of false advertising and the power of governmental authorities. On July 4, 2016, the SAIC issued the Interim Measuresof the Administration of Online Advertising (the “SAIC Interim Measures”), effective on September 1, 2016. The New Advertising Law and the SAIC InterimMeasures both provide that advertisements posted or published through the Internet may not affect users’ normal usage of a network, and advertisementspublished in the form of pop-up windows on the Internet must display a “close” sign prominently and ensure one-key closing of the pop-up windows. TheSAIC Interim Measures provide that all online advertisements must be marked “Advertisement” so that viewers can easily identify them as such. Moreover,the SAIC Interim Measures treat pay-for-click search results as advertisements that are subject to PRC advertisement laws, and require that pay-for-clicksearch results be conspicuously identified on search result pages as advertisements. The New Advertising Law and SAIC Interim Measures will require us toconduct more stringent examination and monitoring of our advertisers and the content of their advertisements. 44Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents On April 13, 2016, the SAIC and sixteen other PRC government agencies jointly issued a Notice of Campaign to Crack Down on Illegal InternetFinance Advertisements and Other Financial Activities in the Name of Investment Management , or the Campaign Notice, pursuant to which a campaign wasconducted between April 2016 and January 2017 targeting, among other things, online advertisements for Internet finance and other financial activitiesposted on online search portals, such as ours, and other portal, financial, real estate, P2P, and investment product sales services Websites. The SAIC issued theInterim Measures for the Administration of Online Advertising, or the SAIC Interim Measures, which became effective on September 1, 2016 and treat pay-for-click search results as advertisements subject to PRC laws governing advertisements, require that pay-for-click search results be conspicuously identifiedon search result pages as advertisements and subject revenues from such advertisements to a 3% PRC tax that is applied to advertising revenues. In order tocomply with these regulations, we have established more stringent standards for selecting advertisers for our pay-for-click services, have turned down certainexisting advertisers, and have lowered the percentage that pay-for-click search results represent of results on our search pages, Search Services On August 18, 2009, the MOC issued a Notice on Strengthening and Improving the Content Censorship of Online Music Content, or theMOC Notice, which was abolished by the MOC on August 25, 2016. On October 23, 2015, the MOC issued a Notice on Further Strengthening andImproving the Administration of Content of Online Music, or the MOC Further Notice, which became effective on January 1, 2016. The MOC Notice and theMOC Further Notice provide that providing direct links to online music will constitute engaging in the online music business, and that therefore an OnlineCulture Operating Permit is required for providing such search services. Sogou Information applied for an Online Culture Operating Permit and received it onDecember 31, 2010. The permit was renewed on November 3, 2017. On June 25, 2016, the CAOC issued Measures for the Administration of Online Information Search Services, or the CAOC Interim Measures, whichbecame effective on August 1, 2016. The CAOC Interim Measures, like the SAIC Interim Measures, require that providers of online search services verify thecredentials of pay-for-click advertisers, specify a maximum percentage that pay-for-click search results may represent of results on a search page,conspicuously identify pay-for-click search results as such. Online Games and Cultural Products In September 2009, the SAPPRFT, together with the National Copyright Administration, and the National Office of Combating Pornography andIllegal Publications jointly issued the Notice on Further Strengthening on the Administration of Pre-examination and Approval of Online Game and theExamination and Approval of Imported Online Game, the SAPPRFT Online Game Notice. The SAPPRFT Online Game Notice states that foreign investors arenot permitted to invest in online game operating businesses in the PRC via wholly foreign-owned entities, Sino-foreign equity joint ventures or cooperativejoint ventures or to exercise control over or participate in the operation of domestic online game businesses through indirect means, such as other jointventure companies or contractual or technical arrangements. If the VIE structure of Sogou was deemed under the SAPPRFT Online Game Notice to be an“indirect means” for foreign investors to exercise control over or participate in the operation of a domestic online game business, the VIE structure of Sogoumight be challenged by the SAPPRFT. We are not aware of any online game companies which use the same or similar VIE contractual arrangements as thoseSogou uses having been challenged by the SAPPRFT as using those VIE arrangements as an “indirect means” for foreign investors to exercise control over orparticipate in the operation of a domestic online game business or having been penalized or ordered to terminate operations since the SAPPRFT Online GameNotice first became effective. However it is unclear whether and how the SAPPRFT Online Game Notice might be interpreted or implemented in the future. On February 21, 2008, the SAPPRFT issued the Rules for the Administration of Electronic Publications, or the Electronic Publication Rules, whichwere amended on August 28, 2015. The Electronic Publication Rules regulate the production, publishing and importation of electronic publications in thePRC and outline a licensing system for business operations involving electronic publishing. Under the Electronic Publication Rules and other relatedregulations issued by the SAPPRFT, online games are classified as a type of electronic publication or Internet publication that may only be provided by alicensed electronic publishing entity with a standard publication code, and establishment of an electronic publishing entity must be approved by theSAPPRFT. Electronic publishing entities are responsible for assuring that the content of electronic publications comply with relevant PRC laws andregulations, and must obtain the approval of the SAPPRFT before publishing foreign electronic publications. The Tentative Measures for InternetPublication Administration, or the Internet Publication Measures, which were jointly promulgated by the SAPPRFT and the MIIT and became effective in2002, impose a license requirement for any company that intends to engage in Internet publishing, which is defined as any act by an ICP to select, edit andprocess content or programs and to make such content or programs publicly available on the Internet. As the provision of online games is deemed to be anInternet publication activity, an online game operator must obtain an Internet publishing license and an authorization code for each of its games in operationin order to directly make those games publicly available in the PRC. Although the Internet Publication Measures do not specifically authorize such apractice, an online game operator is generally able to publish its games and obtain authorization codes for those games through third-party licensedelectronic publishing entities and register the games with the SAPPRFT as electronic publications. The New Internet Publication Measures issued by theSAPPRFT and the MIIT, which became effective on March 10, 2016 and replaced the Internet Publication Measures, require that entities in the Internetpublishing business must apply for an online publication license and obtain approval from the SAPPRFT prior to the publication of new online games. Inaddition, under the New Internet Publication Measures Sino-foreign joint ventures and foreign-invested entities are not permitted to engage in Internetpublication services, and the legal representative of an entity providing Internet publication services may not be a foreigner. As the New Internet PublicationMeasures are new, the actual implications and reach of this regulation are still uncertain. 45Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The MOC issued the New Provisional Regulations for the Administration of Online Culture, or the Online Culture Regulations, which took effecton April 1, 2011 and replaced the Provisional Regulations for the Administration of Online Culture. The Online Culture Regulations apply to entitiesengaging in activities related to “Internet cultural products,” which include cultural products that are produced specifically for Internet use, such as onlinemusic and entertainment, online games, online plays, online performances, online works of art and Web animation, and other online cultural products thatthrough technical means, produce or reproduce music, entertainment, games, plays and other art works for Internet dissemination. Under the New OnlineCulture Regulations, commercial entities are required to apply to the relevant local branch of the MOC for an Online Culture Operating Permit if they engagein the production, duplication, importation, release or broadcasting of Internet cultural products, the dissemination of online cultural products on the Internetor the transmission of such products via Internet or mobile phone networks to user terminals, such as computers, phones, television sets and gaming consoles,or Internet surfing service sites such as Internet cafés; or the holding or exhibition of contests related to Internet cultural products. The Interim Measures for the Administration of Online Games, or the Online Game Measures, issued by the MOC, which took effect on August 1,2010, regulate a broad range of activities related to the online games business, including the development, production and operation of online games, theissuance of virtual currencies used for online games, and the provision of virtual currency trading services. The Online Game Measures provide that anyentity that is engaged in online game operations must obtain an Online Culture Operating Permit, and require the content of an imported online game to beexamined and approved by the MOC prior to the game’s launch and a domestic online game to be filed with the MOC within 30 days after its launch. TheNotice of the Ministry of Culture on the Implementation of the Interim Measures for the Administration of Online Games, which was issued by the MOC onJuly 29, 2010 to implement the Online Game Measures, (i) requires online game operators to protect the interests of online game users and specifies certainterms that must be included in service agreements between online game operators and the users of their online games, (ii) specifies content review of importedonline games and filing procedures for domestic online games, (iii) emphasizes the protection of minors playing online games, and (iv) requests online gameoperators to promote real-name registration by their game users. The Notice on Strengthening the Approval and Administration of Imported Online Games, or the SAPPRFT Imported Online Game Notice, whichwas issued by the SAPPRFT and took effect in July 2009, states that the SAPPRFT is the only governmental department authorized by the State Council toapprove the importation of online games from offshore copyright owners, and that any enterprise which engages in online game publication and operationservices within the PRC must have the game examined and approved by the SAPPRFT and receive from the SAPPRFT an Internet publishing license. The Notice Regarding Improving and Strengthening the Administration of Online Game Content , or the Online Game Content Notice, issued by theMOC in November 2009, calls for online game operators to improve and adapt their game models by (i) mitigating the predominance of the “upgrade bymonster fighting” model, (ii) limiting the use of the “player kill” model (where one player’s character attempts to kill another player’s character), (iii) limitingin-game marriages among game players, and (iv) improving their compliance with legal requirements for the registration of minors and game time-limits. The Administrative Measures for Content Self-Review by Internet Culture Business Entities, or the Content Self-Review Administrative Measure,which took effect in December 2013, requires Internet culture business entities to review the content of products and services to be provided prior toproviding such content and services to the public. The content management system of an Internet culture business entity is required to specify theresponsibilities, standards and processes for content review as well as accountability measures, and is required to be filed with the local provincial branch ofthe MOC. In January 2014, the SAIC promulgated the Administrative Measures for Online Trading, or the Online Trading Measures, which took effect onMarch 15, 2014, and replaced the Interim Measures for the Administration of Online Commodities Trading and Relevant Services, issued by the SAIC, whichtook effect on July 1, 2010. The Online Trading Measures regulate online commodity trading and related activities. The Online Trading Measures requirethat when selling commodities or providing services to consumers, online operators must comply with all applicable laws with respect to the protection ofconsumer rights and interests, intellectual property rights of others and the prevention of unfair competition. Information provided with respect tocommodities and services provided by online commodity operators or related service operators must be accurate. If they fail to comply with all requirementsof the Online Trading Measures, the local branch of the SAIC or other governmental authorities could impose fines or other penalties on them. 46Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Information Security and Censorship On November 7, 2016, the Standing Committee of the National People’s Congress promulgated the PRC Cybersecurity Law, which took effect onJune 1, 2017. The PRC Cybersecurity Law applies to the construction, operation, maintenance, and use of networks as well as the supervision andadministration of Internet security in the PRC. The PRC Cybersecurity Law defines “networks” as systems that are composed of computers or otherinformation terminals and relevant facilities used for the purpose of collecting, storing, transmitting, exchanging, and processing information in accordancewith certain rules and procedures. “Network operators,” who are broadly defined as owners and administrator of networks and network service providers, aresubject to various security protection-related obligations including: · complying with security protection obligations in accordance with tiered requirements with respect to maintenance of the security of Internetsystems, which include formulating internal security management rules and developing manuals, appointing personnel who will be responsible forInternet security, adopting technical measures to prevent computer viruses and activities that threaten Internet security, adopting technicalmeasures to monitor and record status of network operations, holding Internet security training events, retaining user logs for at least six months,and adopting measures such as data classification, key data backup, and encryption for the purpose of securing networks from interference,vandalism, or unauthorized visits, and preventing network data from leakage, theft, or tampering; · verifying users’ identities before signing agreements or providing services such as network access, domain name registration, landline telephoneor mobile phone access, information publishing, or real-time communication services; · formulating Internet security emergency response plans, timely handling security risks, initiating emergency response plans, taking appropriateremedial measures, and reporting to governmental authorities; and · providing technical assistance and support for public security and national security authorities for the protection of national security and incriminal investigations. Under the PRC Cybersecurity Law, network service providers must inform users about and report to the relevant governmental authorities anyknown security defects or bugs, and must provide constant security maintenance services for their products and services. Network products and serviceproviders may not contain or provide malware. Network service providers who do not comply with the PRC Cybersecurity Law may be subject to fines,suspension of their businesses, shutdown of their websites, and revocation of their business licenses. On May 2, 2017, the Cyberspace Administration issued the Measures for Security Review of Cyber Products and Services (for Trial Implementation),or the Cybersecurity Review Measures, which came into effect on June 1, 2017. Under the Cybersecurity Review Measures, the following cyber products andservices will be subject to cybersecurity review: · important cyber products and services purchased by networks, and information systems related to national security; and · the purchase of cyber products and services by operators of critical information infrastructure in key industries and fields, such as publiccommunications and information services, energy, transportation, water resources, finance, public service, and electronic administration, and othercritical information infrastructure, that may affect national security. The Cyberspace Administration is responsible for organizing and implementing cybersecurity reviews, while the competent departments in keyindustries such as finance, telecommunications, energy, and transport are responsible for organizing and implementing security review of cyber products andservices in their respective industries and fields. There are still substantial uncertainties with respect to the interpretation and implementation of theCybersecurity Review Measures. Internet content in the PRC is also regulated and restricted from a State security standpoint. The Standing Committee of the National People’sCongress enacted the Decision Regarding the Safeguarding of Internet Security, or the Decision in 2000, and amended it in August, 2009. The Decisionmakes it unlawful to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leakState secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security has promulgated measuresthat prohibit the use of the Internet in ways which, among other things, result in a leakage of State secrets or distribution of socially destabilizing content.The Ministry of Public Security has supervision and inspection rights in this regard. If an ICP license holder violates these measures, the PRC governmentmay revoke its ICP license and shut down its Websites. In May 2004, the MOC issued a Notice Regarding the Strengthening of Online Game Censorship, or the Online Game Notice. The Online GameNotice mandates the establishment of a new committee under the MOC that will screen the content of imported online games. In addition, all imported anddomestic online games are required to be filed with the MOC. We have submitted the relevant filing documents to the MOC for the filing of all the gamesin operation. In July 2005, the MOC and the MIIT jointly promulgated the Opinions on the Development and Administration of Online Games emphasizing thePRC government’s intent to foster and control the development of the online game industry in the PRC and providing that the MOC will censor onlinegames that “threaten state security,” “disturb the social order,” or contain “obscenity” or “violence.” 47Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents In April 2009, the MOC issued a Public Announcement on Regulating Applications for the Examination of the Content of Imported Online Games,or the Announcement. The Announcement emphasizes that enterprises operating imported online games must have the content of those games examined andapproved by the MOC. Protection of Minors On April 15, 2007, the MIIT, the SAPPRFT, the Ministry of Education and five other governmental authorities jointly issued a Notice on theImplementation of Online Game Anti-Fatigue System to Protect the Physical and Psychological Health of Minors, or the Anti-Fatigue Notice. Pursuant to theAnti-Fatigue Notice, online game operators are required to install an “anti-fatigue system” that discourages game players from playing games for more thanfive hours per day. Under the anti-fatigue system, three hours or less of continuous play by minors is considered to be “healthy,” three to five hours to be“fatiguing,” and five hours or more to be “unhealthy.” Game operators are required to reduce the value of in-game benefits to a game player by half if thegame player has reached “fatiguing” level, and to zero in the case of “unhealthy” level. To identify whether a game player is a minor and thus subject to the anti-fatigue system, there was adopted a real-name registration system, whichrequires online game players to register their real identity information before they play online games and requires us to submit the identity information ofgame players to the public security authorities for verification. On July 1, 2011, the SAPPRFT, the MIIT, the Ministry of Education and five othergovernmental authorities issued a Notice on Initializing the verification of Real-name Registration for Anti-Fatigue System on Internet Game s, or the Real-name Registration Notice, which took effect on October 1, 2011, to strengthen the implementation of the anti-fatigue system and real-name registration. TheReal-name Registration Notice’s main focus is to prevent minors from using an adult’s ID to play Internet games and, accordingly, the Real-nameRegistration Notice imposes stringent punishments on online game operators that do not implement the required anti-fatigue and real-name registrationmeasures properly and effectively. The most severe punishment contemplated by the Real-name Registration Notice is to require termination of the operationof the online game if the game is found to be in violation of the Anti-Fatigue Notice, the Monitor System Circular or the Real-name Registration Notice. Wedeveloped our own anti-fatigue and real-name registration systems for our games, and implemented them beginning in 2007. Under our systems, gameplayers must use real identification in order to create accounts, and in this way, we are able to tell which of our game players are minors and thus subject tothese regulations. For game players who do not register, we assume that they are minors. In order to comply with the anti-fatigue rules, game players under18 years of age only receive half of the experience time they actually earn after three hours of play. And, after five hours of play, minors receive no experiencepoints. We use this system to disincentivize minors from playing in excess of five hours at a time. On January 15, 2011, the MOC, the MIIT and six other central governmental authorities jointly issued a circular entitled Implementation of OnlineGame Monitor System of the Guardians of Minors, or the Monitor System Circular, aiming to provide specific protection measures to monitor the onlinegame activities of minors and curb addictive online game playing behaviors of minors. Under the Monitor System Circular, online game operators arerequired to adopt various measures to maintain a system to communicate with the parents or other guardians of minors playing online games and online gameoperators are required to monitor the online game activities of minors, and must suspend the account of a minor if so requested by the minor’s parents orguardians. The monitor system was formally implemented commencing March 1, 2011. In February 2013, 15 PRC governmental authorities, including the SAPPRFT, the Ministry of Education, the MOC and the MIIT, jointly issued theWork Plan for the Integrated Prevention of Minors Online Game Addiction (“Work Plan”), implementing integrated measures by various authoritiesdesigned to prevent minors from being addicted to online games. Under the Work Plan, the current relevant regulations regarding online games will befurther clarified and additional implementation rules will be issued, and online game operators will be required to implement measures to protect minors. On July 25, 2014, the SAPPRFT promulgated a Notice on Further Carrying out the Verification of Real-name Registration for Anti-Fatigue Systemon Internet Games, or the Verification of Real-name Registration Notice, which took effect on October 1, 2014. The Verification of Real-name RegistrationNotice requires local press and publication administrative departments to strengthen their oversight of enterprises engaged in the publication and operationof online games, and requires such enterprises to strictly abide by anti-fatigue and real-name registration requirements when developing and promotingonline games, excluding, at present, mobile games. Virtual Currency On February 15, 2007, the MOC, the PBOC and other relevant governmental authorities jointly issued the Notice on Further Strengthening theAdministration of Internet Cafés and Online Games, or the Internet Cafés and Online Games Notice. Under the Internet Cafés and Online Games Notice, thePBOC is directed to strengthen the administration of virtual currency in online games to avoid any adverse impact on the economy and financial system. TheInternet Cafés and Online Games Notice limits the total amount of virtual currency that may be issued by online game operators and the amount that may bepurchased by individual game players, and includes a clear division between virtual transactions and real transactions carried out by way of electroniccommerce. The Internet Cafés and Online Games Notice also provides that virtual currency may only be used to purchase virtual items. 48Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents On June 4, 2009, the MOC and the MOFCOM jointly issued the Notice on Strengthening the Administration of Online Game Virtual Currency(the “Virtual Currency Notice”) to regulate the trading of online game virtual currencies. The Virtual Currency Notice defines the meaning of virtual currencyand places a set of restrictions on the trading and issuance of virtual currency. The Virtual Currency Notice also states that online game operators are notallowed to give out virtual items or virtual currency through lottery-based activities, such as lucky draws, betting or random computer sampling, in exchangefor user’s cash or virtual money. The Virtual Currency Notice is mainly targeted at lottery-based activities relating to the “treasure boxes” found in someonline games. On July 20, 2009, the MOC promulgated the Filing Guidelines for Online Game Virtual Currency Issuing Enterprises and Online Game VirtualCurrency Trading Enterprises, which define the terms “issuing enterprise” and “trading enterprise” and stipulate that a single enterprise may not be both anissuing enterprise and a trading enterprise. Laws and Regulations Related to Intellectual Property Protection China has adopted comprehensive legislation governing intellectual property rights, including copyrights, patents and trademarks. Copyright On September 7, 1990, The National People’s Congress promulgated the Copyright Law, which took effect on June 1, 1991 and was amended in2001 and in 2010. The amended Copyright Law extends copyright protection to Internet activities, products disseminated over the Internet and softwareproducts. In addition, there is a voluntary registration system administered by the China Copyright Protection Center. The amended Copyright Law alsorequires registration of the pledge of a copyright. In order to further implement the Computer Software Protection Regulations, promulgated by the State Council on December 20, 2001 andamended on January 30, 2013, the National Copyright Administration (the “NCA”) issued Computer Software Copyright Registration Procedures onFebruary 20, 2002, which specify detailed procedures and requirements with respect to the registration of software copyrights. To address the problem of copyright infringement related to content posted or transmitted over the Internet, on April 29, 2005 the NCA and the MIITjointly promulgated the Measures for Administrative Protection of Copyright Related to Internet, which became effective on May 30, 2005. Upon receipt ofan infringement notice from a legitimate copyright holder, an ICP operator must take remedial actions immediately by removing or disabling access to theinfringing content. If an ICP operator knowingly transmits infringing content or fails to take remedial actions after receipt of a notice of infringement harmingpublic interest, the ICP operator could be subject to administrative penalties, including an order to cease infringing activities, confiscation by the authoritiesof all income derived from the infringement activities, or payment of fines. On May 18, 2006, the State Council promulgated the Regulations on the Protection of the Right to Network Dissemination of Information(as amended in 2013). Under these regulations, an owner of the network dissemination rights with respect to written works or audio or video recordings whobelieves that information storage, search or link services provided by an Internet service provider infringe his or her rights may require that the Internetservice provider delete, or disconnect the links to, such works or recordings. We have adopted measures to mitigate copyright infringement risks, such as real-time monitoring and mechanisms for fast removal upon receipt ofnotices of infringement. As of December 31, 2018, we had registered 179 software copyrights in the PRC. Patent Law On March 12, 1984, the Standing Committee of the National People’s Congress promulgated the Patent Law, which was amended in 1992, 2000 and2008. On June 15, 2001, the State Council promulgated the Implementation Regulation for the Patent Law, which was amended in January 9, 2010.According to these laws and regulations, the State Intellectual Property Office is responsible for administering patents in the PRC. The Chinese patent systemadopts a “first to file” principle, which means that where more than one person files a patent application for the same invention, a patent will be granted to theperson who filed the application first. To be patentable, invention or utility models must meet three conditions: novelty, inventiveness and practicalapplicability. A patent is valid for 20 years in the case of an invention and 10 years in the case of utility models and designs. A third-party user must obtainconsent or a proper license from the patent owner to use the patent. Otherwise, third-party use constitutes an infringement of patent rights. As of December 31,2018, we had been granted 992 patents in the PRC. Trademark Law On August 23, 1982, the Standing Committee of the National People’s Congress promulgated the Trademark Law, or the Trademark Law, which wasamended in 1993, 2001 and 2013. On September 15, 2002, the State Council promulgated the Implementation Regulation for the Trademark Law, which wasamended on April 29, 2014. Under the Trademark Law and the implementing regulation, the Trademark Office of the Administration for Industry andCommerce is responsible for the registration and administration of trademarks. The Administration for Industry and Commerce under the State Council hasestablished a Trademark Review and Adjudication Board for resolving trademark disputes. As with patents, China has adopted a “first-to-file” principle fortrademark registration. If two or more applicants apply for registration of identical or similar trademarks for the same or similar commodities, the applicationthat was filed first will receive preliminary approval and will be publicly announced. For applications filed on the same day, the trademark that was first usedwill receive preliminary approval and will be publicly announced. Registered trademarks are valid for ten years from the date the registration is approved. Aregistrant may apply to renew a registration within twelve months before the expiration date of the registration. If the registrant fails to apply in a timelymanner, a grace period of six additional months may be granted. If the registrant fails to apply before the grace period expires, the registered trademark shallbe deregistered. Renewed registrations are valid for ten years. As of December 31, 2018, we had registered 536 trademarks in the PRC. 49Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Consumer Protection and Privacy Protection Consumer Protection The MIIT sets forth various requirements for consumer protection in a notice, issued on April 15, 2004, which addresses certain problems in thetelecommunications sector, including ambiguity in billing practices for premium services, poor quality of connections and unsolicited SMS messages, all ofwhich impinge upon the rights of consumers. On May 26, 2016, the MIIT issued the Measures on the Complaint Settlement of the Telecommunication Services Users, or the “ComplaintSettlement Measures”, which took effect on July 30, 2016. The Complaint Settlement Measures require telecommunication services providers to respond totheir users within fifteen days upon the receipt of any complaint delivered by such users, the failure of which will give the complaining users the right tofile a complaint against the service providers with the provincial branch offices of the MIIT. We are aware of the increasingly strict legal environment covering consumer protection in the PRC, and we strive to adopt all measures necessary toensure that our business complies with these evolving standards. Privacy Protection The PRC Constitution states that PRC law protects the freedom and privacy of the communications of citizens and prohibits infringement of suchrights. In recent years, PRC governmental authorities have issued various regulations on the use of the Internet that are designed to protect personalinformation from unauthorized disclosure. For example, the ICP Measures prohibit an Internet information services provider from insulting or slandering athird party or infringing upon the lawful rights and interests of a third party. In addition, PRC regulations authorize PRC telecommunication authorities todemand rectification of unauthorized disclosure by ICPs. Chinese law does not prohibit ICPs from collecting and analyzing personal information from their users. The PRC government, however, has thepower and authority to order ICPs to submit personal information of an Internet user if such user posts any prohibited content or engages in illegal activitieson the Internet. In addition, the Several Provisions stipulate that ICPs must not, without the users’ consent, collect information on users that can be used,alone or in combination with other information, to identify the user, or User Personal Information, and may not provide any User Personal Information to thirdparties without prior user consent. ICPs may only collect User Personal Information necessary to provide their services and must expressly inform the users ofthe method, content and purpose of the collection and processing of such User Personal Information. In addition, an ICP may use User Personal Informationonly for the stated purposes under the ICP’s scope of services. ICPs are also required to ensure the proper security of User Personal Information, and takeimmediate remedial measures if User Personal Information is suspected to have been disclosed. If the consequences of any such disclosure are expected to beserious, the ICP must immediately report the incident to the telecommunications governmental authorities and cooperate with the authorities in theirinvestigations. We require our users to accept a user agreement whereby they agree to provide certain personal information to us. If we violate theseregulations, the MIIT or its local bureaus may impose penalties and we may be liable for damage caused to our users. On December 28, 2012, the Standing Committee of the National People’s Congress enacted the Decision to Enhance the Protection of NetworkInformation, or the Information Protection Decision, to further enhance the protection of User Personal Information in electronic form. The InformationProtection Decision provides that ICPs must expressly inform their users of the purpose, manner and scope of the ICPs’ collection and use of User PersonalInformation, publish the ICPs’ standards for their collection and use of User Personal Information, and collect and use User Personal Information only with theconsent of the users and only within the scope of such consent. The Information Protection Decision also mandates that ICPs and their employees must keepstrictly confidential User Personal Information that they collect, and that ICPs must take such technical and other measures as are necessary to safeguard theinformation against disclosure. On July 16, 2013, the MIIT issued the Order for the Protection of Telecommunication and Internet User Personal Information, or the Order. Most ofthe requirements under the Order that are relevant to ICP operators are consistent with the requirements already established under the MIIT provisionsdiscussed above, except that under the Order the requirements are often more strict and have a wider scope. If an ICP operator wishes to collect or use personalinformation, it may do so only if such collection is necessary for the services it provides. Further, it must disclose to its users the purpose, method and scopeof any such collection or use, and must obtain consent from the users whose information is being collected or used. ICP operators are also required toestablish and publish their protocols relating to personal information collection or use, keep any collected information strictly confidential, and taketechnological and other measures to maintain the security of such information. ICP operators are required to cease any collection or use of the user personalinformation, and de-register the relevant user account, when a given user stops using the relevant Internet service. ICP operators are further prohibited fromdivulging, distorting or destroying any such personal information, or selling or providing such information unlawfully to other parties. In addition, if an ICPoperator appoints an agent to undertake any marketing or technical services that involve the collection or use of personal information, the ICP operator isstill required to supervise and manage the protection of the information. The Order states, in broad terms, that violators may face warnings, fines, anddisclosure to the public and, in the most severe cases, criminal liability. 50Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents On August 21, 2014, the Supreme People’s Court promulgated the Provisions of the Supreme People’s Court on Application of Laws to CasesInvolving Civil Disputes over Infringement upon Personal Rights and Interests by Using Information Networks , pursuant to which if an ICP operatordiscloses genetic information, medical records, health examination data, criminal record, home address, private events and or other personal information of anatural person online, causing damage to the person, the People’s Court should support a claim by the infringed party for recovery of damages from theinfringing ICP operator. On January 5, 2015, the SAIC promulgated the Measures on Punishment for Infringement of Consumer Rights, pursuant to which business operatorscollecting and using personal information of consumers must comply with the principles of legitimacy, propriety and necessity, specify the purpose, methodand scope of collection and use of the information, and obtain the consent of the consumers whose personal information is to be collected. Business operatorsmay not: (i) collect or use personal information of consumers without their consent; (ii) unlawfully divulge, sell or provide personal information of consumersto others; (iii) send commercial information to consumers without their consent or request, or when a consumer has explicitly declined to receive suchinformation. Our current security measures and those of the third parties with whom we transact business may not be adequate for the protection of user personalinformation. In addition, we do not have control over the security measures of our third-party online payment vendors. Security breaches of our system andthe online payment systems that we use could expose us to litigation and liability for failing to secure confidential customer information and could harm ourreputation, ability to attract customers and ability to encourage customers to purchase virtual items. Security and Censorship The principal pieces of PRC legislation concerning information security and censorship are: · The Law of the People’s Republic of China on the Preservation of State Secrets (1988, as amended in 2010) and related ImplementingRules (2014); · The Law of the People’s Republic of China Regarding Anti-spy (2014); · Rules of the People’s Republic of China for Protecting the Security of Computer Information Systems (1994, as amended in 2011); · Regulations for the Protection of State Secrets for Computer Information Systems on the Internet (2000); · Notice issued by the Ministry of Public Security of the People’s Republic of China Regarding Issues Relating to the Implementation of theAdministrative Measure for the Security Protection of International Connections to Computer Information Networks (2000); and · The Decision of the Standing Committee of the National People’s Congress Regarding the Safeguarding of Internet Security (2000), which wasamended in 2009. These pieces of legislation specifically prohibit the use of Internet infrastructure where it results in a breach of public security, the provision ofsocially destabilizing content or the divulgence of State secrets, as follows: · “A breach of public security” includes a breach of national security or disclosure of state secrets; infringement on state, social or collectiveinterests or the legal rights and interests of citizens or illegal or criminal activities. · “Socially destabilizing content” includes any action that incites defiance or violation of Chinese laws; incites subversion of state power and theoverturning of the socialist system; fabricates or distorts the truth, spreads rumors or disrupts social order; advocates cult activities; spreads feudalsuperstition; involves obscenities, pornography, gambling, violence, murder, or horrific acts; or instigates criminal acts. · “State secrets” are defined as “matters that affect the security and interest of the state.” The term covers such broad areas as national defense,diplomatic affairs, policy decisions on state affairs, national economic and social development, political parties and “other State secrets that theState Secrecy Bureau has determined should be safeguarded.” Under the aforementioned legislation, it is mandatory for Internet companies in the PRC to complete security filing procedures with the local publicsecurity bureau and for them provide regular updates to the local public security bureau regarding information security and censorship systems for theirWebsites. In this regard, on October 1, 2004, the Administrative Rules on the Filing of Commercial Websites , or the Commercial Websites Filing Rules, werepromulgated by the Beijing Administration of Industry and Commerce (Beijing AIC), to replace the Detailed Implementing Rules for the Measures for theAdministration of Commercial Website Filings for the Record promulgated by the Beijing AIC on September 1, 2000. The Commercial Websites FilingRules state that operators of commercial Websites must comply with the following requirements: 51Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents · filing with the Beijing AIC and obtain electronic registration marks for the Websites; · placing the registration marks on the Websites’ homepages; and · registering the Website names with the Beijing AIC. The PRC Cybersecurity Law requires providers of services over Internet networks to keep user information that they have collected in strictconfidence and to establish improved systems for the protection of user information. Such service providers must provide notice of the purpose, methods andscope of their collection and use of user information, and obtain the consent of each person whose personal information will be collected. Providers ofservices over Internet networks may not collect any personal information that is not related to the services they provide, or disclose or tamper with personalinformation that they have collected, unless such information is encoded to prevent identification of individuals whose information is so disclosed ortampered with. Service providers who do not comply with the PRC Cybersecurity Law may be subject to fines, suspension of their businesses, shutdown oftheir websites, and revocation of their business licenses. Sogou Information has successfully registered the sogou.com Website with the Beijing AIC. In addition, the State Security Bureau has issued regulations authorizing the blocking of access to any site it deems to be leaking State secrets orfailing to comply with legislation regarding the protection of State secrets in the distribution of information online. Accordingly, we have established an internal security committee and adopted security maintenance measures, employed a full-time supervisor andexchanged information on a regular basis with the local public security bureau with regard to sensitive or censored information and Websites. Internet Content and Anti-Pornography The PRC government has promulgated measures relating to Internet content through a number of governmental authorities, including the MIIT, theMOC, the SAPPRFT and the MPS. These measures specifically prohibit certain Internet activities, including the operation of online games, which results inthe publication of any content which is found to, among other things, propagate obscenity, gambling or violence, instigate crimes, undermine publicmorality or the cultural traditions of the PRC, or compromise State security or secrets. If an ICP license holder violates these measures, the PRC governmentmay revoke its ICP license and shut down its Websites. In addition, the PRC government has issued several regulations concerning the installation of filter software to filter out unhealthy and vulgarcontent from the Internet. In April 1, 2009, the Ministry of Education, the MIIT and certain other PRC ministries and agencies issued a notice requiring that,by the end of May 2009, all computer terminals connected with the Internet at all elementary and secondary schools be able to include and operate GreenDam-Youth Escort, which is software aimed at filtering out unhealthy and vulgar content in text and graphics from the Internet and which, according to theWebsite for the software, may be used to control time spent on the Internet, prohibit access to computer games, and filter out unhealthy Websites. The MIITfurther expanded the scope of required use of this filter software by issuing a notice on May 19, 2009 requiring that, effective as of July 1, 2009, allcomputers manufactured and sold in the PRC have the latest available version of Green Dam-Youth Escort preinstalled when they leave the factory and thatall imported computers have the latest available version of Green Dam-Youth Escort preinstalled before being sold in the PRC. Green-Dam Youth Escort is tobe preinstalled on the hard drive of the computer or in the form of a CD accompanying the computer and is also to be included in the backup partition andsystem restore CD. However, on June 30, 2009, the MIIT postponed the implementation of this requirement regarding pre-installation of Green Dam-YouthEscort. On December 4, 2009, the MIIT and three other PRC governmental authorities jointly issued the Incentives Measures for Report of Pornographic,Obscene and Vulgar Messages on Internet and Mobile Media, or the Anti-Pornography Notice, to crack down on online pornography. Pursuant to the Anti-Pornography Notice, monetary rewards will be provided to Internet users who report Websites that feature pornography, and a committee has been establishedto review such reports to determine an appropriate award. During a PRC anti-pornography campaign, which continued during 2014, many Websites(including mobile Websites) that contained pornography were closed down. In addition, China Mobile announced a temporary suspension of billing forWireless Application Protocol, or (“WAP”) services, as a means of fighting against Websites providing pornographic content. On April 13, 2014, the National Working Group on Anti-Pornography and three other PRC governmental authorities jointly issued theProclamation of Special Action Regarding Crackdown on Online Pornographic Content, or the Anti-Pornography Proclamation. Under the Anti-Pornography Proclamation, Internet service providers must immediately remove texts, images, video, advertisements and other information that containpornographic content. The relevant governmental authorities may order enterprises or individuals who flagrantly produce or disseminate pornographiccontent to stop conducting business, and may revoke relevant administrative permits. Moreover, an enterprise or individual who provides telecom operationservices, network access services, advertising services or payment services to facilitate dissemination of pornographic content may have criminal or civilpenalties imposed under the PRC Criminal Law and other relevant laws and regulations. 52Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Laws and Regulations Related to Unfair Competition Pursuant to the Anti-Unfair Competition Law, which took effect in 1993, a business operator is prohibited from any of the following unfairactivities: · copying and using the registered trademarks of others; · using the same or similar names, packages or decorations of well-known brand name products so as to mislead buyers; · using the names of other enterprises without authorization so as to mislead buyers; and · forging identification marks, marks indicating good quality and other marks on commodities or falsifying the place of origin or using other falseindicators to mislead people with regard to quality. In addition, the Supreme People’s Court has promulgated an Interpretation on Several Issues Relating to the Application of the Law in Civil Trialsfor Unfair Competition Cases, which became effective as of February 1, 2007. This interpretation provides guidance on how to conduct trials involvingunfair competition, protect the legal rights and interests of business operators and maintain orderly market competition. Regulation of M&A and Overseas Listings On August 8, 2006, six PRC regulatory agencies, including the MOC, the State Assets Supervision and Administration Commission, the StateAdministration of Taxation, or the SAT, the SAIC, the CSRC, and the SAFE, jointly issued the Regulations on Mergers and Acquisitions of DomesticEnterprises by Foreign Investors, or the M&A Rule, which became effective on September 8, 2006 and amended on June 22, 2009. The M&A Rule includesprovisions that purport to require that an offshore special purpose vehicle formed for purposes of the overseas listing of equity interests in PRC companiesand controlled directly or indirectly by PRC companies or individuals obtain the approval of the CSRC prior to the listing and trading of such specialpurpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official Website procedures regarding its approval of overseas listings by special purposevehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC. The application of this new PRC regulation remainsunclear, with no consensus currently existing among leading PRC law firms regarding the scope of the applicability of the CSRC approval requirements. The M&A Rules also establish procedures and requirements that could make some acquisitions of Chinese companies by foreign investors moretime-consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction inwhich a foreign investor takes control of a Chinese domestic enterprise. In February 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review System for Mergers andAcquisitions of Domestic Enterprises by Foreign Investors, or Circular 6, which established a security review system for mergers and acquisitions of domesticenterprises by foreign investors. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having “national defense andsecurity” concerns and mergers and acquisitions by which foreign investors may acquire “de facto control” of domestic enterprises with “national security”concerns. In August 2011, the MOFCOM promulgated the Rules on Implementation of Security Review System, or the MOFCOM Security Review Rules, toreplace the Interim Provisions of the Ministry of Commerce on Matters Relating to the Implementation of the Security Review System for Mergers andAcquisitions of Domestic Enterprises by Foreign Investors promulgated by the MOFCOM in March 2011. The MOFCOM Security Review Rules, whichcame into effect on September 1, 2011, provide that the MOFCOM will look into the substance and actual impact of a transaction and prohibit foreigninvestors from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, controlthrough contractual arrangements or offshore transactions. Antitrust On August 30, 2007, the Standing Committee of the National People’s Congress of the PRC adopted the PRC Anti-Monopoly Law, or the AML,which became effective on August 1, 2008. In essence, the AML prohibits certain monopolistic acts that result in or could result in the elimination orrestriction of competition. After the promulgation of the AML, the State Council as well as various PRC governmental authorities, including the MOFCOM,the National Development and Reform Commission, or the NDRC, and the SAIC, promulgated a series of regulations from different perspectives to interpretand enforce the AML. Under the AML, monopolistic agreements, abuse of a dominant market position, and business combinations are considered to bemonopolistic acts that result in or could result in the elimination or restriction of competition. 53Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Pursuant to the AML, a business operator that possesses a dominant position in a relevant market is prohibited from abusing its dominant marketposition through (i) selling commodities at unfairly high prices or buying commodities at unfairly low prices; (ii) without justifiable reasons, sellingcommodities at prices below cost; (iii) without justifiable reasons, refusing to enter into transactions with its trading counterparties; (iv) without justifiablereasons, allowing trading counterparties to make transactions exclusively with itself or with business operators designated by it; (v) without justifiablereasons, tying commodities or imposing unreasonable trading conditions on transactions; (vi) without justifiable reasons, applying differential prices andother transaction terms among its trading counterparties who are on an equal footing; (vii) other acts determined to be abuse of dominant market position bythe relevant governmental authorities. If a business operator that possesses a dominant market position in a relevant market is deemed to be abusing itsdominant position, the SAIC and other competent PRC governmental authorities, may, at their discretion, order the business operator to cease the illegal acts,confiscate any illegal gains, and impose a fine of 1% to 10% of the business operator’s revenues for the preceding financial year. In addition, pursuant to the AML and related regulations, a proposed business combination is required to be reported to the anti-monopolygovernmental authority by the parties involved prior to its implementation, if the following thresholds, among others, are met: (i) the combined worldwide turnover in the preceding financial of the parties involved year exceeds RMB10 billion (or approximatelyUS$1.47 billion), and the nationwide turnover in the preceding financial year within the PRC of each of at least two of the parties involvedexceeds RMB400 million (or approximately US$58.8 million); or, (ii) the combined nationwide turnover in the preceding financial year within the PRC of all the parties involved exceeds RMB2 billion(or approximately US$294 million), and the nationwide turnover in the preceding financial year within the PRC of each of at least two of theparties involved exceeds RMB400 million (or approximately US$58.8 million). “Business Combinations” means any of the following: (i) merger of businesses; (ii) acquisition of control over another business by acquiring equityor assets; or (iii) acquisition of control over, or exercising decisive influence on, another business by contract or by any other means. Under the AML andother related regulations, transactions satisfying the thresholds for mandatory notification are not allowed to be implemented without the parties obtainingapproval from the anti-monopoly governmental authority. In case of any non-compliance with the notification and approval requirement, the anti-monopolygovernmental authority may order the parties involved to cease the transactions, dispose of shares or assets, transfer one of the combined businesses by nolater than a specified time, or take any other measures necessary to restore the status quo as of before the business combination. A fine of up to RMB500,000(or approximately US$73,000) may also be imposed by the anti-monopoly governmental authority. Furthermore, the parties to the proposed transactions aresubject to liability for any loss suffered by an individual or entity or individual as a result of the business combination. Foreign Currency Exchange and Dividend Distribution The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, or theFX Regulations, which were last amended in August 2008. Under the FX Regulations, the RMB is freely convertible for current account items, including thedistribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital account items, such as directinvestments, loans, repatriation of investments and investments in securities outside of the PRC, unless the prior approval of the SAFE is obtained and priorregistration with the SAFE is made. Dividends paid by a PRC subsidiary to its overseas shareholder are deemed income of the shareholder and are taxable inthe PRC. Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in the PRC maypurchase or remit foreign currency, subject to a cap approved by the SAFE, for settlement of current account transactions without the approval of the SAFE.Foreign currency transactions under the capital account are still subject to limitations and require approvals from, or registration with, the SAFE and otherrelevant PRC governmental authorities. In July 2014, the SAFE promulgated the Circular on Issues Concerning Foreign Exchange Administration Over the Overseas Investment andFinancing and Roundtrip Investment by Domestic Residents Via Special Purpose Vehicles, or Circular 37, which replaced Relevant Issues ConcerningForeign Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip Investment through Offshore Special Purpose Vehicles, orCircular 75. Circular 37 requires PRC residents, including PRC institutions and individuals, to register with the local SAFE office in connection with theirdirect establishment or indirect control of an offshore entity, referred to in Circular 37 as a “special purpose vehicle,” for the purpose of holding domestic oroffshore assets or interests. PRC residents must also file amendments to their registrations in the event of any significant changes with respect to the specialpurpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event.Under these regulations, PRC residents’ failure to comply with such regulations may result in restrictions being imposed on the foreign exchange activities ofthe relevant PRC entity, including the payment of dividends and other distributions to its offshore parent, as well as restrictions on capital inflows from theoffshore entity to the PRC entity, including restrictions on the ability to contribute additional capital to the PRC entity. Further, failure to comply with thevarious SAFE registration requirements could result in liability under PRC laws for evasion of foreign exchange regulations. Under Circular 37, if a non-listed special purpose vehicle uses its own equity to grant equity incentives to any directors, supervisors, seniormanagement or any other employees directly employed by a domestic enterprise which is directly or indirectly controlled by such special purpose vehicle, orwith which such an employee has established an employment relationship, related PRC residents and individuals may, prior to exercising their rights, applyto the SAFE for foreign exchange registration formalities for such special purpose vehicle. However, in practice, different local SAFE offices may havedifferent views and procedures on the interpretation and implementation of the SAFE regulations, and since Circular 37 was the first regulation to regulatethe foreign exchange registration of a non-listed special purpose vehicle’s equity incentives granted to PRC residents, there remains uncertainty with respectto its implementation. 54Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents On December 25, 2006, the PBOC issued the Administration Measures on Individual Foreign Exchange Control and related ImplementationRules were issued by the SAFE on January 5, 2007. Both became effective on February 1, 2007. Under these regulations, all foreign exchange transactionsinvolving an employee share incentive plan, share option plan, or similar plan participated in by onshore individuals may be conducted only with approvalfrom the SAFE or its local office. The principal regulations governing distribution of dividends of foreign holding companies include the Foreign Investment Enterprise Law (1986),which was amended in October 2000 and October, 2016, and the Administrative Rules under the Foreign Investment Enterprise Law (2001), which wasamended in February 2014. Under these regulations, foreign investment enterprises in China may pay dividends only out of their accumulated profits, if any, determined inaccordance with the PRC accounting standards and regulations. In addition, foreign investment enterprises in the PRC are required to allocate at least 10% oftheir accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises.These reserves are not distributable as cash dividends. Furthermore, under the Corporate Income Tax Law, which became effective on January 1, 2008, themaximum tax rate for the withholding tax imposed on dividend payments from PRC foreign invested companies to their overseas investors that are notregarded as “resident” for tax purposes is 20%. The rate was reduced to 10% under the Implementing Regulations for the PRC Corporate Income Tax Lawissued by the State Council. However, a lower withholding tax rate of 5% might be applied if there is a tax treaty between China and the jurisdiction of theforeign holding companies, such as is the case with Hong Kong, and certain requirements specified by PRC tax authorities are satisfied. Employee Share Option Plans Pursuant to the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan ofOverseas Listed Company , or Circular 7, which was issued by the SAFE on February 15, 2012, employees, directors, supervisors, and other seniormanagement participating in any share incentive plan of an overseas publicly-listed company who are PRC citizens or who are non-PRC citizens residing inChina for a continuous period of not less than one year, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent,which may be a PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, the SAT has issued certain circulars concerning employee share options and restricted shares. Under these circulars, employees workingin the PRC who exercise share options or are granted restricted shares will be subject to PRC individual income tax. The PRC subsidiaries of an overseaslisted company are obligated to file documents related to employee share options and restricted shares with relevant tax authorities and to withholdindividual income taxes of employees who exercise their share option or purchase restricted shares. If the employees fail to pay or the PRC subsidiaries fail towithhold income tax in accordance with relevant laws and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRCgovernmental authorities. Employment and Social Insurance On June 29, 2007, the National People’s Congress promulgated the Employment Contract Law of PRC, or the Employment Contract Law, whichbecame effective as of January 1, 2008 and amended on December 28, 2012. The Employment Contract Law requires employers to enter into writtencontracts with their employees, restricts the use of temporary workers and aims to give employees long-term job security. Pursuant to the Employment Contract Law, written employment contracts that were entered into prior to the implementation of the EmploymentContract Law and are in effect as of the date of its implementation will remain in effect. Where an employment relationship was established prior to theimplementation of the Employment Contract Law but no written employment contract was entered into, a written contract must be entered into within onemonth after the implementation of the Employment Contract Law On September 18, 2008, the State Council promulgated the Implementing Regulations for the PRC Employment Contract Law which came intoeffect immediately. These regulations interpret and supplement the provisions of the Employment Contract Law. In accordance with the Employment Contract Law, an employer shall control the number of dispatched workers so that they do not exceed a certainpercentage of its total number of workers. An employer that is in violation thereof shall be ordered to make correction by the labor administrative department.Where no correction is made by the prescribed deadline, the employer shall be fined of not less than RMB 5000 but not more than RMB 10,000 perdispatched worker involved. On January 24, 2014, the Ministry of Human Resources and Social Security issued the Interim Provisions on Labor Dispatching,which became effective on March 1, 2014. The Interim Provisions on Labor Dispatching provides that the number of dispatched workers used by anEmployer shall not exceed 10% of the total number of its employees. 55Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents PRC governmental authorities have passed a variety of laws and regulations regarding social insurance and housing funds from time to time,including, among others, the PRC Social Insurance Law , the Regulation of Insurance for Labor Injury , the Regulations of Insurance for Unemployment ,the Provisional Insurance Measures for Maternal Employees , and the Interim Provisions on Registration of Social Insurance . Pursuant to these laws andregulations, PRC companies must make contributions at specified levels for their employees to the relevant local social insurance and housing fundauthorities. Failure to comply with such laws and regulations may result in various fines and legal sanctions and supplemental contributions to the localsocial insurance and housing fund governmental authorities. Organizational Structure As of March 15, 2019, Sohu, our ultimate parent company and controlling shareholder; Tencent; and our directors and executive officers togetherhave shareholdings in us giving them approximately 97.9% of the total voting power of the combined total of our outstanding Class A and Class B ordinaryshares, due to the additional voting power of the Class B Ordinary Shares held by Sohu and Tencent. Sohu, through its ownership of Class B Ordinary Sharesand a voting agreement with Tencent Holdings Limited, has the right to appoint a majority of our Board of Directors. Sohu and Tencent together, throughtheir ownership of our Class B Ordinary Shares, have the power to decide all matters that are put to a vote of our shareholders. As of the date of the filing of this annual report, the following are our wholly-owned subsidiaries: · Sogou (BVI) Limited, or Sogou BVI, incorporated in the British Virgin Islands on December 23, 2005. · Beijing Sogou Technology Development Co., Ltd., or Sogou Technology, incorporated in the PRC on February 8, 2006. · Sogou Hong Kong Limited, or Sogou HK, incorporated in Hong Kong on December 12, 2007. · Vast Creation Advertising Media Services Limited, or Vast Creation, a Hong Kong Company acquired by us on November 30, 2011. · Beijing Sogou Network Technology Co., Ltd., or Sogou Network, incorporated in the PRC on March 29, 2012. · Sogou Technology Hong Kong Limited, or Sogou Technology HK, incorporated in Hong Kong on August 25, 2015. · Tianjin Sogou Network Technology Co., Ltd., or Tianjin Sogou Network, incorporated in the PRC on May 18, 2017. · Sogou (Shantou) Internet Microcredit Co., Ltd., or Sogou Shantou, incorporated in the PRC on November 22, 2017. · Sogou (Hangzhou) Intelligent Technology Co., Ltd., or Sogou Hangzhou, incorporated in the PRC on April 28, 2018. · Hefei Jing Hong Yun Zhi Network Technology Co., Ltd., or Jing Hong Yun Zhi, incorporated in the PRC on July 27, 2018. · Shanghai Sogou Network Technology Co., Ltd., or Shanghai Sogou, incorporated in the PRC on January 10, 2019. In order to comply with PRC regulatory requirements restricting foreign ownership of Internet information and content, Internet access, value-addedtelecommunications, and certain other businesses in China, we conduct a portion of our online search and search-related businesses and other business in thePRC through our VIE Sogou Information, which is incorporated in the PRC. In order to comply with PRC laws, Sogou Technology, Sogou Information, andthe three shareholders of Sogou Information, which are a VIE of Sohu that is a PRC company, a Tencent group entity that is a PRC company, and our ChiefExecutive Officer Xiaochuan Wang, who is a PRC citizen, are parties to a series of contractual arrangements that provide Sogou Technology with effectivecontrol of Sogou Information. Pursuant to these contractual arrangements, we operate a portion our business through Sogou Information and its subsidiariesas our VIEs in the PRC and a portion of our revenues are earned by and paid to Sogou Information. Under these contractual arrangements, Sogou Informationholds a portion of our assets, including licenses and permits required to operate our search and search-related businesses and other business, and SogouTechnology provides product development, technical support and marketing services to Sogou Information and holds most of the intellectual propertyrelating to the technology we use to operate our business. As a result of these contractual arrangements, our VIEs’ results of operations, assets, and liabilitiesare included in our consolidated financial statements. 56Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The following is a summary of our VIE Sogou Information and its subsidiaries: Sogou Information · Beijing Sogou Information Service Co., Ltd., or Sogou Information, was incorporated in December 2005. As of December 31, 2018, BeijingCentury High-Tech Investment Co., Ltd., a Sohu Group Company, and Shenzhen Tencent Computer System Co., Ltd., a Tencent group entity, andXiaochuan Wang, held 45%, 45%, and 10% equity interests, respectively, in this entity. Shi Ji Guang Su · Shenzhen Shi Ji Guang Su Information Technology Co., Ltd., or Shi Ji Guang Su, was acquired in September 2013 in connection with Tencent’sinvestment in us and Tencent’s transfer to us of its Soso search-related businesses. As of December 31, 2018, Sogou Information held 100% of theequity interest in this entity. Shi Ji Si Su · Beijing Shi Ji Si Su Technology Co., Ltd., or Shi Ji Si Su, was acquired in April 2015 for nominal consideration. As of December 31, 2018, SogouInformation held 100% of the equity interest in this entity. Chengdu Easypay · Chengdu Easypay Technology Co., Ltd., or Chengdu Easypay, was incorporated in January 2015. As of December 31, 2018, Sogou Informationand Shi Ji Si Su together held 100% of the equity interest in this entity. Hainan Sogou ·Hainan Sogou Information Technology Co., Ltd., or Hainan Sogou, was incorporated in the PRC on February 22, 2019. Sogou Information held100% of the equity interest in this entity. The following is a summary of the VIE agreements currently in effect: · Loan and share pledge agreements between Sogou Technology and the shareholders of Sogou Information. The loan agreement provides for aloan to Xiaochuan Wang, who holds 10% of the equity interest in Sogou Information, used by him to make contributions to the registered capitalof Sogou Information in exchange for his equity interest in Sogou Information. The loan is interest free and is repayable on demand, but Mr. Wangmay repay the loan only by transferring to Sogou Technology his equity interest in Sogou Information. Under the pledge agreement, all of theshareholders of Sogou Information pledge their equity interests to Sogou Technology to secure the performance of their obligations under certainof the VIE agreements. If any shareholder of Sogou Information breaches any of his or its obligations under any VIE agreements, SogouTechnology is entitled to exercise its rights as the beneficiary under the share pledge agreement. The share pledge agreement terminates only afterall of the obligations of the shareholders under the various VIE agreements are no longer in effect. · Equity interest purchase rights agreement between Sogou Technology, Sogou Information, and the shareholders of Sogou Information. Pursuantto these agreements, Sogou Technology and any third party designated by it have the right, exercisable at any time when it becomes legal to do sounder PRC law, to purchase from the shareholders of Sogou Information all or any part of their equity interests at the lowest purchase pricepermissible under PRC law. · Business operation agreement among Sogou Technology, Sogou Information and the shareholders of Sogou Information. The agreement sets forththe right of Sogou Technology to control the actions of the shareholders of Sogou Information in their capacity as such and of Sogou Information.The agreement has a term of 10 years and is renewable at the request of Sogou Technology. · Powers of attorney executed by the shareholders of Sogou Information in favor of Sogou Technology with a term of 10 years that is extendable atthe request of Sogou Technology. These powers of attorney give Sogou Technology the right to appoint nominees to act on behalf of each of thethree Sogou Information shareholders in connection with all actions to be taken by Sogou Information. · Technology consulting and service agreement between Sogou Technology and Sogou Information. Pursuant to this agreement Sogou Technologyhas the exclusive right to provide technical consultation and other related services to Sogou Information in exchange for a fee. The agreement hasa term of 10 years and is renewable at the request of Sogou Technology. Commerce & Finance Law Offices, our PRC counsel, has advised us that these agreements became effective upon signing, except for the pledgeunder the share pledge agreement, which became effective when the pledge was registered with applicable PRC governmental authorities. In the opinion ofour PRC counsel, Commerce & Finance Law Offices, the ownership structure and the contractual arrangements between Sogou Technology and SogouInformation and among Sogou Technology, Sogou Information, and the shareholders of Sogou Information comply with current PRC laws and regulationsand each of the these agreements is, and taken as a whole these agreements are, valid and legally binding upon each party to such agreements under the lawsof the PRC, and enforceable in accordance with its and their terms. We do not believe that any of these agreements would be deemed under PRC laws andregulations to create foreign ownership of the businesses operated through our VIEs that would violate PRC laws and regulations. However, our PRC counselhas also advised us that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations.Accordingly, PRC governmental authorities may ultimately take a view that is inconsistent with the opinion of our PRC counsel and our belief in that regard.See “Risk Factors—Risks Related to Our Corporate Structure.” 57Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The following diagram illustrates our corporate structure as of the date of this annual report: 58Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The shareholders of Sogou Information are Beijing Century High-Tech Investment Co., Ltd., a VIE of Sohu, Shenzhen Tencent Computer System Co., Ltd.,a Tencent group entity, and Xiaochuan Wang, our Chief Executive Officer, holding a 45%, 45%, and 10% equity interest, respectively, in thisentity, subject to VIE agreements with Sogou Technology. ITEM 4A. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled“Selected Consolidated Financial Data” and our consolidated financial statements and the related notes included elsewhere in this annual report. Thediscussion in this section contains forward-looking statements that involve risks and uncertainties. As a result of various factors, including those set forthunder “Item 3. Key Information—Risk Factors” and elsewhere in this annual report on Form 20-F, our actual future results may be materially different fromwhat we expect. Overview Our mission is to make it easy to communicate and get information. We are an innovator in search and a leader in China’s Internet industry. Our Sogou Search is the second largest search engine in China by mobilequeries, according to CTR, and we are the fourth largest Internet company in China based on MAU in December 2018, according to CTR. Our differentiatedsearch services, our industry-leading Sogou Input Method, the robust ecosystem we have built and shared with Tencent and other strategic partners, andsignificant breakthroughs in AI uniquely position us to capture opportunities in China’s search and Internet industry. Sogou Search had an 18.5% market share in China based on mobile queries in December 2018, according to CTR. Meanwhile, our mobile searchMAU increased from 545 million in December 2017 to 695 million in December 2018. We focused on delivering more authoritative search results to ourusers with highly relevant results that more accurately respond to user queries. We also enhanced our healthcare search services and established a healthcarecontent ecosystem that has become an industry benchmark. With the ongoing integration of AI technology, Sogou Search continued to evolve into anintelligent Q&A engine. In addition, we have built and share a robust ecosystem with Tencent and other strategic partners. We deliver differentiated content to our usersthrough services such as search access to the vast content from Tencent’s Weixin Official Accounts, China Literature, and Zhihu. We have continued toenhance our user acquisition channels by collaborating with our strategic partners and third parties. During 2018, we deepened our collaboration withTencent. We renewed our framework business collaboration arrangement with Tencent. As part of the arrangement, Sogou Search will remain the defaultsearch engine for a range of Tencent products that offer general search functions over the next five years. Sogou Search will also continue to be the searchpartner with Weixin/WeChat as the preferred search engine for third-party search services to access external Internet content within Weixin/WeChat for thenext year, and Tencent intends to extend this partnership over the next five years on an annual basis. Sogou Input Method is the largest Chinese language input software by both mobile and PC MAUs in December 2018, according to iResearch, and isthe first cloud-based Chinese language input software. Sogou Mobile Keyboard is the third largest mobile app in China in December 2018, according toiResearch, and is China’s largest and most popular voice app, based on our internal data. In December 2018, Sogou Mobile Keyboard had 426 million mobileDAUs, and processed up to 540 million daily voice requests. Sogou Input Method interfaces with virtually all applications that involve Chinese languageinput, generating massive and high-quality data that is critical to our big data capabilities. Sogou Input Method has the ability to anticipate users’ searchintentions in real-time and allows users to search directly with Sogou Search through its embedded search function, generating a significant portion of ourorganic search traffic. We are at the forefront of AI development with a clear roadmap. Focusing on natural interaction and knowledge computing, we have become aleader in language-centered AI capabilities, including speech, computer vision, machine translation, dialogue, and Q&A. We are applying our AI technologyto empower our search and mobile keyboard businesses in a range of user cases based on our own product portfolio. We are also exploring more AIapplications in multiple sectors and in various commercial settings. Our proven AI capabilities have allowed us to launch additional AI-enabled smarthardware products and will facilitate our launch of more disruptive products and services, such as virtual personal assistants (“VPAs”), to serve users anytime,anywhere. We have recorded substantial revenue growth, with an increase from US$660.4 million in 2016 to US$908.4 million in 2017 and US$ 1.124 billion in2018. We generate revenues primarily from search and search-related advertising services, which represented 91.0% of our total revenues in the year endedDecember 31, 2018. Key Factors Affecting Our Results of Operations Our business and results of operations are affected by trends in and the development of China’s online search market in general. In addition, as ourreporting currency is the U.S. dollar and almost all of our revenues and costs are denominated in RMB, our results of operations as reported in ourconsolidated financial statements are affected by fluctuations in the exchange rate between the RMB and the U.S. dollar. 59(1)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Trends in China’s online search industry The online search market in China has been growing rapidly. According to iResearch, China’s online search industry grew from RMB51.6 billion(US$7.7 billion) in 2014 to RMB85.2 billion (US$12.7 billion) in 2017. iResearch expects the industry to continue its growth to RMB117.1 billion(US$16.74 billion) in 2020 at a CAGR of 10.5% from 2017 to 2020. Advertisers have been increasingly shifting their advertising budgets toward onlineadvertising, and there has been increased demand for industry-specific online search in key verticals, such as education, e-commerce, online games, financialservices, and healthcare. Growth in the online search market has also been underpinned by the increased adoption of mobile devices and continued growth ofmobile search traffic. Search engines in China have been adapting to such trends by focusing on mobile search quality through improving technologicalcapabilities and expanding their user acquisition channels on mobile devices, which has generally resulted in increased expenditures for mobile trafficacquisition. Since the beginning of 2018 competition for mobile traffic acquisition has intensified, which has accelerated earlier trends toward higher trafficacquisition costs, which we anticipate will continue. The online search industry has been and may in the future be affected by changes in the PRC macroeconomic and regulatory environment in China.For example, unfavorable macroeconomic conditions in China dampened the online advertising sentiment in general, and regulatory headwinds for certainsectors such as gaming also had an adverse effect on advertiser spending, which affected the online search industry in 2018. Ability to expand advertiser base In order to expand our advertiser base and increase the average revenue per advertiser, or ARPA, we focus on enhancing the effectiveness of ouradvertising services. We source our advertisers primarily through our network of advertising agencies. From time to time, we may provide discounts andrebates to attract and incentivize advertising agencies. In the last three years, the rates of discounts and rebates have remained relatively stable, but may besubject to change as we respond to market conditions. Ability to improve user experience We are dedicated to addressing the evolving needs of our users by continually enhancing our suite of products and services. Our focus on enhancinguser experience has led to significant growth of our user base and search traffic. MAU of our mobile search increased by 58.7% from 438 million inMarch 2016 to 695 million in December 2018. MAU of our Sogou Mobile Keyboard increased by 112.2% from 263 million in March 2016 to 558 million inDecember 2018. The following table sets forth MAU data for our mobile search, and MAU and DAU data for our Sogou Mobile Keyboard, for the monthsindicated: Mar.2016 Jun.2016 Sep.2016 Dec.2016Mar.2017Jun.2017Sep.2017Dec.2017Mar.2018Jun.2018Sep.2018Dec.2018 Mobile SearchMAU (in millions)438442447457473483511545578581643695Sogou Mobile KeyboardMAU (in millions)263275311340373403427451490519542558DAU (in millions)154167198226256283307331362386405424 We generally do not track DAU for mobile search, as we believe that MAU is a better measure of the user base over time. MAU for search tends to berelatively stable from period to period, whereas DAU can be volatile. We also believe that reporting MAU, and not DAU, for search is consistent with industrypractice in general. However, we believe that there is a benefit to providing DAU, as well as MAU, for Sogou Mobile Keyboard because Sogou MobileKeyboard is a tool that is widely used by many users on a daily basis fairly consistently, so tracking DAU can provide additional relevant information. We plan to continue to optimize experience for our users by improving our products and services through big data and AI technologies andcollaborating with third parties. By doing so, we aim to attract and retain users and enjoy continued MAU and search traffic growth in the future. Ability to strengthen our technological capabilities, especially AI and big data The online search business has undergone constant technological evolution in recent years. In particular, AI and big data have been transforming,and will continue to transform, the search industry. We are dedicated to continually enhancing and applying our technological capabilities to new forms ofsearch and other applications. To maintain our leadership in technology, we have increased our investments in research and development and expect tocontinue to do so. 60Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Ability to broaden user acquisition channels As users increasingly use mobile devices to access the Internet, through 2018 we actively expanded our user acquisition channels for mobileproducts, and in particular, partnerships with mobile device manufacturers. Mobile browsers and search applications serve as major user acquisition channelsfor search engine service providers. Hence, we increased the prevalence of our search engine in mobile browsers pre-installed by mobile devicemanufacturers, and expanded the distribution of our mobile search application and other mobile applications, in order to direct search traffic to us. We expectour traffic acquisition costs to continue to trend higher due to increasingly intensified competition for channel partnerships, which we intend to mitigate byincreasingly focusing on organic channels to generate traffic growth. Key Components of Results of Operations Our Revenues We generate revenues primarily from our search and search-related advertising services, which enable advertisers’ promotional links to be displayedon our search result pages and other Internet properties and third parties’ Internet properties where the links are relevant to the search queries and suchproperties. Our advertising services expand distribution of advertisers’ promotional links and advertisements by leveraging traffic on third parties’ Internetproperties, including Web content, software, and mobile applications. Search and search-related advertising services consist primarily of auction-based pay-for-click services, for which we charge advertisers on a perclick basis when users click on the advertisers’ promotional links displayed on our search result pages and other Internet properties and third parties’ Internetproperties. Revenues generated from our auction-based pay-for-click services accounted for 77.6%, 83.0%, and 83.8%, respectively, of the total revenuesderived from our search and search-related advertising services in 2016, 2017, and 2018. We also generate revenues from other business by offering IVAS, primarily with respect to our operation of Web games and mobile games developedby third parties and provision of online reading services, as well as by offering other products and services, including smart hardware products. Cost of Revenues Cost of revenues consists primarily of traffic acquisition costs; bandwidth costs; server and Internet equipment depreciation associated with theoperation of our Internet properties; salary and benefits expenses, and share-based compensation, for our staff employed in network operations; and costsrelated to our other business. Traffic acquisition costs represent the most significant portion of our cost of revenues. Our traffic acquisition costs consist primarily of payments to third parties that direct search queries of their users to our Internet properties ordistribute our advertisers’ promotional links through such third parties’ Internet properties. The traffic acquisitions costs for such arrangements consistprimarily of fees that we pay to the third parties based on an agreed-upon unit price and revenue-sharing payments that we make to the third parties based onan agreed-upon percentage of revenues generated from users’ clicks. Operating Expenses Our operating expenses consist of research and development expenses, sales and marketing expenses, and general and administrative expenses.Share-based compensation expense is included in each of these categories of expense. Research and Development Expenses Research and development expenses consist primarily of salary and benefits expenses and share-based compensation for our research anddevelopment personnel; fees for outsourced technical services associated with our product development; costs associated with the use of facilities forresearch and development purposes; and content and license fees associated with collaboration with some of our business partners. Sales and Marketing Expenses Sales and marketing expenses consist primarily of advertising and promotional expenses; salary and benefits expenses and share-basedcompensation for personnel engaged in sales and marketing. Advertising and promotional expenses generally represent the expenses incurred for promotingour products and services and our brand. General and Administrative Expenses General and administrative expenses consist primarily of salary and benefits expenses and share-based compensation for employees involved ingeneral corporate operations, allowances for doubtful accounts and credit losses, as well as professional service fees. 61Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Taxation PRC PRC Corporate Income Tax The PRC Corporate Income Tax Law including its implementing regulations, or the CIT Law, generally applies an income tax rate of 25% to allenterprises incorporated in the PRC, including foreign-invested enterprises, such as our PRC subsidiaries, and domestic companies, such as our VIEs, butgrants preferential tax treatment to “High and New Technology Enterprises,” or HNTEs, qualified Software Enterprises, and “Key National SoftwareEnterprises,” or KNSEs. HNTEs are instead subject to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. During thisthree-year period, an HNTE must conduct a qualification self-review each year to ensure it meets the HNTE criteria, and will be subject to the regular 25%income tax rate for any year in which it does not meet the criteria. Sogou Technology qualified as an HNTE for the three years ending December 31, 2017,2018, and 2019, and will need to re-apply for HNTE qualification in 2020. Sogou Information qualified as an HNTE for the three years ended December 31,2018, 2019, and 2020, and will need to re-apply for HNTE qualification in 2021. Sogou Network qualified as an HNTE for the year ended December 31,2016, 2017, and 2018, and will need to re-apply for HNTE qualification in 2019. A Software Enterprise is entitled to an income tax exemption for two years beginning with its first profitable year and a 50% reduction to a rate of12.5% for the subsequent three years. An entity that qualifies as a KNSE is entitled to a further reduced preferential income tax rate of 10%. Enterpriseswishing to enjoy the status of a Software Enterprise or a KNSE must perform a self-assessment each year to ensure they meet the criteria for qualification andfile required supporting documents with the tax authorities before using the preferential CIT rates. These enterprises are subject to the tax authorities’assessment each year as to whether they are entitled to use the relevant preferential CIT treatments. If at any time during the preferential tax treatment years anenterprise uses the preferential CIT rates but the relevant authorities determine that it fails to meet applicable criteria for qualification, the relevant authoritiesmay revoke the enterprise’s Software Enterprise/KNSE status. Sogou Technology qualified in 2016, 2017 and 2018 for the preferential income tax rate of10% for 2015, 2016 and 2017 as a KNSE and will follow the same process in 2019. Sogou Network qualified in 2016 for the preferential income tax rate of12.5% for 2015 as a Software Enterprise. If our holding company in the Cayman Islands or any of our subsidiaries outside the PRC is considered as a PRC resident enterprise for tax purposes,then our global income will be subject to PRC enterprise income tax at the rate of 25%. See “Risk Factors—Risks Related to China’s RegulatoryEnvironment—We may be deemed a PRC resident enterprise under the CIT Law and be subject to PRC taxation on our worldwide income.” PRC Withholding Tax on Dividends Under the CIT Law and its implementation rules, the profits of a foreign-invested enterprise arising in 2008 and thereafter that are distributed to itsimmediate holding company outside the PRC are subject to withholding tax at a rate of 10%. A lower withholding tax rate will be applied if there is abeneficial tax treaty between the PRC and the jurisdiction of the foreign holding company. A holding company in Hong Kong, for example, will be eligible,with approval of the PRC local tax authority, to be subject to a 5% withholding tax rate under the China HK Tax Arrangement if such holding company isconsidered to be a non-PRC resident enterprise and holds at least 25% of the equity interests in the PRC foreign-invested enterprise distributing thedividends. However, if such Hong Kong holding company is not considered to be the beneficial owner of such dividends under applicable PRC taxregulations, such dividend will remain subject to withholding tax at a rate of 10%. PRC Value-Added Tax We are subject to VAT at a rate of 6% or 16% depending on the type of service or product that we offer. Before May 1, 2018, we were subject to VATat a rate of 6% or 17%. Cayman Islands We are not subject to income or capital gains tax under the current laws of the Cayman Islands. There are no other taxes likely to be material to uslevied by the government of the Cayman Islands. British Virgin Islands Under the current laws of British Virgin Islands, Sogou BVI is not subject to tax on income or capital gains. There are no other taxes likely to bematerial to us levied by the government of the British Virgin Islands. 62Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Hong Kong Under the current Hong Kong Inland Revenue Ordinance, our Hong Kong subsidiaries Sogou Hong Kong Limited, Vast Creation Advertising MediaServices Limited, and Sogou Technology Hong Kong Limited are subject to income tax at a rate of 16.5%. Hong Kong dose not impose a withholding taxon dividends. Results of Operations You should read the information set forth and discussed in this section in conjunction with our consolidated financial statements and related notesincluded elsewhere in this annual report. The year-to-year comparisons discussed below may not be indicative of our future trends. The following table summarizes our historical results of operations for the periods indicated: For the Year Ended December 31,2016 2017 2018(US$ in thousands)Revenues:Search and search-related advertising revenues597,213801,5511,023,132Other revenues63,195106,806101,026Total revenues660,408908,3571,124,158Cost of revenues 302,736457,401693,470Gross profit357,672450,956430,688Operating expenses:Research and development 138,364172,829201,739Sales and marketing 123,119156,420146,194General and administrative 24,56727,82138,072Total operating expenses286,050357,070386,005Operating income71,62293,88644,683Interest income5,1989,1268,037Foreign currency exchange gain/(loss)5,346(7,082)5,725Other (expenses)/ income, net(26,027)69241,489Income before income tax expenses56,13996,62299,934Income tax expenses2714,4221,153Net income56,11282,20098,781 Share-based compensation expense included in:Cost of revenues171540669Research and development5,61516,47010,313Sales and marketing1,8164,2991,327General and administrative5,2592,4141,89512,86123,72314,204 Year Ended December 31, 2018 Compared to Year Ended December 31, 2017 Revenues Our revenues were US$908.4 million and US$1.124 billion, respectively, for the years ended December 31, 2017 and 2018, representing a year-over-year increase of 23.8%. 63(1)(1)(1)(1)(1)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The following table sets forth the relative percentage of our revenues in 2017 and 2018 generated from search and search-related advertising servicesand from other business. For the Year Ended December 31 2017 % ofRevenues 2018 % ofRevenues (US$ in thousands) Revenues:Search and search-related advertising revenues801,55188.2%1,023,13291.0%Other revenues106,80611.8%101,0269.0%Total revenues908,357100.0%1,124,158100.0% Revenues generated from our search and search-related advertising services were US$801.6 million and US$1.023 billion, respectively, for the yearsended December 31 2017, and 2018, representing a year-over-year increase of 27.6%. The increase in our search and search-related advertising revenuesresulted primarily from an increase in revenues generated from our auction-based pay-for-click services, which accounted for 83.0% and 83.8%, respectively,of our search and search-related advertising revenues in 2017 and 2018. The growth in revenues from auction-based pay-for-click services resulted primarilyfrom increases in both ARPA, and to a lesser extent, in the number of our advertisers. The ARPA for auction-based pay-for-click services was US$4,856 andUS$6,168, respectively, for the years ended December 31 2017 and 2018, representing a year-over-year increase of 27.0%. The number of our auction-basedpay-for-click advertisers was approximately 137,000 and 139,000, respectively, for the years ended December 31, 2017 and 2018, representing a year-over-year increase of 1.5%. The increase in ARPA was primarily attributable to a higher cost per click paid by advertisers, which we believe in turn resultedprimarily from enhanced effectiveness of our advertising services, driven by machine learning technologies and big data capabilities that improved the matchbetween advertising content and users’ search intent. Revenues generated from our mobile auction-based pay-for-click services accounted for 82% and 88%,respectively, of our total auction-based pay-for-click revenues for the years ended December 31 2017 and 2018. Other revenues were US$106.8 million and US$101.0 million, respectively, for the years ended December 31, 2017 and 2018, representing a year-over-year decrease of 5.4%. The decrease in other revenues was primarily attributable to a decrease in revenues from sales of smart hardware products due toour phase-out of some legacy products. Cost of Revenues Our overall cost of revenues increased from US$457.4 million in 2017 to US$693.5 million in 2018, representing a year-over-year increase of 51.6%.The increase in cost of revenues was primarily attributable to an increase in traffic acquisition costs. We incurred traffic acquisition costs of approximatelyUS$303.6 million and US$532.7 million, respectively, in 2017 and 2018, representing a year-over-year increase of 75.5%. The increase outpaced the increasein our search and search-related advertising revenues during the same period, primarily due to price inflation as a result of increased competition. Gross Profit Gross profit decreased from US$451.0 million in 2017 to US$430.7 million in 2018, representing a year-over-year decrease of 4.5%. Gross marginswere 49.6% and 38.3%, respectively, for the years ended December 31, 2017 and 2018. The decrease in our gross margin from 2017 to 2018 was mainly dueto higher traffic acquisition costs as a percentage of our revenues. Operating Expenses The following table summarizes the components of our operating expenses for 2017 and 2018: For the Year Ended December 31, 2017 % ofRevenues 2018 % ofRevenues (US$ in thousands) Operating expenses:Research and development172,82919.0%201,73917.9%Sales and marketing156,42017.2%146,19413.0%General and administrative27,8213.1%38,0723.4%Total operating expenses357,07039.3%386,00534.3% Research and Development Expenses Our research and development expenses increased from US$172.8 million in 2017 to US$201.7 million in 2018, representing a year-over-yearincrease of 16.7%. The increase was primarily attributable to an increase in salary and benefits expenses for our research and development staff driven byhigher headcount and increased average salary, as well as increased outsourced product development fees, reflecting our continued efforts to strengthen ourAI and other technological capabilities. 64Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Sales and Marketing Expenses Our sales and marketing expenses decreased from US$156.4 million in 2017 to US$146.2 million in 2018, representing a year-over-year decrease of6.5%. The decrease was mainly attributable to decreased marketing and promotional spending for some of our mobile products. General and Administrative Expenses Our general and administrative expenses increased from US$27.8 million in 2017 to US$38.1 million in 2018, representing a year-over-year increaseof 36.8%. The increase was primarily due to an increase in allowances for doubtful accounts and credit losses. Other Income, Net Other income, net increased from US$0.7 million in 2017 to US$41.5 million in 2018. The increase was primarily due to increased gains from short-term investments and gains recognized from long-term equity investments under a new accounting standard (ASC321) that became effective on January 1,2018. Income Tax Expenses Our income tax expenses decreased from US$14.4 million in 2017 to US$1.2 million in 2018. The decrease was mainly due to a decrease in taxableincome as a result of increased tax-exempt income and more tax credits allowed under new PRC tax regulations, as well as a relatively larger tax benefitrelated to the preferential tax rate that Sogou Technology was entitled to as a KNSE. Net Income As a result of the foregoing, we had net income of US$82.2 million and US$98.8 million, respectively, for 2017 and 2018. Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 Revenues Our revenues were US$660.4 million and US$ 908.4 million, respectively, for the years ended December 31, 2016 and 2017, representing a year-over-year increase of 37.5%. The following table sets forth the relative percentage of our revenues in 2016 and 2017 generated from search and search-related advertising servicesand from other business. For the Year Ended December 31 2016 % ofRevenues 2017 % ofRevenues (US$ in thousands) Revenues:Search and search-related advertising revenues597,21390.4%801,55188.2%Other revenues63,1959.6%106,80611.8%Total revenues660,408100.0%908,357100.0% Revenues generated from our search and search-related advertising services were US$597.2 million and US$801.6 million, respectively, for the yearsended December 31 2016, and 2017, representing a year-over-year increase of 34.2%. The increase in our search and search-related advertising revenuesresulted primarily from the increase in revenues generated from our auction-based pay-for-click services, which accounted for 77.6% and 83.0%, respectively,of our search and search-related advertising revenues in 2016 and 2017. The growth in revenues from auction-based pay-for-click services resulted fromincreases both in ARPA and in the number of our advertisers. The ARPA for auction-based pay-for-click services was US$3,995 and US$4,856, respectively,for the years ended December 31 2016 and 2017, representing a year-over-year increase of 21.6%. The number of our auction-based pay-for-click advertiserswas approximately 116,000 and 137,000, respectively, for the years ended December 31, 2016 and 2017, representing a year-over-year increase of 18.1%.The increase in ARPA was primarily attributable to the increase in the number of paid clicks. The total number of our paid clicks increased by 43.0% from theyear ended December 31, 2016 to the year ended December 31, 2017, primarily driven by strong growth in mobile paid clicks as a result of rapidly-growingmobile traffic and an improved click-through rate on the mobile end, which was partially offset by declining PC paid clicks. Revenues generated from ourmobile auction-based pay-for-click services accounted for 57% and 82%, respectively, of our total auction-based pay-for-click revenues for the years endedDecember 31 2016 and 2017. 65Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Other revenues were US$63.2 million and US$106.8 million, respectively, for the years ended December 31, 2016 and 2017, representing a year-over-year increase of 69.0%. The increase in other revenues was primarily attributable to the increase in revenues from IVAS , and sales of smart hardwareproducts. Cost of Revenues Our overall cost of revenues increased from US$302.7 million in 2016 to US$457.4 million in 2017, representing a year-over-year increase of 51.1%.The increase in cost of revenues was primarily attributable to an increase in traffic acquisition costs. We incurred traffic acquisition costs of approximatelyUS$202.5 million and US$303.6 million, respectively, in 2016 and 2017, representing a year-over-year increase of 50.0%. The increase outpaced the increasein our search and search-related advertising revenues during the same period, primarily due to an increase in the portion of our mobile search traffic that wasdirected to us by third parties. Gross Profit Gross profit increased from US$357.7 million in 2016 to US$451.0 million in 2017, representing a year-over-year increase of 26.1%. Gross marginswere 54.2% and 49.6%, respectively, for the years ended December 31, 2016 and 2017. The decrease in our gross margin from 2016 to 2017 was mainly dueto higher traffic acquisition costs as a percentage of our revenues. Operating Expenses The following table summarizes the components of our operating expenses for 2016 and 2017: For the Year Ended December 31, 2016 % ofRevenues 2017 % ofRevenues (US$ in thousands) Operating expenses:Research and development138,36421.0%172,82919.0%Sales and marketing123,11918.6%156,42017.2%General and administrative24,5673.7%27,8213.1%Total operating expenses286,05043.3%357,07039.3% Research and Development Expenses Our research and development expenses increased from US$138.4 million in 2016 to US$172.8 million in 2017, representing a year-over-yearincrease of 24.9%. The increase was primarily attributable to an increase in salary and benefits expenses for our research and development staff driven byincreased average salary and higher headcount and increased share-based compensation expense driven by an increase in the fair value of share optionsgranted by us to our research and development staff, as well as increased outsourced product development fees, reflecting our continued efforts to strengthenour AI and other technological capabilities. Sales and Marketing Expenses Our sales and marketing expenses increased from US$123.1 million in 2016 to US$156.4 million in 2017, representing a year-over-year increase of27.0%. The increase was attributable to more marketing and promotional activities for our mobile products, including pre-installation by mobile devicemanufacturers and distribution through mobile app stores and other channels and increased sales and marketing staff salary and benefits driven by increasedaverage salary and higher headcount. General and Administrative Expenses Our general and administrative expenses increased from US$24.6 million in 2016 to US$27.8 million in 2017, representing a year-over-year increaseof 13.2%. The increase was primarily due to increase in salary and benefits expenses for employees involved in general corporate operations driven by higherheadcount and increased average salary. Other (Expenses)/Income, Net Other expenses, net was US$26.0 million in 2016, and other income, net was US$0.7 million in 2017. Other expenses, net in 2016 was primarily dueto our one-time donation of approximately US$27.8 million to Tsinghua University in the second quarter of 2016 related to the jointly-established TiangongResearch Institute for Intelligent Computing, which is dedicated to research and development in the field of AI. 66Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Income Tax Expenses Our income tax expenses increased from US$27,000 in 2016 to US$14.4 million in 2017. The increase was mainly due to an increase in taxableincome and a relatively smaller tax benefit related to the preferential tax rate that Sogou Technology was entitled to as a KNSE. Net Income As a result of the foregoing, we had net income of US$56.1 million and US$82.2 million, respectively, for 2016 and 2017. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which havebeen prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, included elsewhere in this annual report. Thepreparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and onvarious other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about thecarrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions. When reviewing our financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgmentand other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. Wehave summarized below the critical accounting policies that we believe reflect the most significant judgments and estimates used in the preparation of ourconsolidated financial statements. Consolidation of VIEs Our VIE Sogou Information is owned by our Chief Executive Officer, a VIE of Sohu, and a Tencent group entity, each of which acts as our nomineeshareholder, and our other three VIEs are wholly-owned subsidiaries of Sogou Information. For our consolidated VIEs, our management made evaluation ofthe relationships between us and our VIEs and the economic benefit flow of contractual arrangements with Sogou Information. In connection with suchevaluation, management also took into account the fact that, as a result of such contractual arrangements, we control the shareholders’ voting interests inthese VIEs. As a result of such evaluation, management concluded that we are the primary beneficiary of our consolidated VIEs. We do not have any VIEsthat are not consolidated in our financial statements. Recognition of Revenues On January 1, 2018, we adopted ASC 606, using the modified retrospective method applied to contracts that were not completed as of January 1,2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continueto be reported in accordance with our historic accounting under ASC 605. The adoption did not have a material impact on retained earnings as of January 1,2018 and our financial statements as of and for the year ended December 31, 2018. The adoption of ASC 606 mainly resulted in a change to our accounting policy for advertising-for-advertising barter transactions. Under ASC 605,revenues or expenses from barter transactions were recognized at fair value during the period in which the advertisements were provided only if the fair valueof the advertising services surrendered in the transaction was determinable based on the entity’s own historical practice of receiving cash and cashequivalents, marketable securities, or other consideration that was readily convertible to a known amount of cash for similar advertising from buyersunrelated to the counterparty in the barter transaction. If the fair value of the advertising surrendered in the barter transaction was not determinable, the bartertransaction would be recorded based on the carrying amount of the advertising surrendered, which would likely be zero. ASC 606 has suspended the aboveguidance of ASC 605 and provides that when the contract consideration from a customer is in forms other than cash, the revenue will be measured at the fairvalue of the non-cash consideration, or indirectly measured by reference to the standalone selling price of the goods or services promised to the customer ifthe fair value of the non-cash consideration cannot be reasonably estimated. For the years ended December 31, 2016, and 2017, we engaged in certain advertising barter transactions for which the fair value was notdeterminable under ASC 605 and therefore no revenues or expenses derived from these barter transactions were recognized. For the year ended December 31,2018, because of the adoption of ASC 606, we estimated the fair value of advertising services received in barter transactions and recognized US$21.8 millionin revenues, with a corresponding increase in cost of revenues and sales and marketing expenses. The adoption of ASC 606 did not have a material impact onour consolidated balance sheet, consolidated statement of cash flows, or consolidated statement of changes in equity as of and for the year endedDecember 31, 2018. Under Topic 606, we recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects theconsideration we expect to be entitled to in exchange for those goods or services. 67Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We determine revenue recognition through the following steps: Step 1: identification of the contract, or contracts, with a customer;Step 2: identification of the performance obligations in the contract;Step 3: determination of the transaction price;Step 4: allocation of the transaction price to the performance obligations in the contract; andStep 5: recognition of revenue when, or as, we satisfy a performance obligation. Our revenues are derived primarily from search and search-related advertising services. We also derive revenues from IVAS, which consists primarilyof our operation of Web games and mobile games developed by third parties and provision of online reading services, and from other products and services,including smart hardware products. The following table presents revenues disaggregated by revenue source, net of VAT. For the Year EndedDecember 31,2016 2017 2018(US$ in thousands) Search and search-related advertising revenues597,213801,5511,023,132Other revenues63,195106,806101,026Total660,408908,3571,124,158 As noted above, prior period amounts have not been adjusted, pursuant to the modified retrospective method. The search and search-related advertising revenues and total revenues for the year ended December 31, 2018 would be US$1.001 billion and US$1.102billion without adoption of ASC 606. Search and Search-related Advertising Revenues We procure a majority of our search and search-related advertisers through advertising agencies. Discounts and other cash incentives provided to theadvertising agencies are accounted for as a reduction of revenues. Pay-for-click Services Pay-for-click services enable advertisers’ promotional links to be displayed on our search result pages and other Internet properties and third parties’Internet properties where the links are relevant to the subject and content of searches and such properties. For pay-for-click services, we introduce Internetusers to our advertisers through our auction-based pay-for-click systems and charge advertisers on a per click basis when the users click on the displayedlinks. The performance obligation of pay-for-click services is satisfied at the point in time when the users click on the displayed links, and revenue for pay-for-click services is recognized on a per click basis. Other Online Advertising Services Other online advertising services mainly consist of displaying advertisers’ promotional links on our Internet properties. For time-based advertisingservices, the performance obligation is satisfied over time when the advertising links are displayed over the contract periods, and revenue is normallyrecognized on a straight-line basis over the contracted displaying period. For performance-based advertising services, for example, the advertisers are chargedbased on the times that users download from the displayed links, and the performance obligation is satisfied at the point in time when the promisedperformance is completed, and the revenue is recognized at the completion of the promised performance. Our online advertising services expand distribution of advertisers’ promotional links and advertisements by leveraging traffic on third parties’Internet properties, including Web content, software, and mobile applications. We are the principal in such arrangements because our promise to advertisers isto provide the advertising services ourselves rather than arrange for the advertising services to be provided by third parties on their Internet properties.Payments made to operators of third-party Internet properties are included in the traffic acquisition costs. Other Revenues Other revenues consist of IVAS revenues, which are mainly from our operation of Web games and mobile games developed by third parties andprovision of online reading services, as well as revenues from other products and services, including smart hardware products. Other revenues are recognizedwhen our performance obligations under the applicable agreements have been satisfied. Contract Balances The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced andrevenue recognized prior to invoicing, when we have satisfied our performance obligations and have the unconditional right to payment. The carrying valueof accounts receivable is reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management makesestimates of the collectability of accounts receivable. In estimating the general allowance, many factors are considered, including reviewing delinquentaccounts receivable, performing aging analyses and customer credit analyses, and analyzing historical bad debt records and current economic trends.Additional allowance for specific doubtful accounts might be made if the financial conditions of our customers deteriorate, resulting in their inability tomake payments due to us. 68(1)(1)(2)(1)(2)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Receipts in advance relate to unsatisfied performance obligations at the end of the year and consist of cash payments received in advance fromcustomers. The unused cash balances remaining in customers’ accounts are recorded as our liability. Due to the generally short-term duration of our contracts,the majority of the performance obligations are satisfied in one year. The amount of revenue recognized that was included in receipts in advance balance atthe beginning of the year was US$63.5 million for the year ended December 31, 2018. Revenues recognized in the current year from performance obligations related to prior years were not material. Practical Expedients We have used the following practical expedients as allowed under ASC 606: (i) The transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, has not been disclosed, as substantiallyall of our contracts have a duration of one year or less; (ii) Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one yearor less. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally donot include a significant financing component; and (iii) We generally expense sales commissions when incurred because the amortization period would be one year or less. These costs are recordedwithin sales and marketing expenses. Cost Allocations Our consolidated statements of comprehensive income comprise all the related costs of our operations, which include an allocation of certainresearch and development expenses paid by Sohu to provide technical support to the search and search-related business and expense related to Sohu stock-based awards granted to our employees. These allocations are based on a variety of factors that depend upon the nature of the expenses being allocated,including the number of employees and the percentage of computer systems’ workload that is for services provided to us. We believe the basis and amounts of the allocations are reasonable. While the expenses allocated to us are not necessarily indicative of the expensesthat would have been incurred if we had been a separate, stand-alone entity, we do not believe that there is any significant difference between the nature andamounts of these allocated expenses and the expenses that would have been incurred if we had been a separate, stand-alone entity. Pursuant to an agreement between us and Sohu, we do not need to repay Sohu for share-based compensation expense related to our employees, andresearch and development expenses allocated from Sohu. Accordingly, we recognize the related amounts as capital contributions from Sohu as the expensesare incurred. Income Taxes and Uncertain Tax Positions Income Taxes Income taxes are accounted for using an asset and liability approach that requires the recognition of income taxes payable or refundable for thecurrent year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or taxreturns. Deferred income taxes are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measuredusing tax rates and tax laws in effect as of the measurement date. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it isconsidered more likely than not that some portion of or all of the deferred tax assets will not be realized. In making such determination, we consider factorsthat include (i) future reversals of existing taxable temporary differences, (ii) future profitability, and (iii) tax planning strategies. Uncertain Tax Positions In order to assess uncertain tax positions, we apply a more likely than not threshold and a two-step approach for financial statement recognition andmeasurement of the tax position. For the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight ofavailable evidence indicates that it is more likely than not that the position will be sustained, including resolution of any related litigation processes andappeals. The second step is to measure the tax benefit as the largest amount that is more likely than not to be realized upon settlement. Significant judgmentis required in evaluating our uncertain tax positions and determining our provision for income taxes. 69Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Long-term Investments Investments in entities are recorded as equity investments under long-term investments. For entities over which we can exercise significant influence but donot own a majority equity interest or have control, the equity method is applied. For entities over which we do not have significant influence, the costmethod was applied before the adoption of ASC321 effective as of January 1, 2018; after the adoption of ASC 321, these investments should generally bemeasured at fair value, with gains or losses resulting from changes in fair value recognized in earnings. Based on ASC 321, an entity may elect to recordequity investments without readily determinable fair values and not accounted for by the equity method at cost, less impairment, adjusted for subsequentobservable price changes. Entities that elect this measurement alternative will report changes in the carrying values due to re-measurement based onobservable price changes of the equity investments in current earnings. As of December 31, 2018, all of our equity investments were accounted as equityinvestments without readily determinable fair values. Impairment of Long-lived Assets The carrying values of long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value ofan asset may not be recoverable. Based on the existence of one or more indicators of impairment, we measure any impairment of long-lived assets using theprojected discounted cash flow method at the asset group level. The estimation of future cash flows requires significant management judgment based on ourhistorical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in our business model isdetermined by us. An impairment charge would be recorded if we were to determine that the carrying value of long-lived assets may not be recoverable. Theimpairment to be recognized would be measured by the amount by which the carrying values of the assets exceeded the fair value of the assets. Fair Value of Financial Instruments U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded atfair value, we consider the principal or most advantageous market in which a transaction would be expected to occur and considers assumptions that marketparticipants would use when pricing the asset or liability. U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financialinstruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fairvalue. The three-tier fair value hierarchy is: Level 1—observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2—other inputs that are directly or indirectly observable in the marketplace. Level 3—unobservable inputs that are supported by little or no market activity. Our financial instruments primarily include cash equivalents, short-term investments, accounts receivable, loans and interest receivable, accountspayables, accrued and other short term liabilities, and amounts due from/to related parties. The carrying values of these balances approximates their fairvalues due to the current and short term nature of the balances. Share-Based Compensation Expense Share-based compensation expense arises from share-based awards, including share options for the purchase of our ordinary shares granted by us toour management and other key employees and granted by Sohu to its management and other key employees who to some extent provide services to us andcertain members of our management and other of our key employees, or Sogou Share-based Awards; restricted share units and options for the purchase ofSohu ordinary shares granted by Sohu to our employees, or Sohu Share-based Awards; and restricted share units granted by Tencent previously to certainpersons who became our employees when Tencent’s Soso search-related businesses were transferred to us in 2013, or the Tencent Share-based Awards. Sogou Share-based Awards In determining the fair value of share options granted, a binomial option-pricing model (the “BP Model”) is applied. The determination of the fairvalue is affected by the fair value of the ordinary shares as well as assumptions regarding a number of complex and subjective variables, including risk-freeinterest rates, exercise multiples, expected forfeiture rates, the expected share price volatility rates, and expected dividends. Prior to the completion of ourinitial public offering, the fair values of the ordinary shares were assessed using the income approach /discounted cash flow method or based on the mid-pointof the estimated IPO price range, in each case with a discount for lack of marketability, given that the shares underlying the awards were not publicly tradedat the time of grant. After the completion of our initial public offering, the fair values of the ordinary shares were determined based on the trading price of ourADSs in the public market. 70Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Share-based compensation expense for share options granted to our employees was measured based on their grant-date fair values. For options withonly a service requirement, share-based compensation expense was recognized on an accelerated basis over the requisite service period. For options with botha service requirement and a performance target, share-based compensation expense was recognized over the estimated period during which the service periodrequirement and performance target will be met, which is usually within one year. For options vesting subject to an initial public offering, share-basedcompensation expense was recognized on an accelerated basis over the requisite service period after the completion of our initial public offering onNovember 13, 2017. The number of share-based awards for which the service was not expected to be rendered over the requisite period was estimated, and therelated compensation expense was not recorded for the number of awards so estimated. Share-based compensation expense for share options granted to non-employees is measured at fair value at the earlier of the performancecommitment date or the date service is completed and recognized over the period during which the service is provided. We apply the guidance in ASC 505-50 to measure share options granted to non-employees based on the then-current fair value at each reporting date until the service has been provided and theperformance targets have been met. Share-based awards granted by Sohu are deemed to be share-based compensation made by us in exchange for services rendered to us, and werecognize share-based compensation expense accordingly. Because we are not required to reimburse Sohu for such share-based compensation expense, therelated amount was recorded as a capital contribution from Sohu. Sohu Share-based Awards In determining the fair value of share option awards for Sohu ordinary shares, the BP Model was applied; in determining the fair value of restrictedshare units settleable in Sohu ordinary shares, the public trading price of the underlying shares on the grant date was applied. Share-based compensation expense for share options and restricted share units granted under Sohu’s share-based incentive plans is recognized on anaccelerated basis over the requisite service period. The number of share awards for which the service is not expected to be rendered over the requisite period isestimated, and the related compensation expense is not recorded for that number of awards. Tencent Share-based Awards Certain persons who became our employees when Tencent’s Soso search-related businesses was transferred to us in 2013 had been granted restrictedshare units under Tencent’s share award arrangements prior to the transfer of the businesses to us. These Tencent restricted share units will continue to vestunder the original Tencent share award arrangements provided the transferred employees continue to be employed by us during the requisite service period.After the transfer of the Soso search-related business to us, we applied the guidance in ASC 505-50 to measure the related compensation expense based on thethen-current fair value at each reporting date, as the expense is deemed to have been incurred by Tencent as an investor on our behalf. To determine the then-current fair value of the Tencent restricted share units granted to these employees, we applied the public market price of the underlying shares at eachreporting date. Because we are not required to reimburse Tencent for such share-based compensation expense, the related amount was recorded by us as acapital contribution from Tencent. For Tencent restricted share units that Tencent had granted to employees who transferred to us with the Soso search-related businesses,compensation expense is recognized by us on an accelerated basis over the requisite service period, and the fair value of the share-based compensation is re-measured at each reporting date until the service has been provided. The number of share-based awards for which the service is not expected to be renderedover the requisite period is estimated, and no compensation expense is recorded for the number of awards so estimated. The assumptions used in share-based compensation expense recognition represent management’s best estimates, but these estimates involveinherent uncertainties and the application of management judgment. If factors change or different assumptions were used for any given period, the share-based compensation expense could be materially different for that period. Moreover, the estimates of fair value are not intended to predict actual futureevents or the value that ultimately will be realized by employees who receive share-based awards, and subsequent events are not indicative of thereasonableness of the original estimates of fair value made by us for accounting purposes. Liquidity and Capital Resources Our principal sources of liquidity are cash and cash equivalents, short-term investments, and cash flows generated from our operations. Our cash andcash equivalents consist of cash, time deposits with original maturities of three months or less, and demand deposits. As of December 31, 2018, we had cash and cash equivalents and short-term investments of US$1.04 billion. Of our cash and cash equivalents andshort-term investments, 40% were held in fourteen financial institutions in mainland China, 31% were held in four financial institutions in Hong Kong, and14% were held in one financial institution in Macau. The remaining cash and cash equivalents were held in one financial institution in New York. Our VIEsheld US$27.8 million of our cash and cash equivalents and short-term investments, and US$1.01 billion was held outside of our VIEs. 71Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We believe our current liquidity and capital resources are sufficient to meet anticipated working capital needs, commitments, capital expenditures,and investment activities over the next twelve months. The following table sets forth a summary of our cash flows for the periods indicated: For the Year EndedDecember 31, 2016 2017 2018 (US$ in thousands) Net cash provided by operating activities150,487182,376144,958Net cash used in investing activities(95,627)(407,402)(650,797)Net cash (used in)/provided by financing activities4618,9421Effect of exchange rate changes on cash and cash equivalents(13,270)14,213(3,194)Net increase in cash and cash equivalents41,594408,129(509,032)Cash and cash equivalents at beginning of the year244,484286,078694,207Cash and cash equivalents at end of the year or period286,078694,207185,175 Net Cash Provided by Operating Activities For the year ended December 31, 2018, US$145.0 million net cash provided by operating activities consisted primarily of our net income ofUS$98.8 million, adjusted by (i) the add back of non-cash items consisting of US$61.9 million in depreciation and amortization expense, US$14.2 million ofshare-based compensation expense, and US$9.1 million in allowances for doubtful accounts and credit losses; (ii) offset by non-cash items of US$18.0million in gains from re-measurement of long-term equity investments, a US$16.8 million increase in working capital as a result of growth in our revenues,and US$9.9 million in gains from changes in the fair values of short-term investments. For the year ended December 31, 2017, US$182.4 million net cash provided by operating activities consisted primarily of our net income ofUS$82.2 million, adjusted by (i) the add back of non-cash items consisting of US$49.6 million in depreciation and amortization expense andUS$23.7 million of share-based compensation expense, and a US$31.4 million increase in cash due to changes in working capital; (ii) offset by a non-cashitem of US$4.1 million in deferred tax benefit. For the year ended December 31, 2016, US$150.5 million net cash provided by operating activities consisted primarily of our net income ofUS$56.1 million, adjusted by (i) the add back of non-cash items consisting of US$35.2 million in depreciation and amortization expense andUS$12.9 million of share-based compensation expense, and a US$50.0 million increase in cash due to changes in working capital; (ii) offset by a non-cashitem of US$3.1 million of deferred tax benefit. Net Cash Used in Investing Activities For the year ended December 31, 2018, US$650.8 million net cash used in investing activities consisted primarily of US$1.678 billion for purchaseof short-term investments, which consist of time deposits and financial instruments issued by banks, US$98.8 million for investments in financingreceivables, US$75.8 million for fixed asset purchases, and US$19.9 million for purchase of long-term investments; offset by US$1.162 billion in proceedsfrom short-term investments and US$60.0 million from collection of financing receivables. For the year ended December 31, 2017, US$407.4 million net cash used in investing activities consisted primarily of US$345.5 million for purchaseof short-term investments, US$64.0 million for fixed asset purchases, and US$7.0 million for purchase of long-term investments. For the year ended December 31, 2016, US$95.6 million net cash used in investing activities consisted primarily of US$86.4 million for fixed assetpurchases and US$8.2 million in long-term investments consisting mainly of amounts invested in equity shares of Zhihu. Net Cash (Used in)/Provided by Financing Activities For the year ended December 31, 2018, cash movement resulting from financing activities was insignificant. For the year ended December 31, 2017, US$618.9 million net cash provided by financing activities consisting primarily of US$622.1 millionproceeds from our IPO, offset by US$3.2 million used for the repurchase of Pre-IPO Class A Ordinary Shares from the former president and chief financialofficer of the Sohu Group. For the year ended December 31, 2016, cash movement resulting from financing activities was insignificant. 72Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Holding Company Structure and Limitations on Cash Transfers to Sogou Inc. Sogou Inc. is a holding company with no operating assets other than investments in our Chinese operating entities through our intermediate holdingcompanies, and our VIEs. Since substantially all of our operations are conducted through our indirect China-based subsidiaries Sogou Technology andSogou Network and our VIEs, we may need to rely on dividends, loans, or advances made by our PRC subsidiaries and VIEs for any cash requirementsSogou Inc. or our other offshore entities may have from time to time in excess of any cash retained by us or our other offshore entities or to pay any dividendsto holders of our ordinary shares, including holders of our ADS. The ability of Sogou Inc. and our other offshore entities to receive dividends and distributions from our China-based subsidiaries and VIEs, and theamount of cash available for distribution to, and use by, Sogou Inc., are subject to certain restrictions and limitations related to PRC law and our subsidiaryand VIE structure. See “—PRC Restrictions Related to Our VIE Structure.” We do not expect any of such restrictions or taxes to have a material impact on ourability to meet our cash obligations. PRC Regulations Related to Profit Appropriation, Withholding Tax on Dividends, and Foreign Currency Exchange Regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated profits as determined in accordance withaccounting standards and regulations in China. Our China-based subsidiaries Sogou Technology and Sogou Network and our VIEs are also required to setaside each year to their general reserves at least 10% of their after-tax profit based on PRC accounting standards, until the cumulative amount reaches 50% oftheir paid-in capital. These reserves may not be distributed as cash dividends, or as loans or advances. Our PRC subsidiaries and VIEs may also allocate aportion of their after-tax profits, at the discretion of their Boards of Directors, to their staff welfare and bonus funds. Any amounts so allocated would not beavailable for distribution to Sogou Inc. or our other offshore entities. The CIT Law imposes a 10% withholding income tax for dividends distributed by foreign-invested enterprises in the PRC to their immediateholding companies outside China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between China and the jurisdiction of theforeign holding company. A holding company in Hong Kong, for example, will be subject to a 5% withholding tax rate under the China-HK TaxArrangement if such holding company is considered a non-PRC resident enterprise and holds at least 25% of the equity interests in the PRC foreign investedenterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong holding company is not considered to bethe beneficial owner of such dividends under applicable PRC tax regulations, such dividend will remain subject to withholding tax at a rate of 10%. In addition, under SAFE regulations, the RMB is not convertible into foreign currencies for capital account items, such as loans, repatriation ofinvestments, and investments outside of China, unless prior approval of the SAFE is obtained and prior registration with the SAFE is made. PRC Restrictions Related to Our VIE Structure Part of our operations are conducted through our VIEs, which generate a portion of our revenues and held certain cash balances as of December 31,2017. As our VIE Sogou Information and its subsidiaries (which are also our VIEs) are not owned by Sogou Technology, Sogou Information is not able tomake dividend payments to Sogou Technology. Therefore, in order for Sogou Inc. or our subsidiaries outside of China to receive any dividends originatingfrom our VIEs, we will need to rely on payments made by Sogou Information to Sogou Technology pursuant to a services contract between them. Dependingon the nature of services provided by Sogou Technology to Sogou Information, certain of these payments will subject to PRC taxes, such as VAT, that willeffectively reduce the amount that Sogou Technology receives from Sogou Information. In addition, the PRC government could impose restrictions on suchpayments or change the tax rates applicable to such payments. Dividend Policy We intend to retain all available funds and any future earnings for use in the operation and expansion of our business, and do not anticipate payingany cash dividends on our Class A and Class B Ordinary Shares for the foreseeable future. Future cash dividends distributed by us, if any, will be declared atthe discretion of our Board of Directors and will depend upon our future operations and earnings, capital requirements and surplus, general financialcondition, contractual restrictions, and such other factors as our Board of Directors may deem relevant. Capital Expenditures Our capital expenditures include the purchase of fixed assets, consisting primarily of servers, Internet network equipment, and leaseholdimprovements. Our expenditures for purchase of fixed assets of US$86.4 million, US$64.0 million, and US$75.8 million, respectively, in 2016, 2017, and2018 were mainly to support increases in our user traffic and new products and services. 73Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Contractual Obligations and Commercial Commitments As of December 31, 2018, we had contractual obligation and commercial commitments, relating to operating lease, bandwidth purchase, content andservice purchase, and other obligations, as follows: OperatingLeaseObligations BandwidthPurchasesContentandOtherPurchasesOthersTotal (US$ in thousands) 201915,88462,3292485,22183,68220206,8051,067——7,87220215,974311——6,2852022799———7992023271———271Thereafter—————Total29,73363,7072485,22198,909 Off-balance Sheet Commitments and Arrangements We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of third parties. We have not enteredinto any derivative contracts that are indexed to our shares and classified as shareholders’ equity, or that are not reflected in our consolidated financialstatements. We do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity, or market risksupport to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk, or credit support tous or that engages in leasing, hedging, or product development services with us. Impact of Recently Issued Accounting Standards On February 25, 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases,” which specifies the accounting for leases. Foroperating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the leasepayments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over thelease term, on a generally straight-line basis. In addition, this standard requires both lessees and lessors to disclose certain key information about leasetransactions. ASU 2016-02 is effective for publicly-traded companies for annual reporting periods, and interim periods within those years, beginning afterDecember 15, 2018. Early adoption is permitted. Based on our preliminary assessment, we expect to record a right-of-use asset of approximately $25.4million and a lease liability of approximately $23.1 million on the adoption date of January 1, 2019, primarily related to our leased office space. We will usea modified retrospective approach under ASU 2018-11 and will not restate prior periods. We expect to implement new accounting policies as well as to electcertain practical expedients available to us under ASU 2016-02, including those related to leases with terms of less than 12 months. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326),” which requires entities to measure all expectedcredit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Thisreplaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidanceis effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for allentities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are currently evaluating the impact of adoptingthis standard on our consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of goodwillimpairment tests, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’scarrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance is to be adopted on a prospective basis for annual or anyinterim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performedon testing dates after January 1, 2017. We are currently evaluating the impact of adopting this standard on our consolidated financial statements. In June 2018, the FASB issue ASU 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-BasedPayment Accounting,” which provides guidance about the amendments in nonemployee share-based payment accounting. The amendments in this guidanceare effective for publicly-traded business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For allother entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning afterDecember 15, 2020. Early adoption is permitted, but no earlier than the date of an entity’s adoption of Topic 606. We do not expect this guidance to have amaterial impact on our consolidated financial statements. 74Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Directors and Senior Management The following table sets forth information regarding our directors and executive officers as of the date of this annual report. The business address ofeach of our directors and executive officers is Level 15, Sohu.com Internet Plaza, No. 1 Unit Zhongguancun East Road, Haidian District, Beijing 100084,China. Directors and ExecutiveOfficers Age PositionCharles (Chaoyang) Zhang54Chairman of the Board of DirectorsXiaochuan Wang40Director and Chief Executive OfficerYu Yin42DirectorJoanna (Yanfeng) Lu48DirectorHongtao Yang39Chief Technology OfficerTao Hong41Chief Marketing OfficerJoe (Yi) Zhou 42Chief Financial OfficerBin Gao 56Independent DirectorJanice Lee 48Independent DirectorJinmei He 49Independent Director Mr. Zhou was appointed as our Chief Financial Officer effective January 22, 2018. James Deng, our former Chief Financial Officer, has resumed his formerrole at Sohu, our controlling shareholder. A member of the audit committee of our Board of Directors. Charles Zhang is the Chairman of our Board of Directors. Dr. Zhang is the founder of Sohu and has been Chairman of the Board and Chief ExecutiveOfficer of Sohu since August 1996. Dr. Zhang also served as the President of Sohu from August 1996 to July 2004. Dr. Zhang is also the Chairman of theBoard of Directors of Changyou.com Limited, which is a majority-owned subsidiary of Sohu that is listed on Nasdaq. Dr. Zhang has a Ph.D. in experimentalphysics from MIT and a Bachelor of Science degree from Tsinghua University in Beijing. Dr. Charles Zhang is a native of the People’s Republic of China. Xiaochuan Wang has served as our Chief Executive Officer since 2010 and a member of our Board of Directors since 2010. Prior to joining us,Mr. Wang served as the senior vice president of Sohu from 2008 to 2009 and the chief technology officer of Sohu from 2009 to 2013. Mr. Wang received aBachelor’s degree and a Master’s degree in computer science and an Executive MBA from Tsinghua University. Yu Yin joined Tencent in 2006 and currently serves as a Corporate Vice President in charge of all of Tencent’s information feed products and youngpeople’s entertainment communities. Mr. Yin was in charge of QQ from 2006 to 2018. Before joining Tencent, Mr. Yin worked for Microsoft for eight years.Mr. Yin received a bachelor’s degree in computer science from Grinnell College in the United States. Dr. Bin Gao founded Invealth Capital in 2016 and currently serves as its Chief Investment Officer. Dr. Gao served as the head of strategy for GuardCapital from 2014 to 2015 and as the head of strategy for Bank of America Merrill Lynch’s Asia Pacific Rates from 2005 to 2014. Dr. Gao earned a Ph.D. infinance from New York University, a Master’s degree in astrophysics from Princeton University, and a Bachelor’s degree in space physics from the Universityof Science and Technology of China. Janice Lee is the Managing Director of PCCW Media Group, a position Ms. Lee has held since 2010. Ms. Lee is in charge of PCCW’s media andentertainment businesses, including its video streaming services in 17 markets and its pay TV business in Hong Kong. Prior to serving as the ManagingDirector, Ms. Lee was PCCW’s Executive Vice President of TV & New Media. Ms. Lee also serves as a board member of STX Entertainment, a Hollywoodentertainment & film company in the United States. Ms. Lee received a Bachelor’s degree in economics with majors in economics, commercial law, andaccounting from the University of Sydney. Jinmei He has served as a member of our Board of Directors since October 19, 2018 and as a member of our audit committee since November 3, 2018.Ms. He has been a self-employed investor in the public equity markets and in real estate in the United States since 2005. From 2002 to 2005 Ms. He served asa Vice President of Sohu.com Inc., where she helped to establish and develop Sohu’s online game business, and from 1997 to 2001 Ms. He held variousmarketing and sales positions at Sohu. Ms. He received a Bachelor of Science in Civil Engineering from Southwest Jiaotong University in China, andattended the Certificate Program in Marketing at the Extension school of the University of California, Berkeley. 75(1)(2)(2)(2)(1)(2)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Joanna Lu has served as a member of our Board of Directors since 2016. Ms. Lu has been the Chief Financial Officer of Sohu since January 27, 2018.Ms. Lu joined Sohu in August 2000. From July 31, 2016 to January 26, 2018, Ms. Lu was the Acting Chief Financial Officer of Sohu. Prior to July 31, 2016,Ms. Lu was the Senior Finance Director of Sohu, in charge of day-to-day finance operations, including financial reporting, budget planning and treasury.Ms. Lu received a Bachelor’s degree in economics from the Capital University of Economics and Business in Beijing and an Executive MBA from TsinghuaUniversity. Hongtao Yang has served as our Chief Technology Officer since 2016. Mr. Yang joined us in 2003. Prior to serving as our Chief Technology Officer,Mr. Yang served as the general manager and oversaw the operation of our desktop department, with a focus on research and development of softwareproducts. Mr. Yang received a Bachelor’s degree and a Master’s degree in computer science from Tsinghua University. Tao Hong has served as our Chief Marketing Officer since 2016. Mr. Hong joined us in 2005. Prior to serving as our Chief Marketing Officer,Mr. Hong served as the general manager and oversaw the operation of our marketing department. Mr. Hong received a Bachelor’s degree in electronicengineering from Tsinghua University. Joe Zhou has served as our Chief Financial Officer since January 22, 2018. Prior to serving as our Chief Financial Officer, Mr. Zhou had been ourDeputy Chief Financial Officer since July 2017. Mr. Zhou joined us in 2010. Prior to serving as our Deputy Chief Financial Officer, he served as the generalmanager and oversaw the operation of our finance department. Prior to joining us, Mr. Zhou worked at various positions at PricewaterhouseCoopers and twoNasdaq-listed companies New Oriental Education & Technology Group and TAL Education Group from 2000 to 2010. Mr. Zhou received a Bachelor’sdegree in accounting from Renmin University of China and is pursuing an Executive MBA at Tsinghua University. Board of Directors Our Board of Directors consists of Dr. Charles Zhang, Xiaochuan Wang, Yu Yin, Joanna Lu, Bin Gao, Janice Lee, and Jinmei He. Members of ourBoard of Directors are elected by the holders of our ordinary shares and will hold office until our next annual general meeting of shareholders and until theirsuccessors are duly elected or appointed, or until their resignation or removal in accordance with the provisions of our Amended and Restated Memorandumof Association and Amended and Restated Articles of Association, as amended and restated from time to time. In October 2018, Joseph Chen, who had been amember of our Board of Directors since November 2017, resigned as a member of our Board of Directors, and Jinmei He was appointed by our controllingshareholder Sohu to serve on our Board of Directors as a Sohu designee pursuant to our Amended and Restated Memorandum of Association and Amendedand Restated Articles of Association. In January 2019, Yuxin Ren, who had been a member of our Board of Directors since September 2013, resigned as amember of our Board of Directors, and Yu Yin was appointed by Tencent to serve on our Board of Directors as a Tencent designee pursuant to our Amendedand Restated Memorandum of Association and Amended and Restated Articles of Association. A director is not required to hold any shares in our companyby way of qualification. A director may vote with respect to any contract, proposed contract, or arrangement in which he or she is materially interestedprovided that the nature of such interest is disclosed prior to any vote thereon. A director may exercise all the powers of our company to borrow money,mortgage or charge our undertakings, property, and uncalled capital or any part thereof, and issue debentures or other securities whether outright or assecurity for any debt, liability, or obligation of our company or of any third party. A company of which more than 50% of the voting power is held by a single entity is considered a “controlled company” under the New York StockExchange Listed Company Manual. A controlled company need not comply with the applicable NYSE corporate governance rules requiring its Board ofDirectors to have a majority of independent directors and independent compensation and corporate governance/nominating committees. Because more than50% of the voting power in the election of directors of our company is held by Sohu, we qualify as a controlled company under the New York StockExchange Listed Company Manual and avail ourselves of the controlled company exception provided under those rules. In the event that we are no longer acontrolled company, a majority of our Board of Directors will be required to be independent and it will be necessary for us to have compensation andcorporate governance/nominating committees that are composed entirely of independent directors, subject to a phase-in period during the first year we ceaseto be a controlled company, unless we invoke the home country exception to such requirement available to foreign private issuers, such as us, under theNew York Stock Exchange Listed Company Manual. Audit Committee Our audit committee consists of Bin Gao, Janice Lee, and Jinmei He. In October 2018, Joseph Chen, who had been a member of our audit committeesince November 2017, resigned as a member of our Board of Directors and as a member of our audit committee, and Jinmei He was appointed by our Board ofDirectors to be a member of our audit committee, effective November 3, 2018. Our Board of Directors has determined that each of Mr. Gao, Ms. Lee andMs. He satisfies the independence requirements of Rule 10A-3 under the Exchange Act, and Section 303A of the New York Stock Exchange Listed CompanyManual. In addition, our Board of Directors has determined that Bin Gao meets the criteria of an audit committee financial expert as set forth in the applicableSEC rules and has accounting or related financial management expertise as set forth in the New York Stock Exchange Listed Company Manual. The fullresponsibilities of our audit committee are set forth in its charter, which will be reviewed and updated annually and approved by our Board of Directors, andwill be posted on our website at www.sogou.com. The audit committee is responsible for, among other things: 76Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents · selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independentauditors; · overseeing our accounting and financial reporting processes and audits of the financial statements of our company; · reviewing with the independent auditors any audit problems or difficulties and management’s response; · reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act and in theNew York Stock Exchange Listed Company Manual; · discussing the annual audited financial statements with management and the independent auditors; · reviewing major issues as to the adequacy of our internal control over financial reporting and any special audit steps adopted in the light of anysignificant deficiencies or materially weakness in our internal controls; and · meeting separately and periodically with management and the independent auditors. Duties of Directors Under Cayman Islands law, our directors have a fiduciary duty to act honestly in good faith with a view to our best interests. Our directors also havea duty to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care tous, our directors must ensure compliance with our Amended and Restated Memorandum of Association and Amended and Restated Articles of Association. Ashareholder has the right to seek damages if a duty owed by our directors is breached. The functions and powers of our Board of Directors include, among others: · conducting and managing the business of our company; · representing our company in contracts and deals; · appointing attorneys for our company; · selecting senior management such as managing directors and executive directors; · providing employee benefits and pension; · managing our company’s finances and bank accounts; · exercising the borrowing powers of our company and mortgaging the property of our company; and · exercising any other powers conferred by the shareholders meetings or under our Amended and Restated Memorandum of Association andAmended and Restated Articles of Association. Terms of Directors and Officers Our directors hold office until our next annual general meeting of shareholders and until their successors are duly elected or appointed, or until theirearlier resignation or removal. A director may be removed by ordinary resolution passed by a majority of our shareholders or by way of consent of a majorityof the directors then in office before the expiration of such director’s term. Officers are elected by and serve at the discretion of the Board of Directors. Sohu,Tencent, and we have entered into a Voting Agreement that, subject to certain exceptions, gives Sohu the power to appoint a majority of our Board ofDirectors and for Tencent to appoint two directors. See “Related Party Transactions—Voting Agreement between Sohu and Tencent.” Employment Agreements with Executive Officers All of our executive officers have entered into our standard employment agreements and standard confidentiality and non-competition agreements.See “Business—Employees.” 77Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Share Incentive Plans We adopted a share incentive plan in October 2010, as amended from time to time and with the last amendment taking effect on August 22, 2014, orthe 2010 Share Incentive Plan. The maximum number of Class A Ordinary Shares issuable under the 2010 Share Incentive Plan is 41,500,000. Share incentiveawards may be granted under the 2010 Share Incentive Plan to our management and employees, and to management and employees of our present or futureparents, subsidiaries, or VIEs. We also adopted a share incentive plan in October 2017, (the “2017 Share Incentive Plan and, together with the 2010 ShareIncentive Plan, the “Share Incentive Plans”). The maximum number of Class A Ordinary Shares issuable under the 2017 Share Incentive Plan is 28,000,000.Share incentive awards may be granted under the 2017 Share Incentive Plan to our management and employees and management and employees of any ofour present or future parents or subsidiaries. The maximum term of any share incentive award granted under the Share Incentive Plans is ten years from thegrant date. Plan Administration. Our compensation committee, or our Board of Directors in the absence of such a committee, administers the Share IncentivePlans. The compensation committee or the Board of Directors, as appropriate, determines the terms and conditions of our awards under the ShareIncentive Plans. Types of Awards. The following briefly describes the principal features of the various awards that may be granted under the Share Incentive Plans. · Options. Options provide for the right to purchase our Class A Ordinary Shares at a specified exercise price subject to vesting according to avesting schedule determined by our board or our compensation committee and provided in an award agreement. · Restricted Shares. A restricted share award is the sale of Class A Ordinary Shares at a price determined by our board or our compensationcommittee or a grant of our ordinary shares, in each case subject to vesting terms. · Restricted Share Units. Restricted share units represent the right to receive our Class A Ordinary Shares, subject to vesting. Restricted share unitswill be settled upon vesting, subject to the terms of the award agreement, either by our delivery to the holder of the number of Class A OrdinaryShares that equals the number of the vested restricted share units or by a cash payment to the holder that equals the then fair market value of thenumber of underlying Class A Ordinary Shares. Award Document. Awards granted under the Share Incentive Plans are evidenced by an award document that sets forth the terms and conditionsapplicable to each of the awards, as determined by our Board of Directors or compensation committee in its sole discretion. Unless otherwise determined byour board or compensation committee in its sole discretion, our award documents for options previously granted under our 2010 Share Incentive Plan gave usa right to repurchase from a grantee, within a certain time period, up to 50% of a grantee’s Class A Ordinary Shares subject to vested options, upon suchgrantee’s death, disability, or voluntary, or involuntary termination of employment with us (other than for “Cause,” as defined in the 2010 Share IncentivePlan). The repurchase price for such a purchase was equal to the fair market value of our ordinary shares, as determined in an appraisal by an independentprofessional appraisal firm chosen by us in our sole discretion. Our repurchase rights under the award documents terminated upon the completion of ourinitial public offering. Termination of the Share Incentive Plans. Without further action by our Board of Directors, the 2010 Share Incentive Plan will terminate inOctober 2020 and the 2017 Share Incentive Plan will terminate in October 2027. Our Board of Directors may amend, suspend, or terminate the ShareIncentive Plans at any time; provided, however, that our Board of Directors must first seek the approval of the participants in the Share Incentive Plans if suchamendment, suspension or termination would adversely affect the rights of participants with respect to any of their existing awards. As of March 15, 2019, we had contractually granted options for the purchase of 39,128,230 Class A Ordinary Shares under the 2010 Share IncentivePlan and options for the purchase of 842,500 Class A Ordinary Shares under the 2017 Share Incentive Plan. Compensation of Directors and Executive Officers During the year ended December 31, 2018, we paid an aggregate of US$2,410,246 in cash compensation to our executive officers, and we did notgrant any options or other equity incentive awards to our directors or our executive officers. None of our directors have service contracts that provide forbenefits upon termination of employment. 78Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Grants of Shares and Options to Directors and Executive Officers The following table summarizes, as of the date of this annual report, outstanding share options and Class A Ordinary Shares beneficially held by ourdirectors and executive officers that were granted under our 2010 Share Incentive Plan: Directors and ExecutiveOfficersClass A OrdinaryShares underlyingoutstanding optionsand Class AOrdinary Sharessubject to vesting Exerciseprice Date ofgrant ExpirationdateXiaochuan Wang4,320,000US$0.6251/31/2013N/A Hongtao Yang600,000Nominal6/15/2013—Tao Hong600,000Nominal6/15/2013—Joe (Yi) Zhou200,000Nominal10/17/201710/17/2027 Consists of Class A Ordinary Shares beneficially held by Mr. Wang that were issued in 2013 upon Mr. Wang’s early exercise of share options. Such Class AOrdinary Shares are subject to vesting in three equal installments upon the second, third, and fourth anniversaries of the completion of our initial publicoffering. Consists of Class A Ordinary Shares beneficially held by Mr. Yang that were issued upon Mr. Yang’s early exercise of share options that carried a nominalexercise price. Such Class A Ordinary Shares are subject to vesting in two equal installments upon our achievement of certain annual performancemilestones for 2018 and 2019. Consists of Class A Ordinary Shares beneficially held by Mr. Hong that were issued upon Mr. Hong’s early exercise of share options that carried a nominalexercise price. Such Class A Ordinary Shares are subject to vesting in two equal installments upon our achievement of certain annual performancemilestones for 2018 and 2019. Consists of options to purchase Class A Ordinary Shares at a nominal exercise price, subject to vesting in four equal installments upon our achievement ofcertain annual performance milestones for 2017, 2018, 2019, and 2020. As of the date of this annual report, options for the purchase of 50,000 Class AOrdinary Shares are vested. Employees As of December 31, 2018, we had approximately 2,789 employees. We also engaged independent contractors to support our research and development,product development, and sales and marketing departments, and had approximately 224 such independent contractors on average during the 2018 fiscalyear. None of our employees are represented under collective bargaining agreements. Share Ownership Refer to “Item 7: Major Shareholders and Related Party Transactions” below for a description of the share ownership of our directors and seniorexecutive officers. 79(1)(2)(3)(4)(1)(2)(3)(4)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Major Shareholders The following table sets forth information with respect to the beneficial ownership of our shares as of March 15, 2019 by: · each of our directors and executive officers; and · each person known to us to own beneficially more than 5% of our shares. Class A OrdinaryShares Class BOrdinaryShares Percentage ofClass AOrdinary Sharesand Class BOrdinary Shares Percentageof Total VotingPower Directors and Executive Officers:Charles Zhang 24,686,863—6.2%0.8%Xiaochuan Wang 21,216,400—5.3%0.7%Yu Yin————Joanna Lu*—**Hongtao Yang*—**Tao Hong*—**Joe Zhou*—**Bin Gao————Janice Lee————Jinmei He————All directors and executive officers as a group50,001,263—12.6%1.7%Principal Shareholders:Sohu 3,717,250127,200,00033.0%43.9%Tencent 151,557,87538.2%52.2%Charles Zhang 24,686,863—6.2%0.8% * Less than 1% of our total outstanding voting securities. (1) Includes the number of ordinary shares and percentage ownership represented by ordinary shares determined to be beneficially owned by a person orentity in accordance with rules of the SEC. The number of ordinary shares beneficially owned by a person or entity includes ordinary shares subject tovesting that will vest, and/or vested share options exercisable for the purchase of our ordinary shares, within 60 days of the date of this annual report.Ordinary shares issuable upon exercise of such vested share options are deemed outstanding for the purpose of computing the percentage of outstandingordinary shares owned by that person or entity. Such ordinary shares issuable upon such vesting are not deemed outstanding, however, for the purpose ofcomputing the percentage ownership of any other person or entity. In addition, such ordinary shares issuable upon such vesting are not deemedoutstanding for the purpose of computing the percentage ownership of all directors and executive officers as a group. (2) Includes an aggregate of 5,520,000 Class A Ordinary Shares beneficially owned by certain of our executive officers that are considered outstanding forlegal purposes and are subject to forfeiture if vesting conditions are not met, but are treated as treasury stock for accounting purposes. (3) Consists of 24,686,863 Class A Ordinary Shares held of record by Photon Group Limited. Dr. Zhang is one of the directors of Photon Group Limited andmay be deemed to beneficially own such 24,686,863 Class A Ordinary Shares. The business address of Photon Group Limited is c/o Level 18, Sohu.comMedia Plaza, No. 2 Kexueyuan South Road, Haidian District, Beijing, China. Dr. Zhang disclaims beneficial ownership of such shares except to the extentof his pecuniary interest. (4) Includes (i) 16,896,400 Class A Ordinary Shares, of which 2,016,400 Class A Ordinary Shares are represented by 2,016,400 ADSs, held by Winsor GloryLimited, a British Virgin Islands company beneficially owned by Mr. Wang, and (ii) 4,320,000 Class A Ordinary Shares held through a British VirginIslands trust of which Mr. Wang is the beneficiary that are subject to vesting in three equal installments upon the second, third and fourth anniversaries ofthe completion of our initial public offering. The business address of Winsor Glory Limited is Vistra Corporate Services Centre, Wickhams Cay II, RoadTown, Tortola, VG1110, British Virgin Islands. 80(1)(2)(1)(3)(4)(5)(6)(3)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents (5) Sohu is our controlling shareholder. Consists of shares held by Sohu through an indirect wholly-owned subsidiary, Sohu.com (Search) Limited. The3,717,250 Class A Ordinary Shares are held by Sohu for the purpose of issuance upon the exercise of outstanding share-based awards and future share-based awards. The 127,200,000 Class B Ordinary Shares are held by Sohu for its own account. In addition to the share ownership disclosed in the abovetable, Sohu may be deemed to have beneficial ownership attributable to (i) shared voting power with respect to 45,578,896 Class B Ordinary Shares heldby Tencent as a result of the voting agreement between Sohu and Tencent, and (ii) shared voting power with respect to 49,976,363 Class A OrdinaryShares beneficially owned by members of our management as a result of the voting agreement dated September 16, 2013 among Sohu, Photon GroupLimited, and members of our management. Through its ownership of Class B Ordinary Shares and the voting agreement with Tencent, Sohu will have theright to appoint a majority of our Board of Directors. See “Related Party Transactions—Voting Agreement between Sohu and Tencent.” The businessaddress of Sohu.com (Search) Limited is P.O. Box 31119, Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1-1205, CaymanIslands. (6) Consists of shares held by Tencent through a wholly-owned subsidiary, THL A21 Limited. The business address of THL A21 Limited is Vistra CorporateServices Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. In addition to the share ownership disclosed in the above table,as a result of the voting agreement between Sohu and Tencent, Tencent may be deemed to have beneficial ownership attributable to shared voting powerwith respect to the 3,717,250 Class A Ordinary Shares and 127,200,000 Class B Ordinary Shares held by Sohu. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. With respect to matters requiring a shareholder vote, holdersof Class A ordinary shares and holders of Class B ordinary shares vote together as one class. Each Class A ordinary share is entitled to one vote and eachClass B ordinary share is entitled to ten votes. We issued Class A ordinary shares represented by our ADSs in our initial public offering. Holders of Class Bordinary shares may choose to convert their Class B ordinary shares into the same number of Class A ordinary shares at any time. Class B ordinary shares areonly transferable to an affiliate of the holder or to an affiliate of us. Related Party Transactions Voting Agreement between Sohu and Tencent Under a voting agreement, or the Voting Agreement, among Sohu, Tencent, and us, Sohu and Tencent have agreed that, subject to certainexceptions, (1) within three years following the completion of our initial public offering, Sohu will vote all Class B Ordinary Shares and any Class AOrdinary Shares held by it and Tencent will vote 45,578,896 of its Class B Ordinary Shares to elect a Board of Directors consisting of seven directors, four ofwhom will be appointed by Sohu, two of whom will be appointed by Tencent, and the seventh of whom will be our then chief executive officer, and (2) afterthree years following the completion of our initial public offering, Sohu will be entitled to choose to change the size and composition of our Board ofDirectors, subject to Tencent’s right to appoint at least one director. The effect of these provisions will be to give Sohu the power to appoint a majority of ourBoard of Directors, and to give Tencent the power to appoint two directors within three years following the completion of our initial public offering and atleast one director after three years after the completion of our initial public offering. The Voting Agreement also provides that for so long as Sohu andTencent together hold more than 50% of the total voting power of our Class A Ordinary Shares and Class B Ordinary Shares, Sohu or Tencent may removeand replace any director appointed by it. These provisions of the Voting Agreement are also reflected in our Amended and Restated Memorandum ofAssociation and Amended and Restated Articles of Association. Due to the additional voting power of the Class B Ordinary Shares that will be held by Sohu and Tencent, Sohu will hold approximately 32.9% ofthe total of our outstanding Class A and Class B Ordinary Shares and control approximately 43.9% of the total voting power of the combined total of ouroutstanding Class A and Class B Ordinary Shares; Tencent will have an indirect shareholding of approximately 38.2% of the total of our outstanding Class Aand Class B Ordinary Shares and control approximately 52.2% of the total voting power of the combined total of our outstanding Class A and Class BOrdinary Shares; and Sohu and Tencent together will have the power to decide all matters that may be brought to a vote of our shareholders. The Voting Agreement and our Amended and Restated Articles of Association also specify that for so long as Sohu or Tencent holds not less than15% of our issued shares (calculated on a fully diluted basis), consent from the holder of 15% or more (either or both of Sohu or Tencent as the case may be)will be required (1) to amend our Amended and Restated Memorandum of Association or Amended and Restated Articles of Association, (2) to make materialchanges in our principal lines of business, (3) to issue any additional Class B Ordinary Shares, (4) to create any new class or series of shares that is pari passuwith or senior to the Class A Ordinary Shares, (5) for us to approve a liquidation, dissolution or winding up of us, or a merger or consolidation resulting in achange in control, or any disposition of all or substantially all of our assets, or (6) for us to enter into any transactions with affiliates of Sohu, other than in theordinary course of business. Of these corporate actions that are subject to consent of Sohu or Tencent (as applicable), shareholder approval is required underthe Companies Law of the Cayman Islands for any amendment of our Amended and Restated Memorandum of Association or Amended and Restated Articlesof Association, any winding-up of Sogou Inc., or any merger or consolidation with a third-party entity. The Voting Agreement and our Amended andRestated Articles of Association further provide that if our shareholders have voted in favor of any of these actions requiring the approval of our shareholdersbut consent from Sohu or Tencent (as applicable) has not been obtained, then the holders of all classes of our shares who have voted against such action willbe deemed to have such number of votes as are equal to the aggregate number of votes cast in favor of such actions plus one additional vote. Under theseprovisions of the Voting Agreement and our Amended and Restated Articles of Association, if an action is proposed for which the consent of either Tencentor Sohu is required, the failure to obtain the consent of Tencent or Sohu will have the effect of the proposed action’s not being approved, even if our othershareholders approve it. 81Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The Voting Agreement and our Amended and Restated Articles of Association also specify that if at any time Sohu alone holds more than 50% ofthe total voting power of our Class A Ordinary Shares and Class B Ordinary Shares, the voting arrangements with respect to the size and composition of ourBoard of Directors will be automatically suspended until such time within five years after the completion of our initial public offering as Sohu’s voting poweragain drops to 50% or less, in which case the original voting arrangements will be reinstated, provided that Tencent will only be required to vote the lower of45,578,896 Class B Ordinary Shares held by it or such number as would give Sohu combined voting power of 50.1%. If such a suspension continues after thefifth anniversary of the completion of our initial public offering, the voting arrangements with respect to the size and composition of our Board of Directorswill terminate. All of the Class B Ordinary Shares held by Sohu will be converted into Class A Ordinary Shares if there is a transaction resulting in change of controlof Sohu that was not approved by Sohu’s board of directors, if specified competitors of Tencent control Sohu, or if a majority of Sohu’s board of directorsconsist of nominees of specified competitors of Tencent. The provisions with respect to the size and composition of our Board of Directors set out in theVoting Agreement and our Amended and Restated Articles of Association will terminate upon occurrence of any such event. Such arrangements will alsoterminate (1) if Dr. Charles Zhang, the chairman of the board of directors of Sohu and its chief executive officer, both ceases being the chairman of the boardof directors of Sohu and ceases being the single largest beneficial owner of Sohu’s outstanding shares; (2) if Sohu transfers 30% or more of the Class BOrdinary Shares that Sohu holds upon the completion of our initial public offering; (3) if we fail to provide irrevocable instructions to the person maintainingour register of members to accept instructions from Tencent, under certain circumstances, with respect to the conversion of Class B Ordinary Shares held bySohu; (4) or we change, without Tencent’s consent, the person that maintains our register of members; (5) or if Tencent ceases to own any Class B OrdinaryShares. Under the Voting Agreement, Sohu and Tencent are subject to certain restrictions on transfer of their Class A and Class B Ordinary Shares. Inparticular, a transfer of Class B Ordinary Shares by either Sohu or Tencent, respectively, to any person or entity that is not a direct or indirect wholly-ownedsubsidiary of Sohu or Tencent, respectively, will cause such Class B Ordinary Shares to be converted into Class A Ordinary Shares. Business Collaboration with Tencent Under our business collaboration arrangements with Tencent, Sogou Search is the default search engine on various Tencent products that providegeneral search offerings, such as the Mobile QQ Browser, qq.com, and the PC Web directories daohang.qq.com and hao.qq.com. We are entitled to retain allrevenues that we generate from searches conducted on daohang.qq.com and hao.qq.com through our search engine. We are responsible for the design andoperation of the PC Web directories daohang.qq.com and hao.qq.com, bear all costs of their operation, and are required to include an agreed-upon minimumamount of advertisement placements of links for use by Tencent on these home pages, free of charge. Tencent has also agreed that for its other products thatoffer general search functions, Sogou Search will be offered as the default general search engine to users of such products until September 2023. Ourarrangements with Tencent regarding qq.com , the PC Web directories daohang.qq.com and hao.qq.com , the Mobile QQ Browser, and any other Tencentproducts that offer general search do not prohibit Tencent’s users from choosing general search engines of our competitors. In addition, we and Tencent haveagreed to continue from September 2018 until September 2019 our initiative, which was started in October 2017, for the integration into the existingWeixin/WeChat search service of a search function powered by Sogou Search that allows Weixin/WeChat users to access Internet information outsideWeixin/WeChat, and that Sogou Search will be the preferred third-party search function to power such a Weixin/WeChat search function for that period ifSogou Search meets certain requirements for user experience, and that the arrangement may be extended for additional successive one-year periods throughSeptember 2023 if offering Sogou Search will not harm the user experience. Under our arrangements with Tencent regarding the Mobile QQ Browser, we make revenue-sharing payments to Tencent with respect to our revenuesgenerated from Mobile QQ Browser traffic. Under our arrangements with Tencent, our collaboration regarding the PC Web directories daohang.qq.com and hao.qq.com will continue untilSeptember 2033, and our collaboration regarding the Mobile QQ Browser will continue until September 2023. Search tools that search and extract information only within a specific online community, website, or product, such as the search function offered tousers of Tencent’s Weixin/WeChat, are excluded from the definition of general search functions and are not required to use Sogou Search as the defaultengine. Tencent has agreed to make the content of Tencent’s Weixin Official Accounts accessible to our users through our search services, free of charge. Weare not permitted, however, to collect, retrieve, or otherwise use any content of Tencent’s Weixin Official Accounts using search spider programs or otherthird-party channels. The collaboration period under our agreement with Tencent regarding Weixin Official Accounts expires in February 2020. 82Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents For the three years ended December 31, 2016, 2017, and 2018, we recognized revenues of nil, nil, and US$21.2 million, respectively; and total costsand expenses of US$32.7 million, US$61.6 million, and US$108.5 million, respectively, under these business collaboration arrangements with Tencent. Voting Agreement with Sohu and Our Management In September 2013, Sohu, Photon (the investment vehicle of Sohu’s chairman and chief executive officer Dr. Charles Zhang), our Chief ExecutiveOfficer Xiaochuan Wang, and certain other members of our management entered into a voting agreement with us, pursuant to which Photon, XiaochuanWang, and the other members of our management agreed to vote their Class A Ordinary Shares (not including shares acquired by Xiaochuan Wang in thepublic market following the completion of our initial public offering) to elect Sohu’s designees to our Board of Directors. Registration Rights Agreement among Sohu, Tencent, Photon, and Us Under a registration rights agreement among Sohu, Tencent, Photon, and us, Sohu, Tencent, and Photon are entitled to registration rights, includingdemand registration rights, Form F-3 registration rights, and piggyback registration rights at any time after the termination of the underwriters’ lockup periodapplicable to our initial public offering. Arrangements with Sohu and Tencent Entered into in the Ordinary Course of Business We have routinely engaged in a number of customary transactions in the ordinary course of business with Sohu, our controlling shareholder, andTencent, our largest shareholder. Related party transactions with Sohu and Tencent consist primarily of online advertising services, joint operation of onlinegames, and other related services. The financial arrangements and other key terms under these arrangements are substantially similar to those that we havewith unrelated third parties. As of December 31, 2016, 2017, and 2018, we had US$70.4 million, US$1.2 million, and US$0.1 million, respectively, due to Sohu and itssubsidiaries and VIEs. As of December 31, 2016, 2017, and 2018, we had US$26.7 million, US$3.0 million, US$2.2 million, respectively, due from Sohu and itssubsidiaries and VIEs. As of December 31, 2016, 2017, and 2018, we had US$14.3 million, US$21.9 million, US$38.3 million, respectively, due to Tencent. The increasein amounts due to Tencent was in line with an increase in spending on mobile search traffic acquired from Tencent in 2017 compared to 2016, and in 2018compared to 2017. As of December 31, 2016, 2017, and 2018, we had US$1.4 million, US$2.3 million, US$2.7 million, respectively, due from Tencent. Contractual Arrangements with our VIE and its Shareholders See “Business — Organizational Structure.” Letter Agreement with Former Chief Financial Officer In connection with the resignation of James Deng as our Chief Financial Officer effective January 21, 2018, we entered into a letter agreement withMr. Deng which provides that Mr. Deng would serve as a consultant to us from January 22, 2018 through July 21, 2018 in return for a fee of RMB480,000 (orapproximately US$74 ,800), and that options previously granted by us to Mr. Deng for the purchase of 50,000 Class A Ordinary Shares for a nominal exerciseprice would become fully vested on July 21, 2018. Other Transactions with Certain Directors, Shareholders and Affiliates See “Management—Compensation of Directors and Executive Officers.” Employment Agreements See “Business—Employees” and “Management—Employment Agreements with Executive Officers.” Share Incentive Plans See “Management—Share Incentive Plans.” 83Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Interests of Experts and Counsel Not applicable. ITEM 8. FINANCIAL INFORMATION Consolidated Financial Statements Please see Item 18 “Financial Statements” for our audited consolidated financial statements filed as a part of this annual report. Legal Proceedings We may be subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. We are not currently aparty to, nor are we aware of, any legal proceeding, investigation or claim which, in the opinion of our management, is likely to have a material adverse effecton our business, financial condition or results of operations. Dividend Policy Future cash dividends, if any, will be declared at the sole discretion of our Board of Directors and will depend upon our future operations and earnings,capital requirements and surplus, general financial condition, contractual restrictions and other factors as our Board of Directors may deem relevant. Holders of ADSs will be entitled to receive dividends, subject to the terms of the deposit agreement, to the same extent as the holders of our ordinaryshares, less the fees and expenses payable under the deposit agreement. Cash dividends will be paid by the depositary to holders of ADSs in U.S. dollars,subject to the terms of the deposit agreement. Other distributions, if any, will be paid by the depositary to holders of ADSs in any means it deems legal, fairand practical. ITEM 9. THE OFFER AND LISTING Our ADSs are listed on the New York Stock Exchange under the symbol “SOGO.” Trading in our ADSs commenced on November 9, 2017. The following table provides the high and low reported sale prices for our ADSs on the New York Stock Exchange since the commencement of tradingof our ADSs on November 9, 2019. Trading Price (US$)High Low2017Full Year (from November 9)14.7010.85Fourth Quarter (from November 9)14.7010.852018Full Year15.504.80First Quarter13.008.08Second Quarter15.507.91Third Quarter12.387.21Fourth Quarter7.564.80September8.247.21October7.565.38November6.865.56December6.514.802019January6.655.04February6.925.82March (through March 15)7.126.04 84Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents ITEM 10. ADDITIONAL INFORMATION Memorandum and Articles of Association We incorporate by reference into this annual report the description of our seventh amended and restated memorandum of association and our thirdamended and restated articles of association contained in our Registration Statement on Form F-1 (File No. 333-220928) originally filed with the SEC onOctober 13, 2017. Our shareholders adopted our seventh amended and restated memorandum of association and our third amended and restated articles ofassociation by a special resolution on October 13, 2017, which became effective on November 13, 2017. Differences in Corporate Law—Mergers and Similar Arrangements The Companies Law of the Cayman Islands is modeled after similar laws in the United Kingdom but does not follow recent statutory enactments inthe United Kingdom. In addition, the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is asummary of the significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated inthe State of Delaware. Mergers and Similar Arrangements A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved by the directorsof each constituent company and authorization by (a) a special resolution of the members of each constituent company and (b) such other resolution, if any,as may be specified in such constituent company’s articles of association. A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution ofshareholders. For this purpose, a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned by theparent company. The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a courtin the Cayman Islands. Save in certain circumstances, a dissenting shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upondissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on thegrounds that the merger or consolidation is void or unlawful. In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement isapproved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition representthree-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting,or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of theCayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can beexpected to approve the arrangement if it determines that: · the statutory provisions as to the required majority vote have been met; · the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of theminority to promote interests adverse to those of the class; · the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and · the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law. When a takeover offer is made and accepted by holders of 90% of the shares within four months, the offeror may, within a two-month periodcommencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. Anobjection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unlessthere is evidence of fraud, bad faith, or collusion. If an arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which wouldotherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judiciallydetermined value of the shares. 85Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Shareholders’ Suits In principle, we will normally be the proper plaintiff, and, as a general rule, a derivative action may not be brought by a minority shareholder.However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoingprinciple, including when: · a company acts or proposes to act illegally or ultra vires; · the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not beenobtained; and · those who control the company are perpetrating a “fraud on the minority.” Indemnification of Directors and Executive Officers and Limitation of Liability Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors,except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification againstcivil fraud or the consequences of committing a crime. Our Amended and Restated Memorandum of Association and Amended and Restated Articles ofAssociation permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses ordamages arise from fraud or dishonesty of such directors or officers. This standard of conduct is generally the same as permitted under the Delaware GeneralCorporation Law for a Delaware corporation. In addition, we have entered into indemnification agreements with our directors and senior executive officersthat provide such persons with additional indemnification beyond that provided in our Amended and Restated Memorandum of Association and Amendedand Restated Articles of Association. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us underthe foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the SecuritiesAct and is therefore unenforceable as a matter of United States law. Anti-Takeover Provisions in the Memorandum of Association and Articles of Association Some provisions of our Amended and Restated Memorandum of Association and Amended and Restated Articles of Association may discourage,delay, or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize our Boardof Directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shareswithout any further vote or action by our shareholders. However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our Amended and RestatedMemorandum of Association and Amended and Restated Articles of Association, as amended and restated from time to time, for what they believe in goodfaith to be in the best interests of our company. Directors’ Fiduciary Duties Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has twocomponents: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent personwould exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material informationreasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the bestinterests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandatesthat the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder andnot shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in thehonest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one ofthe fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of thetransaction, and that the transaction was of fair value to the corporation. As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company andtherefore it is considered that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make aprofit based on his position as director (unless the company permits him to do so) and a duty not to put himself in a position where the interests of thecompany conflict with his personal interest or his duty to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibitin the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, Englishand Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followedin the Cayman Islands. 86Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Transactions with Interested Shareholders The Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless thecorporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging incertain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. Aninterested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting stock within the pastthree years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not betreated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the Boardof Directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encouragesany potential acquirer of a Delaware public corporation to negotiate the terms of any acquisition transaction with the target’s Board of Directors. Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware businesscombination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it doesprovide that such transactions must be entered into bona fide in the best interests of the company and for a proper corporate purpose and not with the effect ofconstituting a fraud on the minority shareholders. Dissolution: Winding-up Under the Delaware General Corporation Law, unless the Board of Directors approves the proposal to dissolve, dissolution must be approved byshareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the Board of Directors may it be approved by asimple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation asupermajority voting requirement in connection with dissolutions initiated by the board. Under the Companies Law of the Cayman Islands and our amendedand restated articles of association, our company may be dissolved, liquidated or wound up by the vote of holders of two-thirds of our shares voting at ameeting or the unanimous written resolution of all shareholders. Under Cayman Islands law, a company may be wound up by either an order of the courts ofthe Cayman Islands or by a special resolution of its shareholders or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of itsshareholders. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just andequitable to do so. Under the Companies Law of the Cayman Islands and our Amended and Restated Articles of Association, our company may be dissolved,liquidated or wound up by the vote of holders of two-thirds of our shares voting at a meeting or the unanimous written resolution of all shareholders. Material Contracts We have not entered into any material contracts within the past two fiscal years other than in the ordinary course of business, other than those listed inItem 19 “Exhibits” or described elsewhere in this annual report. Exchange Controls China’s government imposes control over the convertibility of RMB into foreign currencies. The conversion of RMB into foreign currencies, includingU.S. dollars, has been based on rates announced by the People’s Bank of China. On July 21, 2005, the PRC government changed its decade-old policy ofpegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basketof certain foreign currencies. This change in policy has resulted in significant appreciation of the RMB against the U.S. dollar by the end of 2014. While theinternational reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adoptan even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar. Pursuant to the Foreign Exchange Administration Regulations issued by the State Council on January 29, 1996, and effective as of April 1, 1996 (andamended on January 14, 1997 and August 5, 2008) and the Regulations on the Administration of Settlement, Sale and Payment of Foreign Exchange issuedby the People’s Bank of China on June 20, 1996 and effective on July 1, 1996, or the FX Regulations, regarding the administration and control of foreignexchange, conversion of RMB into foreign exchange by foreign investment enterprises for current account items, including the distribution of dividends andprofits to foreign investors in joint ventures, is permissible. Foreign investment enterprises are permitted to remit foreign exchange from their foreignexchange bank accounts in China on the basis of, inter alia, the terms of the relevant joint venture contracts and the board resolutions declaring thedistribution of the dividend and payment of profits. Each conversion of RMB into a foreign currency and each remittance of a foreign currency for capitalaccount items, including direct investment, loans and security investment, is subject to the approval of the SAFE. Under the Foreign Exchange Administration Regulations, foreign investment enterprises are required to open and maintain separate foreign exchangeaccounts for capital account items (but not for other items). In addition, foreign investment enterprises may only buy, sell and/or remit foreign currencies atthose banks authorized to conduct foreign exchange business upon the production of valid commercial documents and, in the case of capital account itemtransactions, approval of the documents by the SAFE. 87Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Currently, foreign investment enterprises are required to apply to the SAFE for “foreign exchange registration certificates for foreign investmententerprises” (which are granted to foreign investment enterprises, upon fulfilling specified conditions and which are subject to review and renewal by theSAFE on an annual basis). With such foreign exchange registration certificates and required underlying transaction documents, or with approval documentsfrom the SAFE if the transactions are under capital account (which are obtained on a transaction-by-transaction basis), foreign-invested enterprises may enterinto foreign exchange transactions at banks authorized to engage in the foreign exchange business to obtain foreign exchange for their needs. Taxation The following summary of the material Cayman Islands, PRC and United States federal income tax consequences of an investment in our ADSs orClass A ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change.This summary does not discuss all possible tax consequences relating to an investment in our ADSs or Class A ordinary shares, such as the tax consequencesunder United States state, local and other tax laws. Cayman Islands Taxation The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is notaxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of our ADSs and ordinary shares. We will not besubject to Cayman Islands taxation on payments of dividends or upon the repurchase by us of your ADSs or Class A Ordinary Shares, nor will gains derivedfrom the disposal of ADSs or Class A Ordinary Shares be subject to Cayman Islands income or corporation tax. There are no other taxes likely to be materialto us or holders of our ADSs or ordinary shares levied by the Government of Cayman Islands except for stamp duties, which may be applicable on instrumentsexecuted in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of sharesof Cayman Islands companies, except those which hold interests in land in the Cayman Islands. The Cayman Islands is not party to any double tax treaties.There are no exchange control regulations or currency restrictions in the Cayman Islands. Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Clerk of theCabinet of the Cayman Islands: (1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to usor our operations; and (2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares, debentures or other obligations. The undertaking for us will be for a period of twenty years from the date of issuance. PRC Taxation Under the CIT Law and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within the PRC isconsidered a resident enterprise and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define theterm “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel,accounts and properties of an enterprise. On April 22, 2009, the SAT issued a circular, known as Circular 82, which provides certain specific criteria fordetermining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China, which will be subjectto PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operationalmanagement is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval byorganizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholderresolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.Circular 82 applies only to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, rather than those controlled by PRC individuals orforeigners, like us, but the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should beapplied in determining the tax resident status of all offshore enterprises. Although we believe we are not a PRC tax resident enterprise, it is not clear whetherSogou HK, Vast Creation, and us will be deemed to be PRC tax residents under the CIT Law. If we are considered to be a PRC tax resident under the CIT lawby the PRC tax authorities, our global income will be subject to corporate income tax at a rate of 25%. The implementation rules of the CIT Law provide that, (i) if an enterprise that distributes dividends is domiciled in the PRC, or (ii) if gains are realizedfrom transferring equity interests of enterprises domiciled in the PRC, then such dividends or capital gains are treated as PRC-sourced income. It is not clearhow “domicile” may be interpreted under the CIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are,or Sogou HK is, considered to be a PRC tax resident enterprise for tax purposes, any dividends we pay to our non-PRC resident shareholders or ADS holdersas well as gains realized by such shareholders or ADS holders from the transfer of our shares or ADSs may be regarded as PRC-sourced income and as a resultbecome subject to PRC tax at the rate up to 10% in the case of enterprises or 20% in the case of individuals. In the case of dividends, we would be required towithhold any PRC tax at source. See “Risk Factors—Risk Related to China’s Regulatory and Economic Environment—Dividends paid by us to our foreigninvestors and profits on the sale of our shares or ADSs may be subject to tax under PRC tax laws.” 88Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents United States Federal Income Taxation The following is a summary of the material U.S. federal income tax considerations related to the purchase, ownership, and disposition of our ADSs orClass A Ordinary Shares by U.S. holders (as defined below). This summary applies only to U.S. holders that hold the ADSs or Class A Ordinary Shares ascapital assets and that have the U.S. dollar as their functional currency. This discussion does not address any aspect of the U.S. federal gift, estate, or Medicaretax, or state, local, or foreign tax, consequences of an investment in our ADSs or Class A Ordinary Shares. This discussion is based on the tax laws of theU.S. as in effect on the date of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, aswell as judicial and administrative interpretations of such tax laws and regulations available on or before such date. All of the foregoing authorities aresubject to change, which change could apply retroactively and could affect the tax consequences described below. The following discussion does not describe the tax consequences that may be relevant to any particular investor or to persons in special taxsituations such as: · banks or certain financial institutions; · insurance companies; · broker dealers; · traders that elect to mark to market; · tax-exempt entities; · persons liable for alternative minimum tax; · persons holding ADSs or Class A Ordinary Shares as part of a straddle, hedging, conversion transaction or other integrated investment; · regulated investments companies; · persons who acquired ADSs or Class A Ordinary Shares pursuant to the exercise of any employee share option or otherwise as compensation; · persons who actually or constructively own 10% or more of the total combined voting power of all classes of our shares entitled to vote or 10% ormore of the total value of all classes of our shares; or · partnerships or other pass-through entities for U.S. federal income tax purposes or persons holding ADSs or Class A Ordinary Shares throughpartnerships or other pass-through entities. U.S. holders are urged to consult their own tax advisors about the application of U.S. federal tax rules to their particular circumstances as well asthe state, local and foreign tax consequences to them of the purchase, ownership and disposition of our ADSs or Class A Ordinary Shares. The discussion below of U.S. federal income tax consequences to “U.S. holders” will apply to a beneficial owner of ADSs or Class A Ordinary Shareswho is, for U.S. federal income tax purposes: · a citizen or individual resident of the U.S.; · a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereofor the District of Columbia; · an estate whose income is subject to U.S. federal income taxation regardless of its source; or 89Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents · a trust (1) whose administration is subject to the primary supervision of a court within the U.S. and one or more U.S. persons have the authority tocontrol all substantial decisions of the trust, or (2) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as aU.S. person. For U.S. federal income tax purposes, the tax treatment of a partner in a partnership or other entity taxable as a partnership that holds ADSs orClass A Ordinary Shares depends on the partner’s status and the activities of the partnership. U.S. holders who hold their ADSs or Class A Ordinary Sharesthrough a partnership, limited liability company, or other entity taxable as a partnership should consult their tax advisers regarding their tax treatment. The discussion below assumes that the representations contained in the Deposit Agreement are true and that the obligations in the DepositAgreement and any related agreement have been and will be complied with in accordance with their terms. Holders of ADSs will be treated as the holders ofthe underlying Class A Ordinary Shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, deposits of Class A Ordinary Shares inreturn for ADSs representing those shares, and surrender of ADSs in return for the underlying Class A Ordinary Shares, will not be subject to U.S. federalincome tax. The U.S. Treasury has expressed concerns that parties to whom ADSs are released before the underlying shares are delivered to the depositary (“pre-release”), or intermediaries in the chain of ownership between holders of ADSs and the issuer of the security underlying the ADSs, may be taking actions thatare inconsistent with the claiming of foreign tax credits by holders of ADSs. These actions would also be inconsistent with the claiming of the reduced rate oftax, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the creditability of PRC taxes, and the availability ofthe reduced tax rate for dividends received by certain non-corporate U.S. holders, each described below, could be affected by actions taken by such parties orintermediaries. Taxation of Dividends and Other Distributions on ADSs or Class A Ordinary Shares Subject to the PFIC rules discussed below, the gross amount of our distributions to a U.S. holder with respect to ADSs or Class A Ordinary Shares(including any amount withheld in respect of PRC taxes) generally will be included in a U.S. holder’s gross income as foreign source dividend income on thedate of receipt by the depositary, in the case of ADSs, or by the U.S. holder, in the case of Class A Ordinary Shares, but only to the extent that the distributionis paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent, if any, that the amountof any such distribution exceeds our current and accumulated earnings and profits, it will be treated first as a tax-free return of the U.S. holder’s tax basis inthe ADSs or the Class A Ordinary Shares (thereby increasing the amount of any gain or decreasing the amount of any loss realized on the subsequent sale ordisposition of such ADSs or Class A Ordinary Shares) and thereafter as capital gain. Further, any distributions treated as dividends generally will not beeligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. Certain non-corporate U.S. holders, including individual U.S. holders, may be taxed on dividend payments at a special rate (the applicable capitalgains rate) that is applicable to “qualified dividend income” provided that (1) the ADSs or Class A Ordinary Shares are readily tradable on an establishedsecurities market in the U.S., (2) we are not treated as a PFIC with respect to the U.S. holder (as discussed below) for our taxable year in which the dividendwas paid and we were not a PFIC in the preceding taxable year, and (3) certain holding period requirements are met. Under Internal Revenue Serviceauthority, our Class A Ordinary Shares, or ADSs representing such shares, will be considered for the purpose of clause (1) above to be readily tradable on anestablished securities market in the U.S. if they are listed, (as our ADSs are currently) on the New York Stock Exchange. U.S. holders should consult their owntax advisors regarding the availability of the lower rate for dividends paid with respect to our ADSs or Class A Ordinary Shares in the light of their particularcircumstances. Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividendincome (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to thegross amount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normallyapplicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For foreign taxcredit purposes, dividends paid on our Class A Ordinary Shares will generally constitute “passive category income” but could, in the case of certainU.S. holders, constitute “general category income.” If PRC withholding taxes apply to dividends paid to a U.S. holder with respect to our ADSs or Class A Ordinary Shares, subject to certain conditionsand limitations, such PRC withholding taxes will be treated as foreign taxes eligible for credit against the U.S. holder’s U.S. federal income tax liability. Therules governing foreign tax credits are complex and, therefore, U.S. holders should consult their tax advisors regarding the availability of a foreign tax creditin such U.S. holders’ particular circumstances. Taxation of Disposition of Shares Subject to the PFIC rules discussed below, a U.S. holder will recognize taxable gain or loss on any sale, exchange or other taxable disposition of anADS or Class A Ordinary Share equal to the difference between the amount realized for the ADS or Class A Ordinary Share and the U.S. holder’s adjusted taxbasis in the ADS or Class A Ordinary Share. The gain or loss will be capital gain or loss. A non-corporate U.S. holder, including an individual U.S. holder,who has held the ADS or Class A Ordinary Share for more than one year will be eligible for reduced capital gains tax rates. The deductibility of capital lossesis subject to limitations. Any such gain or loss that a U.S. holder recognizes will be treated as U.S. source income for foreign tax credit limitation purposes. 90Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents As described above under “Taxation—PRC Taxation,” any gain from the disposition of our ADSs or Class A Ordinary Shares may be subject to PRCtax. In such event, a U.S. holder that is eligible for the benefits of the income tax treaty between the U.S. and the PRC may elect to treat the gain as PRCsource income for foreign tax credit purposes. U.S. holders should consult their tax advisors regarding their eligibility for benefits under the income tax treatybetween the U.S. and the PRC and their ability to credit any PRC tax withheld in respect of a sale of our ADSs or Class A Ordinary Shares against theirU.S. federal income tax liability. Passive Foreign Investment Company We expect that we will not be treated as a PFIC for our 2018 taxable year ended November 30, 2018. Our expectation is based on our operations andthe estimated composition of our earnings and assets for the current taxable year, including the valuation of our assets (including goodwill) based on theexpected price of our ADSs in the market. However, because we hold a substantial amount of cash and cash equivalents, and because the value of our otherassets may be based in part on the market price of our ADSs, which may fluctuate (and could fluctuate considerably given that market prices of Internetcompanies historically have been especially volatile), our PFIC status in the current and future taxable years may depend in large part on the market price ofour ADSs. A drop in the market price of our ADSs and associated decrease in the value of our goodwill would cause a reduction in the value of our non-passive assets for purposes of the asset test described below. Accordingly, we could become a PFIC if our market capitalization were to decrease significantlywhile we hold substantial cash and cash equivalents. In addition, the composition of our income and assets will be affected by how, and how quickly, wespend our cash. Furthermore, it is not entirely clear how the contractual arrangements between us and our consolidated VIEs will be treated for purposes of thePFIC rules. If these contractual arrangements were found to not result in our ownership of the VIEs for U.S. federal income tax purposes, we could be a PFIC.See “Risk Factors—Risks Related to Our Corporate Structure—We depend upon contractual arrangements with our VIE Sogou Information and itsshareholders for the success of our business and these arrangements may not be as effective in providing operational control as direct ownership of theentities and may be difficult to enforce.” Also, our PFIC status for any taxable year will depend upon the character of our income and assets and the value ofour assets for such year, cannot be determined until after the close of the taxable year. Accordingly, there is no guarantee that we will not be a PFIC for anytaxable year. A non-U.S. corporation is considered a PFIC for any taxable year if either: · at least 75% of its gross income is passive income (such as certain dividends, interest or royalties) (the “income test”), or · at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets thatproduce or are held for the production of passive income (the “asset test”). For the purposes of this determination, we will be treated as owning our proportionate share of the assets and earning our proportionate share of theincome of any other corporation in which we own (or are treated as owing), directly or indirectly, at least 25% (by value) of the shares or equity interests. We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change from one year to the next. If we are a PFIC for any taxable year during which a U.S. holder holds our ADSs or Class A Ordinary Shares, such U.S. holder will be subject tospecial tax rules with respect to any “excess distribution” that such U.S. holder receives and any gain that such U.S. holder realizes from a sale or otherdisposition (including, in a certain circumstances, a pledge) of the ADSs or Class A Ordinary Shares, unless the holder makes a “mark-to-market” election asdiscussed below. For purpose of these special rules, if we are a PFIC for any year during which a U.S. holder holds ADSs or Class A Ordinary Shares, we willcontinue to be treated as a PFIC with respect to such U.S. holder for all succeeding years during which such U.S. holder holds ADSs or Class A OrdinaryShares, even if we are no longer classified as a PFIC in subsequent years. Under certain attribution rules, if we are a PFIC, a U.S. holder will be deemed to ownsuch U.S. holder’s proportionate share of any subsidiaries or other entities that are PFICs in which we hold (directly or indirectly through other PFICs) anequity interest (“subsidiary PFICs”), and will generally be treated for purposes of the PFIC rules as if such U.S. holder directly held the shares of suchsubsidiary PFICs. Under these special rules, distributions that a U.S. holder receives in a taxable year that are greater than 125% of the average annual distributionsthat such U.S. holder received during the shorter of the three preceding taxable years or such U.S. holder’s holding period for the ADSs or Class A OrdinaryShares will be treated as an excess distribution. Under these special tax rules: · the excess distribution or gain will be allocated ratably over the U.S. holder’s holding period for the ADSs or Class A Ordinary Shares; · the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated asordinary income; and 91Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents · the amount allocated to each other taxable year will be subject to the highest tax rate in effect for that taxable year for individuals or corporations,as applicable, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each suchtaxable year. Gains from the disposition of ADSs or Class A Ordinary Shares will be taxed in the same manner. The tax liability for amounts allocated to yearsprior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on thesale of ADSs or Class A Ordinary Shares cannot be treated as capital, even if the U.S. holder holds the ADSs or Class A Ordinary Shares as capital assets. AU.S. holder will be subject to the same U.S. federal income tax rules as described above on indirect or constructive distributions that the U.S. holder is deemedto receive on shares of a subsidiary PFIC and on indirect or constructive dispositions of shares of subsidiary PFICs. Alternatively, a U.S. holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock of a PFIC to electout of the tax treatment discussed in the two preceding paragraphs. A mark-to-market election will not be available, however, with respect to any subsidiaryPFICs. If a U.S. holder makes a mark-to-market election for the ADSs or Class A Ordinary Shares, such U.S. holder will generally include in income each yearan amount equal to the excess, if any, of the fair market value of the ADSs or Class A Ordinary Shares as of the close of such U.S. holder’s taxable year oversuch U.S. holder’s adjusted tax basis in such ADSs or Class A Ordinary Shares. The U.S. holder will be allowed a deduction for the excess, if any, of theadjusted basis of the ADSs or Class A Ordinary Shares over their fair market value as of the close of the taxable year. However, deductions are allowable onlyto the extent of any net mark-to-market gains on the ADSs or Class A Ordinary Shares included in the U.S. holder’s income for prior taxable years. Amountsincluded in a U.S. holder’s income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs or Class A OrdinaryShares, will generally be taxed at ordinary income rates. Ordinary loss treatment will also apply to the deductible portion of any mark-to-market loss on theADSs or Class A Ordinary Shares, as well as to any loss realized on the actual sale or disposition of the ADSs or Class A Ordinary Shares, to the extent that theamount of such loss does not exceed the net mark-to-market gains previously included for such ADSs or Class A Ordinary Shares. A U.S. holder’s basis in theADSs or Class A Ordinary Shares will be adjusted to reflect any such income or loss amounts. If the U.S. holder makes a mark-to-market election, tax rules thatapply to distributions by corporations which are not PFICs would apply to distributions by us (however, the lower applicable capital gains rate for “qualifieddividend income” discussed above would not apply). The basis adjustment and income or loss inclusion under this alternate mark-to-market regime willapply only during years in which we are a PFIC. The mark-to-market election will only be available for “marketable stock” which is stock that is traded in more than de minimis quantities on at least15 days during each calendar quarter on a qualified exchange or other market, as defined in applicable Treasury regulations, such as the New York StockExchange. A third alternative taxation regime which may be available to some U.S. investors in PFICs, known as “qualified electing fund” (QEF) treatment, willnot be available to U.S. holders of our ADSs or Class A Ordinary Shares. This is because QEF treatment requires the PFIC to supply annually certaininformation to U.S. holders of ADSs or Class A Ordinary Shares, and we do not intend to supply such information. A U.S. holder of ADSs or Class A Ordinary Shares in any year in which we are a PFIC will be required to file Internal Revenue Service Form 8621regarding distributions received on the ADSs or Class A Ordinary Shares and any gain realized on the disposition of the ADSs or Class A Ordinary Shares. Inaddition, if we are a PFIC for a taxable year in which we pay a dividend, or for the prior taxable year, the lower rate on “qualified dividend income” discussedabove with respect to dividends paid to certain non-corporate U.S. holders would not apply. U.S. holders and prospective holders of our ADSs or Class A Ordinary Shares are urged to consult their own tax advisors regarding the application ofthe PFIC rules to an investment in ADSs or Class A Ordinary Shares. Information Reporting and Backup Withholding Dividend payments with respect to ADSs or Class A Ordinary Shares and proceeds from the sale, exchange or redemption of ADSs or Class AOrdinary Shares may be subject to information reporting to the Internal Revenue Service and possible U.S. backup withholding at a rate of 24% for taxableyears beginning after December 31, 2017 and before January 1, 2026. Backup withholding will not apply, however, to a U.S. holder who furnishes a correcttaxpayer identification number and makes any other required certifications or who is otherwise exempt from backup withholding and demonstrates suchexemption if required. U.S. holders who are required to establish their exempt status must provide such certification on Internal Revenue Service Form W-9.U.S. holders should consult their tax advisors regarding the application of U.S. information reporting and backup withholding rules. Individual U.S. holders who own “specified foreign financial assets” with an aggregate value in excess of US$50,000 are generally required to file aninformation statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include anyfinancial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer (which would include our Class A Ordinary Shares)that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certainmarried individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirectinterests in specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be subject tosubstantial penalties. Prospective investors should consult their own tax advisors concerning the application of these rules to their investment in our ADSsand Class A Ordinary Shares, including the application of the rules to their particular circumstances. 92Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Prospective purchasers of our ADSs or Class A Ordinary Shares should consult their own tax advisor regarding the application of the U.S. federalincome tax laws to their particular situations as well as any tax consequences resulting from purchasing, holding or disposing of our ADSs and Class AOrdinary Shares, including the applicability and effect of the tax laws of any state, local or foreign jurisdiction and including estate, gift and inheritance laws. Available Additional Information We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to filereports and other information with the SEC. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public referencefacilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtaininformation regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a Website atwww.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SECusing its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterlyreports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisionscontained in Section 16 of the Exchange Act. As required under Section 203.01 of the New York Stock Exchange Listed Company Manual, we will post our annual reports filed with the SEC on ourWeb site at http://ir.sogou.com. We will not furnish hard copies of such reports to holders of our ADSs unless we are requested to do so in writing by a holder.Upon receipt of such a request, we will provide a hard copy of such reports to such requesting holder free of charge. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Exchange Rate Risk While our reporting currency is the U.S. dollar, to date almost all of our revenues and costs, a majority of our assets, and almost all of our liabilitiesare denominated in RMB. As a result, we are exposed to foreign exchange risk, as our revenues and assets may be affected by fluctuations in the exchangerate between the U.S. dollar and the RMB. If the RMB depreciates against the U.S. dollar, the value of our RMB revenues and assets as expressed in our U.S.dollar financial statements will decline. For example, our revenues for the year ended December 31, 2018 were US$1.124 billion and our total assets as ofDecember 31, 2018 were US$1.463 billion, representing revenues of RMB7.715 billion and total assets of RMB10.040 billion at the exchange rate ofRMB6.8632 to $1.00 in effect as of December 31, 2018. If the value of the RMB were to depreciate by 10% against the U.S. dollar, the value of the sameamount of revenues and total assets in U.S. dollars would be US$1.022 billion and US$1.330 billion, respectively. The RMB is not freely tradable in “capital account” transactions, which include foreign direct investment. Foreign exchange transactions classifiedas capital account transactions are subject to limitations and require approval from the SAFE. This could affect our China-based subsidiaries’ ability toobtain foreign exchange through debt or equity financing, including by means of loans or capital contributions from us. Further, the RMB is at present freeconvertible in “current account” transactions, which include dividends, trade and service-related foreign exchange transactions, and our China-basedsubsidiaries may purchase and retain foreign exchange for settlement of such transactions, including payment of dividends, without the approval of theSAFE. However, the relevant PRC governmental authorities may limit our ability to purchase or retain foreign currencies in the future. Since a significantamount of our future revenues are likely to be in the form of RMB, these existing restrictions, and any future restrictions, on currency exchange may limit ourability to use revenues generated in RMB to fund our business activities outside of China, or to make expenditures denominated in foreign currencies. To the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would reduce theRMB amount we would receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars for the purpose of making payments fordividends on our ordinary shares or for other business purposes, depreciation of the RMB against the U.S. dollar would reduce the U.S. dollar amountsavailable to us. As of December 31, 2018, we had RMB-denominated cash and cash equivalents and short-term investments of RMB2.009 billion and U.S. dollar-denominated cash and cash equivalents of US$743.8 million. Assuming we had converted our US$743.8 million cash and cash equivalents balance intoRMB at the exchange rate of RMB6.8632 to US$1.00 in effect as of December 31, 2018, we would have had a total RMB balance for cash and cashequivalents and short-term investments of RMB7.114 billion as of that date. An appreciation of the RMB of 10% against the U.S. dollar as of December 31,2018 would have caused the total RMB balance for our cash and cash equivalents and short-term investments to be RMB6.603 billion as of that date aftersuch a hypothetical conversion. Conversely, if we had converted our RMB2.009 billion cash and cash equivalents and short-term investments balance intoU.S. dollars at the exchange rate of RMB6.8632 to US$1.00 in effect as of December 31, 2018, we would have had a total U.S. dollar balance for cash andcash equivalents and short-term investments of US$1.037 billion as of that date. A depreciation of the RMB of 10% against the U.S. dollar as of December 31,2018 would have caused us to have a total U.S. dollar balance for our cash and cash equivalents and short-term investments of US$1.010 billion as of thatdate after such a hypothetical conversion. 93Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we maydecide to enter into hedging transactions in the future, the effectiveness of these hedges may be limited and we may not be able to successfully hedge ourexposure. Accordingly, we may incur economic losses in the future due to foreign exchange rate fluctuations, which could have an adverse impact on ourfinancial condition and results of operations. Inflation Rate Risk According to the National Bureau of Statistics of China, the consumer price index grew 2.1% in 2018, compared to an increase of 1.6% in 2017. Whilethe increase in the rate of inflation for 2018 compared to 2017 did not have a significant adverse effect on our business, any additional increases in the futurecould have an adverse effect on our business. Interest Rate Risk Our investment policy limits our investments of excess cash to investments in bank deposits and high-quality corporate securities and limits theamount of our exposure to any one issuer. We have not been, nor do we expect to be, exposed to material risks due to changes in interest rates on borrowingsbecause we have not incurred, and do not expect to incur, any significant third-party debt. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES The following table summarizes the fees and charges that a holder of our ADSs may have to pay, directly or indirectly, pursuant to the DepositAgreement and the types of services and the amount of the fees or charges paid therefore: Persons depositing or withdrawing shares or ADS holders must pay: For:US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)· Issuance of ADSs, including issuances resulting from a distribution ofshares or rights or other property· Cancellation of ADSs for the purpose of withdrawal, including if theDeposit Agreement terminatesUS$0.05 (or less) per ADS· Any cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed toyou had been shares and the shares had been deposited for issuance ofADSs· Distribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holdersUS$0.05 (or less) per ADS per calendar year· Depositary servicesRegistration or transfer fees· Transfer and registration of shares on our share register to or from the nameof the depositary or its agent when you deposit or withdraw sharesExpenses of the depositary· Cable and facsimile transmissions (when expressly provided in the DepositAgreement)· converting non-U.S. currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or shares underlying ADSs, such as stock transfer taxes,stamp duty, or withholding taxes· As necessaryAny charges incurred by the depositary or its agents for servicing thedeposited securities· As necessary Pursuant to an agreement dated November 8, 2017 between us and the Bank of New York Mellon, the depositary for our ADSs, in March 2018 the depositaryreimbursed us in cash for our expenses, including investor relations expenses, legal fees, accounting fees, the New York Stock Exchange listing applicationand listing fees, and related expenses, in the amount of US$8,659,456, which is net of U.S. withholding tax, related to the establishment of our Americandepositary receipt facility. 94Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not Applicable. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Use of Proceeds On November 8, 2017, our registration statement on Form F-1 (File No. 333-220928), as amended, was declared effective by the SEC for our initialpublic offering, pursuant to which we offered and sold a total of 50,643,856 ADSs, including 5,643,856 ADSs sold upon the exercise by the underwriters oftheir over-allotment options, at the public offering price of $13.00 per ADS. The offering was completed in November 2017. We received net proceeds of approximately US$622.1 million from the offering, after deducting underwriting discounts and commissions ofapproximately $32.9 million and other expenses of approximately $3.3 million. None of the underwriting discounts and commissions or other expenses werepaid directly or indirectly to any director, officer, or general partner of ours or to their associates, persons owning ten percent or more of any class of ourequity securities, or to any of our affiliates. J.P. Morgan, Credit Suisse, Goldman Sachs, and CICC acted as joint book runners for our initial public offeringand as the representatives of the underwriters. As of December 31, 2018, we had used an insignificant amount of the net proceeds of our initial public offering, as the net cash provided by ouroperations was sufficient to cover our capital needs. ITEM 15. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our principal executive officer and principal financial officer performed an evaluation of the effectiveness of our disclosure controls and procedures, asdefined and required under Rule 13a-15(e)of the Exchange Act, as of the end of the period covered by this annual report. Based upon that evaluation, theyhave concluded that our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports thatwe file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principalfinancial officer, to allow timely decisions regarding required disclosure. Our principal executive officer and principal financial officer also concluded thatthe information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in by the Securities and Exchange Commission’s rules and regulations. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Because of its inherentlimitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, weconducted an assessment of the effectiveness of our internal control over financial reporting based upon criteria established in the “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment,management has concluded that our internal control over financial reporting was effective as of December 31, 2018. The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers Zhong TianLLP, our independent registered public accounting firm, as stated in its report included on page F-2. 95Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting. ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our Board of Directors has determined that Bin Gao meets the criteria of an “audit committee financial expert” as set forth in the applicable SECrules and has accounting or related financial management expertise as set forth in the New York Stock Exchange Listed Company Manual. Our Board ofDirectors has determined that all three members of our audit committee are “independent” under Rule 10A-3 under the Securities Exchange Act of 1934 andthe New York Stock Exchange Listed Company Manual. ITEM 16B. CODE OF ETHICS Our Board of Directors adopted a code of ethics and conduct that is applicable to all of our directors, officers and employees. A copy of our code ofethics and conduct was filed as an exhibit to our Registration Statement on Form F-1 (File No. 333-220928) originally filed with the SEC on October 13,2017, and is also posted on our Website at http://ir.sogou.com under the heading “Corporate Governance.” ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered byPricewaterhouseCoopers Zhong Tian LLP, our principal external auditors, and its affiliates for the periods indicated below. For the year endedDecember 31, 2017 2018 US$ US$ (US$ in thousands)Audit fees (1)1,7471,059Tax fees (2)—65Audit related fees (3)37—All other fees7757Total1,8611,181 (1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for the audit ofour annual financial statements and our internal controls over financial reporting, and the fees for assurance services rendered in connection with ourinitial public offering in 2017. (2) “Tax fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for tax complianceand tax advice. (3) “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors related tothe audit of our financial statements and our internal controls over financial reporting that are not reported under “Audit Fees” and consultation onaccounting standards or transactions. Audit Committee Pre-approval Policies and Procedures Our audit committee has adopted procedures which set forth the manner in which the committee will review and approve all audit and non-auditservices to be provided by PricewaterhouseCoopers Zhong Tian LLP before that firm is retained for such services. The pre-approval procedures are as follows: · Any audit or non-audit service to be provided to us by the independent accountant must be submitted to the audit committee for review andapproval, with a description of the services to be performed and the fees to be charged. · The audit committee in its sole discretion then approves or disapproves the proposed services and documents such approval, if given, throughwritten resolutions or in the minutes of meetings, as the case may be. 96Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not Applicable. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Not Applicable. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Not Applicable. ITEM 16G. CORPORATE GOVERNANCE Sohu, through its ownership of Class B Ordinary Shares and the Voting Agreement with Tencent, will have the power to appoint a majority of ourboard of directors. As a result, we will be a “controlled company” under the New York Stock Exchange Listed Company Manual. We will rely on certainexemptions that are available to controlled companies from NYSE corporate governance requirements, including the following, which we do not intend tomeet voluntarily: · that we have a majority of independent directors on our board; · that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’spurpose and responsibilities; and · for an annual performance evaluation of the nominating/corporate governance committee and the compensation committee. We are not required to and will not voluntarily meet these requirements. If we are no longer a “controlled company,” we may in the future invoke“home country” exceptions available to foreign private issuers, such as us, under the New York Stock Exchange Listed Company Manual which are similar tothe exemptions for controlled companies, and also include the possibility of additional exceptions from the New York Stock Exchange Listed CompanyManual, such as the requirement that equity-compensation plans be approved by shareholders. As a result of our use of the “controlled company”exemptions, and any future use by us of the “home country” exceptions, holders of our ADSs will not have the same protection afforded to shareholders ofcompanies that are subject to all of NYSE corporate governance requirements. ITEM 16H. MINE SAFETY DISCLOSURE Not Applicable. PART III ITEM 17. FINANCIAL STATEMENTS We have elected to provide financial statements pursuant to Item 18. ITEM 18. FINANCIAL STATEMENTS The consolidated financial statements of Sogou and its subsidiaries and VIEs are included at the end of this annual report. 97Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents ITEM 19. EXHIBITS ExhibitNumber Description of Document 1.1 Seventh Amended and Restated Memorandum of Association and Third Amended and Restated Articles of Association of the Registrant 2.1Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3) 2.2Registrant’s Specimen Certificate for Class A ordinary shares 2.3Deposit Agreement, dated November 8, 2017, among the Registrant, the depositary and all registered holders and beneficial owners ofthe American Depositary Shares 4.12010 Share Incentive Plan 4.22017 Share Incentive Plan, as amended and restated 4.3English Translation of Form of Employment Agreement with Executive Officers 4.4English Translation of Form of Non-Competition Agreement with Executive Officers 4.5English Translation of Form of Confidentiality Agreement with Executive Officers 4.6Voting Agreement dated September 16, 2013 among Sogou Inc., Sohu.com (Search) Limited, Photon, Xiaochuan Wang, and othermembers of Sogou Management, as amended as of August 11, 2017 4.7Voting Agreement dated as of August 11, 2017 among Sogou Inc., Sohu.com (Search) Limited, and THL A21 Limited 4.8Registration Rights Agreement dated as of August 11, 2017 among Sogou Inc., Sohu.com (Search) Limited, Photon and THLA21 Limited 4.9English Translation of Loan Agreement, dated December 2, 2013, between Sogou Technology and Xiaochuan Wang 4.10English Translation of Exclusive Equity Interest Purchase Rights Agreement, dated December 2, 2013, among Sogou Technology,Sogou Information and the shareholders of Sogou Information 4.11English Translation of Share Pledge Agreement, dated December 2, 2013, among Sogou Technology, Sogou Information and theshareholders of Sogou Information 4.12English Translation of Power of Attorney, dated December 2, 2013, by the shareholders of Sogou Information in favor of SogouTechnology 4.13English Translation of Business Operation Agreement, dated December 2, 2013, among Sogou Technology, Sogou Information and theshareholders of Sogou Information 4.14English Translation of Exclusive Technology Consulting and Service Agreement, dated September 26, 2010, between SogouTechnology and Sogou Information 4.15Form of Indemnification Agreement with the Registrant’s Directors 4.16 †English Translation of Second Amended and Restated Mobile Browser Cooperation Agreement, dated September 25, 2017, betweenShenzhen Tencent Computer Systems Co., Ltd. and Sogou Inc., Sogou Technology, Sogou Network, Sogou Information and Shi JiGuang Su. 4.17 *English Translation of Cooperation Agreement between Weixin Official Platform and Sogou Search, dated March 1, 2019, betweenShenzhen Tencent Computer Systems Co., Ltd. and Sogou Information. 98(1)(2) (1)(2) (1) (2) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 4.18 English Translation of Amended and Restated Business Development and Resource Sharing Agreement, dated September 25, 2017,between Shenzhen Tencent Computer Systems Co., Ltd. and Sogou Inc., Sogou Technology, Sogou Network, Sogou Information, Shi JiGuang Su and Sohu.com Limited. 4.18A*English Translation of Amendment to Amended and Restated Business Development and Resource Sharing Agreement, datedSeptember 20, 2018, between Shenzhen Tencent Computer Systems Co., Ltd. and Sogou Inc., Sogou Technology, Sogou Network,Sogou Information, Shi Ji Guang Su, and Sohu.com Limited. 4.19 Sohu.com Internet Plaza Office Building Lease, dated December 30, 2016, between Sogou Network and Beijing Sohu New MediaInformation Technology Co., Ltd., as amended and supplemented 4.20Letter Agreement, dated January 21, 2018, between Sogou Inc. and James Deng 8.1*Subsidiaries of the Registrant 11.1Code of Ethics and Conduct for Directors, Officers and Employees 12.1*Certification of Chief Executive Officer Required by Rule 13a-14(a) 12.2*Certification of Chief Financial Officer Required by Rule 13a-14(a) 13.1*Certification of Chief Executive Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United StatesCode 13.2*Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United StatesCode 15.1*Consent of PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm 15.2*Consent of Commerce & Finance Law Offices 101.INS*XBRL Instance Document 101.SCH*XBRL Taxonomy Extension Schema Document 101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF*XBRL Taxonomy Extension Definition Linkbase Document 101.LAB*XBRL Taxonomy Extension Label Linkbase Document 101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document (1) Incorporated by reference to our Registration Statement on Form F-1(file no. 333-220928) filed with the Securities and Exchange Commission onOctober 13, 2017. (2) Incorporated by reference to our Annual Report on Form 20-F for the year ended December 31, 2017 filed with the Securities and Exchange Commissionon February 28, 2018. † Portions of these exhibits have been omitted pursuant to a request for confidential treatment, and the omitted information has been filed separately with theSecurities and Exchange Commission. * Filed or furnished with this Annual Report on Form 20-F. 99(1)(1)(2) (1)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorizedthe undersigned to sign this annual report on its behalf. SOGOU INC. By/s/ Xiaochuan WangName:Xiaochuan WangTitle:Chief Executive Officer By/s/ Joe ZhouName:Joe ZhouTitle:Chief Financial Officer Date: March 28, 2019 100Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of December 31, 2017, and 2018F-4Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2017, and 2018F-5Consolidated Statements of Changes in Shareholders’ (Deficit)/Equity for the Years Ended December 31, 2016, 2017, and 2018F-6Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2017, and 2018F-9Notes to Consolidated Financial StatementsF-10 F-1Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Sogou Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Sogou Inc. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, andthe related consolidated statements of comprehensive income, of changes in shareholders’ (deficit)/equity and of cash flows for each of the three years in theperiod ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited theCompany’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 inconformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework(2013) issued by the COSO. Change in Accounting Principles As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts withcustomers in 2018. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,and for its assessment of the effectiveness of internal control over financial reporting, included in the Management’s Annual Report on Internal Control OverFinancial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on theCompany’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company AccountingOversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities lawsand the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internalcontrol over financial reporting was maintained in all material respects. F-2Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles usedand significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers Zhong Tian LLP Beijing, the People’s Republic of China March 28, 2019 We have served as the Company’s auditor since 2017. F-3Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SOGOU INC. CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per share data) As of December 31,2017 2018ASSETSCurrent assets:Cash and cash equivalents$694,207$185,175Short-term investments339,006851,327Account and financing receivables, net69,967142,886Prepaid and other current assets15,09140,122Due from related parties2,9712,608Total current assets1,121,2421,222,118Long-term investments, net30,15263,305Fixed assets, net139,209147,495Goodwill5,9085,625Intangible assets, net1,3281,349Deferred tax assets, net15,00613,793Other assets (including due from related parties of US$2,337 and US$2,224, respectively, as ofDecember 31, 2017 and 2018)8,1919,159Total assets$1,321,036$1,462,844LIABILITIESCurrent liabilities:Accounts payable (including accounts payable of consolidated variable interest entities, or “VIEs”,without recourse to the Company of US$18,955 and US$57,051, respectively, as of December 31, 2017and 2018)$73,018$108,679Accrued and other short-term liabilities (including accrued and other short-term liabilities of consolidatedVIEs without recourse to the Company of US$44,751 and US$49,493, respectively, as of December 31,2017 and 2018)164,269151,399Receipts in advance (including receipts in advance of consolidated VIEs without recourse to the Companyof US$7,889 and US$3,647, respectively, as of December 31, 2017 and 2018)66,19965,324Accrued salary and benefits (including accrued salary and benefits of consolidated VIEs without recourseto the Company of US$1,292 and US$1,692, respectively, as of December 31, 2017 and 2018)29,71932,079Taxes payable (including taxes payable of consolidated VIEs without recourse to the Company ofUS$9,232 and US$6,582, respectively, as of December 31, 2017 and 2018)56,48160,433Due to related parties (including due to related parties of consolidated VIEs without recourse to theCompany of US$20,394 and US$20,552, respectively, as of December 31, 2017 and 2018)23,10938,425Total current liabilities412,795456,339Total liabilities$412,795$456,339Commitments and contingencies (Note 21)SHAREHOLDERS’ EQUITYClass A Ordinary Shares (US$0.001 par value, 571,242,125 shares authorized, 123,314,237 and123,906,300 shares issued, 108,080,937 and 112,595,500 shares outstanding as of December 31, 2017and 2018)$112$118Class B Ordinary Shares (US$0.001 par value, 278,757,875 shares authorized, issued, and outstanding as ofDecember 31, 2017 and 2018)279279Additional paid-in capital913,147929,818Treasury stock (US$0.001 par value, 15,233,300 and 11,310,800 shares as of December 31, 2017 and 2018,respectively)(27,869)(27,870)Retained earnings27,178125,959Accumulated other comprehensive loss(4,606)(21,799)Total shareholders’ equity908,2411,006,505Total liabilities and shareholders’ equity$1,321,036$1,462,844 The accompanying notes are an integral part of these consolidated financial statements. F-4Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SOGOU INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except for per share data) For the Year Ended December 31,20162017 2018Revenues:Search and search-related advertising revenues (including transactions with relatedparties of US$6,273, US$10,461, and US$32,735, respectively, for 2016, 2017 and2018)$597,213$801,551$1,023,132Other revenues (including transactions with related parties of US$2,449, US$5,486and US$9,137, respectively, for 2016, 2017 and 2018)63,195106,806101,026Total revenues660,408908,3571,124,158Cost of revenues (including transactions with related parties of US$36,487,US$67,653 and US$115,993 respectively, for 2016, 2017 and 2018)302,736457,401693,470Gross profit357,672450,956430,688Operating expenses:Research and development (including transactions with related parties ofUS$6,619, US$8,233 and US$7,635, respectively, for 2016, 2017 and 2018)138,364172,829201,739Sales and marketing (including transactions with related parties of US$3,788,US$3,010 and US$2,123, respectively, for 2016, 2017 and 2018)123,119156,420146,194General and administrative (including transactions with related parties of US$81,US$131 and US$367, respectively, for 2016, 2017 and 2018)24,56727,82138,072Total operating expenses286,050357,070386,005Operating income71,62293,88644,683Interest income5,1989,1268,037Foreign currency exchange gain/(loss)5,346(7,082)5,725Other (expenses)/income, net(26,027)69241,489Income before income tax expenses56,13996,62299,934Income tax expenses2714,4221,153Net income56,11282,20098,781Net income attributable to Sogou Inc.$56,112$82,200$98,781Less: Dividends attributable to Preferred Shareholders28,09224,388—Net income attributable to ordinary shareholders$28,020$57,812$98,781Net income56,11282,20098,781Other comprehensive (loss)/income, net of nil tax:Foreign currency translation adjustment(9,365)13,216(17,193)Comprehensive income$46,747$95,416$81,588Net income per ordinary share—basic$0.12$0.22$0.25Net income per ordinary share—diluted$0.11$0.20$0.25 Share-based compensation expense included in:Cost of revenues$171$540$669Research and development5,61516,47010,313Sales and marketing1,8164,2991,327General and administrative5,2592,4141,895$12,861$23,723$14,204 The accompanying notes are an integral part of these consolidated financial statements. F-5 (1)(1)(1)(1)(1) Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SOGOU INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY For the Year Ended December 31, 2016 (In thousands, except for share data) Ordinary SharesAdditionalPaid-in Treasury Accumulated AccumulatedOtherComprehensive TotalShareholders’SharesAmountCapital Stock Deficit Loss DeficitBalance as of January 1,2016233,438,434$237$12,669$(24,679)$(111,134)$(8,457)$(131,364)Share issuance from exerciseof options under Sogou2010 Share Incentive Plan3,876,4824————4Contribution from Sohu(Note 3u)——837———837Share-based compensationexpense for Sogou share-based awards——8,039———8,039Share-based compensationrelated to Soso search-related businessesemployees transferred fromTencent——763———763Repurchase of Pre-IPOClass A Ordinary Shares(720,000)——(3,190)——(3,190)Net income————56,112—56,112Other comprehensive loss, netof nil tax: foreign currencytranslation adjustment—————(9,365)(9,365)Other——22———22Balance as of December 31,2016236,594,916$241$22,330$(27,869)$(55,022)$(17,822)$(78,142) The accompanying notes are an integral part of these consolidated financial statements. F-6Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SOGOU INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY For the Year Ended December 31, 2017 (In thousands, except for share data) Ordinary SharesAdditionalPaid-in Treasury (AccumulatedDeficit)/Retained AccumulatedOtherComprehensive TotalShareholders’(Deficit)/SharesAmountCapital Stock Earnings (Loss)/Income EquityBalance as ofJanuary 1, 2017236,594,916$241$22,330$(27,869)$(55,022)$(17,822)$(78,142)Share issuance uponinitial public offering(“IPO”), net ofissuance costs ofUS$36,23950,643,85651622,080———622,131Share issuance upon theredesignation of32,000,000 Pre-IPOSeries A PreferredShares into Class AOrdinary Shares32,000,0003219,968———20,000Share issuance upon theredesignation of65,431,579 Pre-IPOSeries B PreferredShares into Class BOrdinary Shares65,431,57965224,339———224,404Share issuance fromexercise of optionsunder Sogou 2010Share Incentive Plan2,168,4612————2Contribution from Sohu(Note 3u)——711———711Share-basedcompensationexpense for Sogoushare-based awards——23,037———23,037Share-basedcompensation relatedto Soso search-relatedbusinesses employeestransferred fromTencent——682———682Net income————82,200—82,200Other comprehensiveincome, net of nil tax:foreign currencytranslationadjustment—————13,21613,216Balance as ofDecember 31, 2017386,838,812$391$913,147$(27,869)$27,178$(4,606)$908,241 The accompanying notes are an integral part of these consolidated financial statements. F-7Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SOGOU INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY For the Year Ended December 31, 2018 (In thousands, except for share data) Ordinary SharesAdditionalPaid-in Treasury Retained AccumulatedOtherComprehensive TotalShareholders’SharesAmountCapital Stock Earnings Loss EquityBalance as ofJanuary 1, 2018386,838,812$391$913,147$(27,869)$27,178$(4,606)$908,241Share issuance fromexercise of optionsunder Sogou 2010Share Incentive Plan4,514,56351,797———1,802Contribution from Sohu(Note 3u)——670———670Share-basedcompensation expensefor Sogou share-basedawards——14,116———14,116Share-basedcompensation relatedto Soso search-relatedbusinesses employeestransferred fromTencent——88———88Net income————98,781—98,781Other comprehensiveloss, net of nil tax:foreign currencytranslation adjustment—————(17,193)(17,193)Others—1—(1)———Balance as ofDecember 31, 2018391,353,375$397$929,818$(27,870)$125,959$(21,799)$1,006,505 The accompanying notes are an integral part of these consolidated financial statements. F-8Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SOGOU INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Year EndedDecember 31,20162017 2018Cash flows from operating activitiesNet income$56,112$82,200$98,781Adjustments to reconcile net income to net cash provided by operating activities:Depreciation33,88648,20560,690Amortization1,3141,3891,251Gain on disposal of fixed assets(1,400)(988)(882)Allowance for doubtful accounts and credit losses—3789,119Provision for inventories——2,547Share-based compensation expense12,86123,72314,204Research and development expenses undertaken by Sohu788707670Impairment of long-term investment—2302,605Gains from re-measurement of long-term equity investments——(18,013)Unrealized gain from changes in fair values of short-term investments—(739)(9,934)Deferred tax benefit(3,091)(4,117)691Changes in assets and liabilities:Accounts receivable(13,796)(26,955)(37,301)Interest on financing receivables——(5,828)Prepaid and other current assets155(8,679)(31,390)Due from related parties11326,807(5,634)Other assets(2,542)(816)(2,613)Accounts payable20,75022,28440,777Accrued and other short-term liabilities44,19829,079(4,703)Receipts in advance(2,850)2,9362,920Accrued salary and benefits6,5565,5613,217Taxes payable(9,185)42,8086,284Due to related parties6,618(61,637)17,500Net cash provided by operating activities150,487182,376144,958Cash flows from investing activitiesCash received from disposal of fixed assets1,4051,739915Purchase of fixed assets(86,372)(64,025)(75,771)Purchase of intangible assets(523)(130)(1,294)Purchase of long-term investments(8,162)(7,008)(19,886)Investment in financing receivables——(98,774)Collection of financing receivables——59,967Purchase of short-term investments(52,412)(345,508)(1,678,042)Proceeds from short-term investments50,4377,5301,162,088Net cash used in investing activities(95,627)(407,402)(650,797)Cash flows from financing activitiesProceeds from exercise of options under Sogou 2010 Share Incentive Plan411Repurchase of Pre-IPO Class A Ordinary Shares—(3,190)—Proceeds from issuance of Class A Ordinary Shares in IPO, net of issuance costs ofUS$36,239—622,131—Net cash provided by financing activities4618,9421Effect of exchange rate changes on cash and cash equivalents(13,270)14,213(3,194)Net increase/(decrease) in cash and cash equivalents41,594408,129(509,032)Cash and cash equivalents at beginning of the year244,484286,078694,207Cash and cash equivalents at end of the year$286,078$694,207$185,175Supplemental cash flow disclosure:Income tax paid$14,078$6,171$14,410Supplemental schedule of non-cash investing activity:Fixed assets in accrued liabilities and accounts payable$1,079$658$1,409Supplemental schedule of non-cash financing activity:Contribution from Sohu resulting from waived research and development expensepaid by Sohu on behalf of the Sogou Group$788$707$670Redesignation of 32,000,000 Pre-IPO Series A Preferred Shares into Class A OrdinaryShares$—$20,000$—Redesignation of 65,431,579 Pre-IPO Series B Preferred Shares into Class B OrdinaryShares$—$224,404$— The accompanying notes are an integral part of these consolidated financial statements. F-9Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SOGOU INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in thousands, except for share and per share data, unless otherwise noted) 1. NATURE OF OPERATIONS AND ORGANIZATION Sogou Inc. (“Sogou” or the “Company”) was incorporated in the Cayman Islands on December 23, 2005 as an indirect wholly-owned subsidiary ofSohu.com Inc., which was the Company’s ultimate parent company until its dissolution on May 31, 2018. Sohu.com Limited, which was a wholly-ownedsubsidiary of Sohu.com Inc., became the Company’s ultimate parent company as the successor-in-interest to Sohu.com Inc. upon Sohu.com Inc.’s dissolution.Sohu.com Limited (or its predecessor Sohu.com Inc., as applicable), together with its subsidiaries and consolidated VIEs, but, unless the context requiresotherwise, excluding the businesses and the corresponding subsidiaries and VIEs of Sogou, are collectively referred to herein as “Sohu.” Sohu.com Limited(or its predecessor Sohu.com Inc., as applicable) and its subsidiaries and consolidated VIEs, including the Company and its subsidiaries and VIEs, arecollectively referred to herein as the “Sohu Group.” The Company, together with its subsidiaries and VIEs, are collectively referred to herein as the“Sogou Group.” The Sogou Group is principally engaged in offering search and search-related advertising services which enable advertisers’ promotional links to bedisplayed on the Sogou Group’s search result pages and other properties and third parties’ Internet properties where the links are relevant to the subject andcontent of searches and such properties. The Sogou Group’s advertising services expand distribution of advertisers’ promotional links and advertisements byleveraging traffic on third parties’ Internet properties, including Web content, software, and mobile applications. The search and search-related businessesalso benefits from Sogou’s collaboration with Tencent Holdings Limited (together with its subsidiaries, “Tencent”, whose financial statements are preparedunder International Financial Reporting Standards), which provides Sogou access to traffic and content generated from the products and services providedby Tencent. The Sogou Group also offers Internet value-added services (“IVAS”), primarily with respect to the operation of Web games and mobile gamesdeveloped by third parties and the provision of online reading services, and offers other products and services including smart hardware products, which arecollectively referred to as the “other business.” F-10Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents As of December 31, 2018, the Sogou Group’s subsidiaries and VIEs were as follows: Name of EntityDate ofIncorporation/Acquisition Place ofIncorporation/Acquisition EffectiveInterest heldSubsidiaries:Sogou (BVI) Limited (“Sogou BVI”)Incorporated on December 23, 2005British Virgin Islands(“BVI”)100%Beijing Sogou TechnologyDevelopment Co., Ltd. (“Sogou Technology”)Incorporated on February 8, 2006The People’sRepublic of China (“PRC”)100%Sogou Hong Kong Limited (“Sogou HK”)Incorporated on December 12, 2007Hong Kong SpecialAdministrativeRegion (“Hong Kong”)100%Vast Creation Advertising MediaServices Limited (“Vast Creation”)Acquired on November 30, 2011Hong Kong100%Beijing Sogou NetworkTechnology Co., Ltd. (“Sogou Network”)Incorporated on March 29, 2012PRC100%Sogou Technology Hong KongLimited (“Sogou Technology HK”)Incorporated on August 25, 2015Hong Kong100%Tianjin Sogou Network TechnologyCo., Ltd. (“Tianjin Sogou Network”)Incorporated on May 18, 2017PRC100%Sogou (Shantou) Internet MicrocreditCo., Ltd. (“Sogou Shantou”)Incorporated on November 22, 2017PRC100%Sogou (Hangzhou) Intelligent TechnologyCo., Ltd. (“Sogou Hangzhou”)Incorporated on April 28, 2018PRC100%Hefei Jing Hong Yun Zhi Network TechnologyCo., Ltd. (“Jing Hong Yun Zhi”)Incorporated on July 27, 2018PRC100%VIEs:Beijing Sogou Information Service Co., Ltd.(“Sogou Information”)Incorporated on December 28, 2005PRC100%Shenzhen Shi Ji Guang Su InformationTechnology Co., Ltd. (“Shi Ji Guang Su”)Acquired on September 16, 2013PRC100%Beijing Shi Ji Si SuTechnology Co., Ltd. (“Shi Ji Si Su”)Acquired on April 2, 2015PRC100%Chengdu EasypayTechnology Co., Ltd. (“Chengdu Easypay”)Incorporated on January 19, 2015PRC100% The Company’s subsidiaries Sogou Technology, Sogou Network, Tianjin Sogou Network, Sogou Shantou, Sogou Hangzhou, and Jing Hong YunZhi are wholly foreign-owned enterprises (or “WFOEs”) established in the PRC. The Company’s VIEs, which consist of Sogou Information and itssubsidiaries Shi Ji Guang Su, Shi Ji Si Su, and Chengdu Easypay, are controlled by Sogou Technology through a series of contractual agreements(see Note 22—VIEs). 2. IPO AND IPO-RELATED ARRANGEMENTS In August 2017, Sohu, Tencent, and the Company entered into a voting agreement that provides, among things, that, following the completion ofthe Company’s IPO, subject to certain conditions, for so long as Sohu and Tencent together hold a majority of the combined voting power of the Company’sClass A Ordinary Shares and Class B Ordinary Shares, Sohu will have the right to appoint a majority of the Company’s Board of Directors. Under theCompany’s amended and restated articles of association of the Company, the Class A Ordinary Shares are entitled to one vote per share and the Class BOrdinary Shares, which are held solely by Sohu and Tencent, are entitled to 10 votes per share. In November, 2017, the Company completed its IPO on the New York Stock Exchange. In the offering, 50,643,856 American depositary shares(“ADSs”), representing 50,643,856 Class A Ordinary Shares, were issued and sold to the public at a price of US$13.00 per ADS. The net proceeds to theCompany from the IPO, after deducting commissions and offering expenses, were approximately $622.1 million. Upon the completion of the IPO, theCompany completed the redesignation on a one-for-one basis of: (i) 127,200,000 Pre-IPO Class A Ordinary Shares then held by Sohu and 6,757,875 Pre-IPOClass A Ordinary Shares and 79,368,421 Pre-IPO Class B Ordinary Shares then held by Tencent into Class B Ordinary Shares; (ii) 32,000,000 Pre-IPO Series APreferred Shares then held by Photon into Class A Ordinary Shares; (iii) 65,431,579 Pre-IPO Series B Preferred Shares then held by Tencent into Class BOrdinary Shares; and (iv) the remaining Pre-IPO Class A Ordinary Shares into Class A Ordinary Shares. F-11Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 3. SIGNIFICANT ACCOUNTING POLICIES a. Basis of Presentation, Principle of Consolidation and Use of Estimates Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ofAmerica (“US GAAP”) and on a going concern basis. Principle of Consolidation The accompanying consolidated financial statements include the financial statements of the Company, its subsidiaries and VIEs for which Sogou isthe ultimate primary beneficiary. All significant intra-company balances and transactions within the Sogou Group have been eliminated upon consolidation.See Note 22—VIEs for discussion of the consolidation of the VIEs. Use of Estimates The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, management bases the estimates onhistorical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from theseestimates. Identified below are the accounting policies that reflect the Sogou Group’s most significant estimates and judgments, and those that the SogouGroup believes are the most critical for fully understanding and evaluating its consolidated financial statements. b. Functional Currency and Foreign Currency Translation Functional Currency An entity’s functional currency is the currency of the primary economic environment in which it operates; normally that is the currency of theenvironment in which it primarily generates and expends cash. It is essential that management use its judgment to determine the functional currency byassessing various indicators, such as cash flows, product and service prices and markets, expenses, financing and intra-company transactions andarrangements. The functional currency of the Company and the Company’s subsidiaries in the BVI and Hong Kong is the United States dollar(the “U.S. dollar”), while the functional currency of the Company’s subsidiaries and VIEs in the PRC is the Renminbi (the “RMB”). Foreign Currency Translation The Sogou Group uses the U.S. dollar as its reporting currency. In the consolidated financial statements, the financial information of the Company’ssubsidiaries and VIEs in the PRC, which use the RMB as their functional currency, has been translated into U.S. dollars. Assets and liabilities are translatedfrom the functional currency at the exchange rates on the balance sheet date; equity amounts are translated at historical exchange rates; and revenues,expenses, gains, and losses are translated using the average rates in effect during the reporting period. Translation adjustments are reported as foreigncurrency translation adjustments and are shown as a separate component of other comprehensive income or loss in the consolidated statements of changes inshareholders’ (deficit)/equity. Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using theexchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Foreign exchange gains and losses resulting from the settlement of such transactions andfrom re-measurement at period end are recognized in the consolidated statements of comprehensive income. c. Cash and Cash Equivalents Cash and cash equivalents consist of cash, time deposits with original maturities of three months or less, and demand deposits. d. Short-term Investments Short-term investments consist of time deposits with original maturities of more than three months and investments in financial instruments with avariable interest rate indexed to performance of underlying assets. In accordance with ASC 825, the Sogou Group elected the fair value method at the date ofinitial recognition and carried these investments at fair value. For both time deposits with original maturities of more than three months and financialinstruments with a variable interest rate indexed to performance of underlying assets, fair values are determined based on the pervasive interest rates in themarket. Changes in the fair value are reflected in the consolidated statements of comprehensive income as other (expenses)/income, net. To estimate fairvalue, the Sogou Group refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The SogouGroup classifies the valuation techniques that use these inputs as Level 2 of fair value measurements (see Note 3z—Fair Value of Financial Instruments). F-12Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents e. Accounts Receivable, Net The carrying value of accounts receivable is reduced by an allowance that reflects management’s best estimate of the amounts that will not becollected. Management makes estimations of the collectability of accounts receivable. In estimating the general allowance, many factors are considered,including reviewing delinquent accounts receivable, performing aging analyses and customer credit analyses, and analyzing historical bad debt records andcurrent economic trends. Additional allowance for specific doubtful accounts might be made if the financial conditions of the customers of the Sogou Groupdeteriorate, resulting in their inability to make payments due to the Sogou Group. f. Financing Receivables, Net Financing receivables consist primarily of small consumer loans to individual borrowers. Such amounts are recorded at the principal amount andinterest accrued, net of allowance for credit losses that reflects the Sogou Group’s best estimate of the amounts that will not be collected. Interest on loans isaccrued based on the contractual interest rates of the loans when earned. The loan periods granted by the Sogou Group to the borrowers related to the smallconsumer loans are generally within one year. The allowance for credit losses is determined at a level believed to be reasonable to absorb probable lossesinherent in the loan portfolio as of each balance sheet date. The allowance is provided based on an assessment performed on a portfolio basis and is estimatedon a quarterly basis or more often as necessary based on the delinquency rate, the aging of the amount due and other relevant factors. g. Short-term Receivables and Payables Prepaid and other current assets are financial assets with carrying values that approximate fair value due to their short term nature. Accounts payable,receipts in advance and accrued liabilities are financial liabilities with carrying values that approximate fair value due to their short term nature. h. Inventory Inventory, which mainly consists of smart hardware products, is recorded at the lower of cost or net realizable value. Cost of inventory is determinedusing the first-in-first-out cost method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costsand disposal and transportation expenses. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value for obsolete andslow-moving goods. i. Long-term Investments Investments in entities are recorded as equity investments under long-term investments. For entities over which the Sogou Group can exercisesignificant influence but in which it does not own a majority equity interest or control, the equity method is applied. For entities over which the Sogou Groupdoes not have significant influence, the cost method was applied before the adoption of ASC321 effective as of January 1, 2018; after the adoption of ASC321, these investments should generally be measured at fair value with gains or losses resulting from changes in fair value recognized in earnings. Based onASC 321, an entity may elect to record equity investments without readily determinable fair values and not accounted for by the equity method at cost, lessimpairment, adjusted for subsequent observable price changes. Entities that elect this measurement alternative will report in current earnings changes in thecarrying value due to re-measurement based on observable price changes of the equity investments. As of December 31, 2018, all of the Sogou Group’sequity investments were accounted as equity investments without readily determinable fair values. j. Fixed Assets Fixed assets comprise computer equipment (including servers), leasehold improvement, office furniture, and vehicles. Fixed assets are recorded atcost less accumulated depreciation with no residual value. Depreciation is calculated on a straight-line basis over the estimated useful lives listed below: Fixed Assets Estimated Useful Lives (Years)Computer equipment (including servers)4 - 5Leasehold improvementsThe lesser of the term of the lease or the estimated useful lives of the assetsOffice furniture5Vehicles4 Repairs and maintenance costs are expensed as incurred, whereas the cost of renewals and betterments that extend the useful lives of fixed assets arecapitalized as additions to the related assets. F-13Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Gains or losses on the disposal of fixed assets are the difference between the net sale proceeds and the carrying amounts of the relevant assets and arerecognized in the consolidated statements of comprehensive income. k. Goodwill Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the SogouGroup’s acquisitions of interests in its subsidiaries and consolidated VIEs. Goodwill is not depreciated or amortized but is tested for impairment at the reporting unit level on an annual basis, and between annual tests whenan event occurs or circumstances change that could indicate that the asset might be impaired. Under ASC 350-20-35, the Sogou Group has the option tochoose whether it will apply the qualitative assessment first and then the quantitative assessment, if necessary, or to apply the quantitative assessmentdirectly. The Sogou Group chooses to directly apply the quantitative impairment test, which consists of a two-step quantitative impairment test. The first stepis comparing the carrying amount of the reporting unit to the fair value of the reporting unit. If the fair value of the reporting unit exceeds the carrying valueof the reporting unit, goodwill is not impaired and the Sogou Group is not required to perform further testing. If the carrying value of the reporting unitexceeds the fair value of the reporting unit, then the Sogou Group must perform the second step of the two-step quantitative goodwill impairment test tomeasure the amount of impairment loss by comparing the implied fair value of the reporting unit goodwill, which is the difference between the fair value ofthe reporting unit and the net fair value of the identifiable assets and liabilities included in the reporting unit, with the carrying amount of that goodwill. Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigningassets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Prior to the completion ofthe Company’s IPO, the judgment in estimating the fair value of reporting units included estimating future cash flows, determining appropriate discount ratesand making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.After the completion of the Company’s IPO, the fair value of reporting units is determined based on the trading price of the Company’s ADSs in the publicmarket. l. Intangible Assets Intangible assets primarily comprise copyright, developed technologies, domain names and trademarks and computer software. Intangible assets arerecorded at cost less accumulated amortization with no residual value. Amortization of intangible assets is computed using the straight-line method over theestimated useful lives of the assets as follows: Intangible Assets Estimated UsefulLives (Years)Copyright5Developed technologies3 - 10Domain names and trademarks5 - 10Computer software3 m. Impairment of Long-lived Assets The carrying values of long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value ofan asset may not be recoverable. Based on the existence of one or more indicators of impairment, the Sogou Group compares the carrying amount of the long-lived asset group with the sum of undiscounted cash flows expected to result from the use and eventual disposal of the asset group. If the carrying amountexceeds the sum of undiscounted cash flows, the Sogou Group will measure any impairment of long-lived assets using the projected discounted cash flowmethod at the asset group level. The estimation of future cash flows requires significant management judgment based on the Sogou Group’s historical resultsand anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Sogou Group’s business model isdetermined by the Sogou Group’s management. An impairment charge would be recorded if the Sogou Group were to determine that the carrying value oflong-lived assets may not be recoverable. The impairment to be recognized would be measured by the amount by which the carrying values of the assetsexceeded the fair value of the assets. n. Treasury Stock Treasury stock consist of shares repurchased by the Company or that the Company is obligated to repurchase as of the reporting date. Sharesincluded in treasury stock are no longer outstanding. Treasury stock is accounted for under the cost method. Treasury stock also includes ordinary shares that were issued upon the early exercise of options and transferred to trusts for the benefit of the holders,but remained subject to vesting in accordance with the requirements of the applicable option agreements (See “Option Modification” in Note 16—Share-based Compensation). F-14Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents o. Revenue Recognition On January 1, 2018, the Sogou Group adopted ASC 606, using the modified retrospective method applied to those contracts that were not completedas of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjustedand continue to be reported in accordance with our historic accounting under ASC 605. The adoption did not have a material impact on retained earnings asof January 1, 2018 and the financial statements as of and for the year ended December 31, 2018. The adoption of ASC 606 mainly resulted in a change to the Sogou Group’s accounting policy for advertising-for-advertising barter transactions.Under ASC 605, revenue and expense were recognized at fair value from an advertising barter transaction only if the fair value of the advertising surrenderedin the transaction was determinable based on the entity’s own historical practice of receiving cash, marketable securities, or other consideration that is readilyconvertible to a known amount of cash for similar advertising from buyers unrelated to the counterparty in the barter transaction. If the fair value of theadvertising surrendered in the barter transaction was not determinable, the barter transaction was to be recorded based on the carrying amount of theadvertising surrendered, which would likely be zero. ASC 606 has suspended the guidance of ASC 605 and provides that when the contract considerationfrom a customer is in forms other than cash, the revenue will be measured at the fair value of the noncash consideration, or indirectly measured by reference tothe standalone selling price of the goods or services promised to the customer if the fair value of the non-cash consideration cannot be reasonably estimated.For the years ended December 31, 2016 and 2017, the Sogou Group engaged in certain advertising barter transactions for which the fair value of the servicesurrendered was not determinable under ASC 605 and therefore no revenues or expenses derived from these barter transactions were recognized. For the yearended December 31, 2018, because of the adoption of ASC 606, the Sogou Group estimated the fair value of the advertising services received in bartertransactions and recognized US$21,817 in revenues, with a corresponding increase in cost of revenues and sales and marketing expenses. The adoption ofASC 606 did not have a material impact on the Sogou Group’s consolidated balance sheet, consolidated statement of cash flows, or consolidated statement ofchanges in equity for the year ended December 31, 2018. Under Topic 606, the Sogou Group recognizes revenue when control of the promised goods or services is transferred to the customers, in an amountthat reflects the consideration the Sogou Group expects to be entitled to in exchange for those goods or services. The Sogou Group determines revenue recognition through the following steps: Step 1: identification of the contract, or contracts, with a customer;Step 2: identification of the performance obligations in the contract;Step 3: determination of the transaction price;Step 4: allocation of the transaction price to the performance obligations in the contract; andStep 5: recognition of revenue when, or as, the Sogou Group satisfies a performance obligation. The Sogou Group is principally engaged in offering search and search-related advertising services including pay-for-click services and other onlineadvertising services. The Sogou Group also offers IVAS, primarily with respect to the operation of Web games and mobile games developed by third partiesand the provision of online reading services, and offers other products and services including smart hardware products. The following table presents revenuesdisaggregated by revenue source, net of value-added tax (“VAT”). For the Year EndedDecember 31,2016 2017 2018 Search and search-related advertising revenues$597,213$801,551$1,023,132Other revenues63,195106,806101,026Total$660,408$908,357$1,124,158 As noted above, prior-period amounts have not been adjusted, pursuant to the modified retrospective method. The search and search-related advertising revenues and total revenues for the year ended December 31, 2018 would be US$1,001,315 and US$1,102,341,respectively, without the adoption of ASC 606. Search and Search-related Advertising Revenues The Sogou Group procures a majority of its search and search-related advertisers through advertising agencies. Discounts and other cash incentivesprovided to the advertising agencies are accounted for as a reduction of revenues. Pay-for-click Services Pay-for-click services enable advertisers’ promotional links to be displayed on the Sogou Group’s search result pages and other Internet propertiesand third parties’ Internet properties where the links are relevant to the subject and content of searches and such properties. For pay-for-click services, theSogou Group introduces Internet users to its advertisers through the auction-based systems and charge advertisers on a per-click basis when the users click onthe displayed links. The performance obligation of pay-for-click services is satisfied at the point in time when users click on the displayed links, and revenuefor pay-for-click services is recognized on a per-click basis. F-15(1)(1)(2)(1)(2)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Other Online Advertising Services Other online advertising services mainly consist of displaying advertisers’ promotional links on the Sogou Group’s Internet properties. For time-based advertising services, the performance obligation is satisfied over time when the advertising links are displayed over the contract periods, and thereforerevenue is normally recognized on a straight-line basis over the contracted display period. For performance-based advertising services, for example, theadvertisers are charged based on the times that users download from the displayed links, the performance obligation is satisfied at the point in time when thepromised performance is completed, and the revenue is recognized upon the completion of the promised performance. The Sogou Group’s advertising services expand distribution of advertisers’ promotional links and advertisements by leveraging traffic on thirdparties’ Internet properties, including Web content, software, and mobile applications. The Sogou Group is the principal in such arrangement because itspromise to advertisers is to provide the advertising services itself rather than to arrange for the advertising services to be provided by third parties on theirInternet properties. Payments made to operators of third-party Internet properties are included in the traffic acquisition costs. Other Revenues Other revenues consist of IVAS revenues, which are mainly from the operation of Web games and mobile games developed by third parties and theprovision of online reading services, as well as revenues from other products and services, including smart hardware products, offered by the Sogou Group.Other revenues are recognized when the Sogou Group’s performance obligations under the applicable agreements are satisfied. Contract Balances Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced, and revenuerecognized prior to invoicing when the Sogou Group has satisfied its performance obligations and has the unconditional right to payment. Receipts in advance relates to unsatisfied performance obligations at the end of the year and consists of cash payments received in advance from customers.The unused cash balances remaining in customers’ accounts are recorded as a liability of the Sogou Group. Due to the generally short-term duration of theSogou Group’s contracts, the majority of the performance obligations are satisfied in one year. The amount of revenue recognized that was included in thereceipts in advance balance at the beginning of the year was US$63,459 for the year ended December 31, 2018. Revenues recognized in the current year from performance obligations related to prior years were not material. Practical Expedients The Sogou Group has used the following practical expedients as allowed under ASC 606: (i) The transaction price allocated to performance obligations that are unsatisfied, or partially unsatisfied, has not been disclosed, as substantially all of theSogou Group’s contracts have a duration of one year or less; (ii) Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one year or less. Ininstances where the timing of revenue recognition differs from the timing of invoicing, the Sogou Group has determined that its contracts generally do notinclude a significant financing component; and (iii) The Sogou Group generally expenses sales commissions when incurred because the amortization period would be one year or less. These costs arerecorded within sales and marketing expenses. p. Cost of Revenues Cost of revenues consist primarily of traffic acquisition cost, bandwidth costs, server and Internet equipment depreciation associated with theoperation of the Sogou Group’s Internet properties, salary and benefits expenses and share-based compensation for staff employed in network operations.Traffic acquisition costs represent the most significant portion of cost of revenues. The Sogou Group’s traffic acquisition costs consist primarily of payments to third parties that direct search queries of their users to Internetproperties of the Sogou Group or distribute the Sogou Group’s advertisers’ promotional links through such third parties’ Internet properties. The trafficacquisitions costs for such arrangements consist primarily of fees that the Sogou Group pays to the third parties based on an agreed-upon unit price andrevenue-sharing payments that the Sogou Group makes to such third parties based on an agreed-upon percentage of revenues generated from users’ clicks. F-16Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents q. Research and Development Expenses Research and development expenses primarily consist of salary and benefits expenses incurred in the research and development of new products andnew functionality added to existing products. Costs incurred during the application development stage for software programs to be used solely to meet internal needs were not material in theyears presented; therefore, no research and development expenses were capitalized as intangible assets. r. Sales and Marketing Expenses Sales and marketing expenses mainly consist of advertising and promotional expenses, salary and benefits expenses, travel expenses, and facilityexpenses. Advertising and promotional expenses generally represent the expenses incurred for promoting the Sogou Group’s products, services and brand.The Sogou Group recognizes advertising and promotional expenses as incurred. Total advertising and promotional expenses were US$94,775, US$117,553,and US$102,098, respectively, for the years ended December 31, 2016, 2017 and 2018. s. Operating Leases Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Paymentsmade under operating leases, including rent concessions, are charged to the consolidated statements of comprehensive income on a straight-line basis overthe lease term. t. Share-based Compensation Expense Share-based compensation expense arises from share-based awards, including share options for the purchase of Sogou ordinary shares, granted by theSogou Group to its management and other key employees, and granted by Sohu to its management and other key employees who to some extent provideservices to the Sogou Group and to certain management and other key employees of the Sogou Group (“Sogou Share-based Awards”); restricted share unitsand share options for the purchase of Sohu common stock granted by Sohu to employees of the Sogou Group (“Sohu Stock-based Awards”); and restrictedshare units granted by Tencent to certain persons who became the Sogou Group’s employees when Tencent’s Soso search-related businesses were transferredto the Sogou Group in September 2013 (“Tencent Share-based Awards”). Sogou Share-based Awards In determining the fair value of share options granted, a binomial option-pricing model (the “BP Model”) is applied. The determination of the fairvalue is affected by the fair value of the ordinary shares as well as assumptions regarding a number of complex and subjective variables, including risk-freeinterest rates, exercise multiples, expected forfeiture rates, the expected share price volatility rates, and expected dividends. Prior to the completion of theCompany’s IPO, the fair values of the ordinary shares were assessed using the income approach/discounted cash flow method or based on the mid-point of theestimated IPO price range, in each case with a discount for lack of marketability, given that the shares underlying the awards were not publicly traded at thetime of grant. After the completion of the Company’s IPO, the fair values of the ordinary shares were determined based on the trading price of the Company’sADSs in the public market. Share-based compensation expense for share options granted to employees is measured based on their grant-date fair values. For options with only aservice requirement, share-based compensation expense is recognized on an accelerated basis over the requisite service period. For options with both aservice requirement and performance targets, share-based compensation expense is recognized over the estimated period during which both the service periodrequirement and the performance targets will be met. For options vesting subject to an IPO, share-based compensation expense is recognized on anaccelerated basis over the requisite service period after the completion of Sogou’s IPO on November 13, 2017. The number of share-based awards for whichthe service is not expected to be rendered over the requisite period is estimated, and the related compensation expense is not recorded for the number ofawards so estimated. Share-based compensation expense for share options granted to non-employees is measured at fair value at the earlier of the performancecommitment date or the date service is completed and recognized over the period during which the service is provided. The Sogou Group applies theguidance in ASC 505-50 to measure share options granted to non-employees based on the then-current fair value at each reporting date until the service hasbeen provided and the performance targets have been met. Share-based awards granted by Sohu are deemed to be share-based compensation made by the Sogou Group in exchange for services rendered to theSogou Group, and the Sogou Group recognizes share-based compensation expense accordingly. Because the Sogou Group is not required to reimburse Sohufor such share-based compensation expense, the related amount is recorded as a capital contribution from Sohu. F-17Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Sohu Share -based Awards In determining the fair value of Sohu share options granted, a BP Model is applied; in determining the fair value of restricted share units granted, thepublic trading price on the grant dates of the underlying shares is applied. Share-based compensation expense for share options and restricted share units granted under Sohu’s share-based incentive plans is recognized on anaccelerated basis over the requisite service period. The number of share awards for which the service is not expected to be rendered over the requisite period isestimated, and the related compensation expense is not recorded for that number of awards so estimated. Tencent Share-based Awards Certain persons who became employees of the Sogou Group when Tencent’s Soso search-related businesses were transferred to the Sogou Group inSeptember 2013 had been granted restricted share units under Tencent’s share award arrangements prior to the transfer of the businesses. Following thetransfer of the businesses, these Tencent restricted share units continue to vest under the original Tencent share award arrangements provided the transferredemployees continue to be employed by the Sogou Group during the requisite service period. After the transfer of the Soso search-related businesses, theSogou Group applied the guidance in ASC 505-50 to measure the related compensation expense, which is deemed to have been incurred by Tencent as aninvestor on the Sogou Group’s behalf, based on the then-current fair value at each reporting date. To determine the then-current fair value of the Tencentrestricted share units granted to these employees, the public market price of the underlying shares at each reporting date was applied. Because the SogouGroup is not required to reimburse Tencent for such share-based compensation expense, the related amount was recorded as a capital contributionfrom Tencent. For Tencent restricted share units that Tencent had granted to employees who transferred to the Sogou Group with the Soso search-relatedbusinesses, compensation expense is recognized by the Sogou Group on an accelerated basis over the requisite service period, and the fair value of the share-based compensation is re-measured at each reporting date until the service has been provided. The number of share-based awards for which the service is notexpected to be rendered over the requisite period is estimated, and no compensation expense is recorded for the number of awards so estimated. The assumptions used in share-based compensation expense recognition represent management’s best estimates, but these estimates involveinherent uncertainties and the application of management judgment. If factors change or different assumptions were used for any given period, the share-based compensation expense could be materially different for that period. Moreover, the estimates of fair value are not intended to predict actual futureevents or the value that ultimately will be realized by employees who receive share-based awards, and subsequent events are not indicative of thereasonableness of the original estimates of fair value made by the Sogou Group for accounting purposes. u. Cost Allocations The Sogou Group’s consolidated statements of comprehensive income comprise all the related costs of operations of the Sogou Group, whichinclude an allocation of certain research and development expenses paid by Sohu for Sogou to provide technical support to the search and search-relatedbusinesses; and Sohu share-based awards granted to Sogou employees. These allocations are based on a variety of factors, depending upon the nature of theexpenses being allocated, including the number of employees and the percentage of computer system’s workload that is for services provided to Sogou. Total expenses undertaken by Sohu are allocated and included in the Sogou Group’s consolidated statements of comprehensive income as follows: For the Year EndedDecember 31, 2016 2017 2018 Research and development expenses$788$707$670Share-based compensation related to Sogou employees494—Total$837$711$670 Management believes the basis and amounts of these allocations are reasonable. While the expenses allocated to the Sogou Group for these items arenot necessarily indicative of the expenses that would have been incurred if the Sogou Group had been a separate, stand-alone entity, the Sogou Group doesnot believe that there is any significant difference between the nature and amounts of these allocated expenses and the expenses that would have beenincurred if the Sogou Group had been a separate, stand-alone entity. Under an agreement between the Company and Sohu, the Company does not need to repay Sohu for these expenses for share-based compensationrelated to Sogou employees, and research and development expenses allocated from Sohu. Accordingly, the Sogou Group recognizes the related amounts ascapital contributions from Sohu as those expenses are incurred. F-18Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents v. Contribution Under ASC subtopic 720-25, “Contributions Made,” an unconditional promise to give cash that depends only on the passage of time or a demandby the promisee for performance is to be recognized as a payable and as an expense in the period the promise is made. In the second quarter of 2016, theSogou Group recognized a one-time expense of US$27.8 million arising from a donation by Sogou to Tsinghua University related to setting up a jointresearch institute focusing on artificial intelligence technology. The donation expense was reflected in other (expenses)/income, net in the consolidatedstatements of comprehensive income. w. Income Taxes and Uncertain Tax Positions Income Taxes Income taxes are accounted for using an asset and liability approach which requires the recognition of income taxes payable or refundable for thecurrent year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Sogou Group’s financialstatements or tax returns. Deferred income taxes are determined based on the differences between the financial reporting and tax bases of assets and liabilitiesand are measured using tax rates and tax laws in effect as of the measurement date. Deferred tax assets are reduced by a valuation allowance if, based onavailable evidence, it is considered more likely than not that some portion of or all of the deferred tax assets will not be realized. In making suchdetermination, the Sogou Group considers factors including (i) future reversals of existing taxable temporary differences, (ii) future profitability, and (iii) taxplanning strategies. Uncertain Tax Positions In order to assess uncertain tax positions, the Sogou Group applies a more likely than not threshold and a two-step approach for financial statementrecognition and measurement of its tax position. For the two-step approach, the first step is to evaluate the tax position for recognition by determining if theweight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related litigation processesand appeals, if any. The second step is to measure the tax benefit as the largest amount that is more likely than not to be realized upon settlement. Significantjudgment is required in evaluating the Sogou Group’s uncertain tax positions and determining its provision for income taxes. The Sogou Group did not haveany significant interest or penalties associated with tax positions for the years ended December 31, 2016, 2017 and 2018. As of December 31, 2017 and 2018,the Sogou Group did not have any significant unrecognized uncertain tax positions, and did not recognize any liability for unrecognized tax benefits or anysignificant interest or penalties associated with such uncertain tax positions. x. Comprehensive Income Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstancesexcluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive loss, as presented in theSogou Group’s consolidated balance sheets, consists of the Sogou Group’s cumulative foreign currency translation adjustment. y. Net Income per Ordinary Share Basic net income per ordinary share are computed using the weighted average number of ordinary shares outstanding during the year. Diluted netincome per ordinary share are computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstanding duringthe year. Potential ordinary shares consist of shares issuable upon the exercise of share options, vesting and settlement of restricted share units, and, forperiods prior to the completion of the IPO, conversion of Pre-IPO Preferred Shares. Potential ordinary shares issuable upon the exercise of share options areaccounted for in the computation of diluted net income per ordinary share using the treasury stock method. The dilutive effect of share-based awards withperformance requirements is not considered before the performance targets are actually met. Potential ordinary shares issuable upon the conversion of Pre-IPOPreferred Shares are accounted for in the computation of diluted net income per ordinary share for periods prior to the completion of the IPO, using the if-converted method. Potential ordinary shares are not included in the denominator of the diluted net income per share calculation when inclusion of suchshares would be anti-dilutive. The two-class method was used to calculate the basic net income per ordinary share for periods prior to the completion of the IPO, since the Pre-IPOPreferred Shares were entitled to participation with ordinary shares in the Company’s undistributed net income and therefore were deemed to be participatingsecurities. Net income per ordinary share are computed on Class A Ordinary Shares and Class B Ordinary Shares together, because both classes have the samedividend rights in the Company’s undistributed net income. z. Fair Value of Financial Instruments U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded atfair value, the Sogou Group considers the principal or most advantageous market in which a transaction would be expected to occur and considersassumptions that market participants would use when pricing the asset or liability. F-19Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financialinstruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fairvalue. The three-tier fair value hierarchy is: Level 1—observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2—other inputs that are directly or indirectly observable in the marketplace. Level 3—unobservable inputs that are supported by little or no market activity. The Sogou Group’s financial instruments primarily include cash equivalents, short-term investments, accounts receivables, financing receivable,accounts payables, accrued and other short-term liabilities, and amounts due from/to related parties. The carrying value of these balances approximates theirfair value due to the current and short term nature of the balances. aa. Segment Reporting Based on the criteria established by ASC 280 “Segment Reporting”, the Sogou Group’s chief operating decision maker has been identified as theChief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing the performance of the SogouGroup. The Sogou Group does not distinguish between markets or segments for the purpose of internal reporting. Hence, the Sogou Group has only oneoperating segment. As the Sogou Group’s long-lived assets and revenue are substantially located in and derived from the PRC, no geographical segmentsare presented. bb. Recently Issued Accounting Pronouncements Leases. On February 25, 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases”, which specifies the accounting forleases. For operating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of thelease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocatedover the lease term, on a generally straight-line basis. In addition, this standard requires both lessees and lessors to disclose certain key information aboutlease transactions. ASU 2016-02 is effective for publicly-traded companies for annual reporting periods, and interim periods within those years, beginningafter December 15, 2018. Early adoption is permitted. Based on its preliminary assessment, the Sogou Group expects to record a right-of-use asset ofapproximately $25.4 million and a lease liability of approximately $23.1 million on its adoption date of January 1, 2019, primarily related to the SogouGroup’s leased office space. The Sogou Group will use a modified retrospective approach under ASU 2018-11 and will not restate prior periods. The SogouGroup expects to implement new accounting policies as well as to elect certain practical expedients available to it under ASU 2016-02, including thoserelated to leases with terms of less than 12 months. Financial Instruments-Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requiresentities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonableand supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured atamortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early applicationwill be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Sogou Group iscurrently evaluating the impact of adopting this standard on its consolidated financial statements. Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment”.The guidance removes Step 2 of goodwill impairment tests, which requires a hypothetical purchase price allocation. A goodwill impairment will now be theamount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance is to be adopted on aprospective basis for annual or interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annualgoodwill impairment tests performed on testing dates after January 1, 2017. The Sogou Group is currently evaluating the impact of adopting this standard onits consolidated financial statements. Compensation—Stock Compensation. In June 2018, the FASB issue ASU 2018-07, “Compensation—Stock Compensation (Topic 718):Improvements to Nonemployee Share-Based Payment Accounting,” which provides guidance about the amendments in nonemployee share-based paymentaccounting. The amendments in this guidance are effective for publicly-traded business entities for fiscal years beginning after December 15, 2018, includinginterim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interimperiods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than the date of an entity’s adoption of Topic 606.The Sogou Group does not expect this standard to have a material impact on its consolidated financial statements. F-20Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 4. CONCENTRATION OF RISK a. Concentration of Credit Risk Financial instruments that potentially expose the Sogou Group to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, accounts receivable, and financing receivables. Cash and Cash Equivalents and Short-term Investments As of December 31, 2017, approximately 30% of the Sogou Group’s cash and cash equivalents and short-term investments were held in eightfinancial institutions in mainland China, approximately 29% of the Sogou Group’s cash and cash equivalents and short-term investments were held in threefinancial institutions in Hong Kong, and approximately 25% of the Sogou Group’s cash and cash equivalents and short-term investments were held in onefinancial institution in Macau. The remaining cash and cash equivalents and short-term investments were held in one financial institution in New York. As of December 31, 2018, approximately 40% of the Sogou Group’s cash and cash equivalents and short-term investments were held in fourteenfinancial institutions in mainland China, approximately 31% of the Sogou Group’s cash and cash equivalents and short-term investments were held in fourfinancial institutions in Hong Kong, and approximately 14% of the Sogou Group’s cash and cash equivalents and short-term investments were held in onefinancial institution in Macau. The remaining cash and cash equivalents and short-term investments were held in one financial institution in New York. The Sogou Group holds its cash and cash equivalents and short-term investments at financial institutions that are among the largest and mostrespected in the PRC and at international financial institutions with high ratings from internationally-recognized rating agencies. The Sogou Group’smanagement chooses these institutions because of their reputations and track records for stability, and their known large cash reserves, and managementperiodically reviews these institutions’ reputations, track records, and reported reserves. Management expects that any additional institutions that the Sogou Group uses for its cash and cash equivalents and short-term investments will bechosen with similar criteria for soundness. As a further means of managing its credit risk, the Sogou Group holds its cash and bank deposits in a number ofdifferent financial institutions. As of December 31, 2017 and 2018, the Sogou Group held its cash and cash equivalents and short-term investments indifferent financial institutions and held no more than approximately 29% and 29% of its total cash and cash equivalents and short-term investments at anysingle institution. Under PRC law, it is generally required that a commercial bank in the PRC that holds third party cash deposits protect the depositors’ rights over andinterests in their deposited money; PRC banks are subject to a series of risk control regulatory standards; and PRC bank regulatory authorities are empoweredto take over the operation and management of any PRC bank that faces a material credit crisis. Accounts Receivable As of December 31, 2017 and 2018, the Sogou Group’s accounts receivable from its top three customers represented 43%, and 59%, respectively, ofthe Sogou Group’s aggregate accounts receivable balance, and a single customer accounted for 23%, and 38%, respectively, of such balance. Management assesses the credit quality of and sets credit limits on the Sogou Group’s customers, taking into account their financial position, theavailability of guarantees from third parties, their credit history, and other factors such as current market conditions. In estimating the Sogou Group’s generalallowance for doubtful accounts, management considers many factors, including among other things the results of reviews of delinquent accounts, aginganalyses and customer credit analyses, and analysis of historical bad debt records and current economic trends. Financing Receivables Financing receivables as of December 31, 2018 consisted of the principal amounts of small consumer loans made by the Sogou Group to individualborrowers and related interest accrued on these loans. These loans were originated during 2018, and as of December 31, 2018 no borrower accounted for 10%or more of the financing receivables balance. The Sogou Group is subject to credit risks resulting from defaults by borrowers and records an allowance basedon its estimated probable losses against its financing receivables. The Sogou Group manages the credit risk of financing receivables by performing creditassessments on its borrowers and ongoing monitoring of the outstanding balances. b. Foreign Currency Exchange Rate Risks While the reporting currency of the Sogou Group is the U.S. dollar, to date almost all of its revenues and costs, almost half of its assets, and almost allof its liabilities are denominated in RMB. As a result, the Sogou Group is exposed to foreign exchange risk, as its revenues and assets may be affected byfluctuations in the exchange rate between the U.S. dollar and the RMB. If the RMB depreciates against the U.S. dollar, the value of the Sogou Group’s RMBrevenues and assets as expressed in its U.S. dollar financial statements will decline. F-21Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 5. CASH AND CASH EQUIVALENTS As of December 31,2017 2018Cash$131,407$68,719Cash equivalents562,800116,456Total$694,207$185,175 6. ACCOUNT AND FINANCING RECEIVABLES, NET As of December 31, 2017 2018 Accounts receivable$70,351$104,159Financing receivables—46,238Less: allowance for doubtful accounts and credit losses(384)(7,511)Total$69,967$142,886 The following table presents the movement of the allowance for doubtful accounts and credit losses: As of December 31, 2016 2017 2018 Beginning balance$—$—$384Additional provision—3789,119Written off——(1,908)Foreign currency translation adjustment—6(84)Ending balance$—$384$7,511 7. PREPAID AND OTHER CURRENT ASSETS As of December 31, 2017 2018 Receivables from third party payment service providers$367$14,012Inventories2,58712,606Advances to suppliers5,0605,329Deductible input VAT7485,320Interest receivable from bank deposits with original maturities of three months or less1,9611,198Employee advances457557Prepaid content and licenses38288Housing loans to employees1,29337Business collaboration deposits1,775—Others805775Total$15,091$40,122 The inventory balance as of December 31, 2018 was offset by provision for impairment of US$2,547. 8. LONG-TERM INVESTMENTS As of December 31, 2017 and 2018, the aggregate carrying value of all equity investments was US$30,152 and US$63,305, respectively. The SogouGroup’s equity investments mainly consisted of equity interests held by the Sogou Group in the following entities: · Zhihu Technology Limited, a company that engages primarily in the business of operating an online question and answer-based knowledge andinformation sharing platform; and · Hainan Yun Jiang Technology Co., Ltd., a high-tech enterprise that engages primarily in the business of providing on-line and off-line educationservices powered by artificial intelligence technologies. F-22(1)(1) Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Impairment losses for the years ended December 31, 2016, 2017 and 2018, were nil, US$230 and US$2,605, respectively, and a cumulativeimpairment loss of US$2,835 was recognized as of December 31, 2018. Upward adjustments in accordance with ASC321 for the years ended December 31,2016, 2017 and 2018 were nil, nil and US$18,013, respectively. 9. FIXED ASSETS, NET As of December 31, 2017 2018 Computer equipment (including servers)$236,470$280,157Leasehold improvements6,35812,207Office furniture1,9251,914Vehicles337362Fixed assets, gross245,090294,640Less: Accumulated depreciation(105,881)(147,145)Fixed assets, net$139,209$147,495 For the years ended December 31, 2016, 2017 and 2018, depreciation expenses were US$33,886, US$48,205, and US$60,690, respectively. Noimpairment loss was recognized for the years ended December 31, 2016, 2017, and 2018. 10. GOODWILL As of December 31,2017 2018Beginning balance$5,565$5,908Foreign currency translation adjustment343(283)Ending balance$5,908$5,625 No impairment loss was recognized for the years ended December 31, 2016, 2017, and 2018. As of December 31, 2018, no accumulated goodwillimpairment has been provided. 11. INTANGIBLE ASSETS, NET As of December 31, 2017ItemsCost AccumulatedAmortization Net ValueCopyright$3,375$(2,897)$478Computer software1,018(493)525Domain names and trademarks1,434(1,196)238Developed technologies612(525)87Total$6,439$(5,111)$1,328 As of December 31, 2018ItemsCost AccumulatedAmortization Net ValueCopyright$3,213$(3,213)$—Computer software2,105(898)1,207Domain names and trademarks1,366(1,330)36Developed technologies583(583)—Others145(39)106Total$7,412$(6,063)$1,349 For the years ended December 31, 2016, 2017 and 2018, amortization expenses were US$1,314, US$1,389, and US$1,251, respectively. Noimpairment loss was recognized for the years ended December 31, 2016, 2017, and 2018. F-23Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents As of December 31, 2018, intangible assets amortization expense for future years is expected to be as follows: Intangible AssetsAmortization Expense2019$4382020412202141220227220235Thereafter10Total expected amortization expense$1,349 12. ACCRUED AND OTHER SHORT - TERM LIABILITIES As of December 31, 2017 2018 Accrued advertising and promotion expenses$65,039$56,353Contract deposits from customers23,83236,222Accrued professional fees22,52920,459Accrued bandwidth costs10,6448,966Deferred ADR deposit income—4,985Contingent litigation liabilities (See “Litigation” in Note 21—Commitments and Contingencies)3,8223,440Payables to Web game and mobile game developers6,7253,288Early exercise of Sogou share options with trust arrangements (See “Option Modification” inNote 16—Share-based Compensation)4,5032,702Accrued content and license fees2,0361,954Payable for government project4401,764Accrual for fixed assets purchases6581,409Unpaid installment of donation to Tsinghua University7,652—Guarantee liability 5,148—Others11,2419,857Total$164,269$151,399 The guarantee liability is in relation to a trial Internet finance program. F-24(1)(1)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 13. FAIR VALUE MEASUREMENT The following table sets forth the financial instruments, measured at fair value on a recurring basis, by level within the fair value hierarchy as ofDecember 31, 2017, and 2018: Fair Value Measurements at ReportingDate UsingItemsAs ofDecember 31,2017 Quoted Pricesin Active Marketsfor Identical Assets(Level 1)SignificantOtherObservableInputs(Level 2)SignificantUnobservableInputs(Level 3)Cash equivalents$ 562,800$—$562,800$—Short-term investments339,006—339,006—Total$ 901,806$—$901,806$— Fair Value Measurements at ReportingDate UsingItemsAs ofDecember 31,2018Quoted Pricesin Active Marketsfor Identical Assets(Level 1)SignificantOtherObservableInputs(Level 2)SignificantUnobservableInputs(Level 3)Cash equivalents$116,456$—$116,456$—Short-term investments851,327—851,327—Total$967,783$—$967,783$— Cash Equivalents The Sogou Group’s cash equivalents consist of time deposits with original maturities of three months or less, and demand deposits that are readilyconvertible to known amounts of cash. The fair values of cash equivalents are determined based on the pervasive interest rates in the market. The SogouGroup classifies the valuation techniques that use the pervasive interest rates input as Level 2 of fair value measurements. Short-term Investments The Sogou Group invested in time deposits with original maturities of more than three months and financial instruments issued by commercialbanks in China which had variable interest rates indexed to the performance of underlying assets. Since the investments’ maturity dates are within one year,they are classified as short-term investments. In accordance with ASC 825, the Sogou Group elected the fair value method at the date of initial recognitionand carried these investments at fair value. For both time deposits with original maturities of more than three months and financial instruments with a variableinterest rate indexed to performance of underlying assets, the fair values are determined based on the pervasive interest rates in the market. Changes in the fair value are reflected in the consolidated statements of comprehensive income as other (expenses)/income, net. To estimate fairvalue, the Sogou Group refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The SogouGroup classifies the fair value measurements as Level 2 of fair value measurements. The Sogou Group recorded gains resulting from changes in the fair valueof short-term investments of US$823, US$927, and US$22,058, respectively, in other income for the years ended December 31, 2016, 2017, and 2018. Long-term Investments Since the adoption of ASC 321 in 2018, all of the Sogou Group’s long-term equity investments are accounted for at cost less impairments, adjustedby observable price changes as these investments do not have readily determinable market values. When observable price changes are identified, with theassistance of a qualified professional appraiser, the Sogou Group uses the back-solve method to re-measure the fair value of the investments and to determinethe amount that should be recorded as upward or downward adjustments. The back-solve method requires considering the rights and preferences of eachclasses of equity and solving for the total equity value that is consistent with a recent transaction of the subject company’s securities. This method requiresmaking assumptions on future outcomes available to the subject company, the probability of each scenario, expected time to liquidity events, volatility andrisk-free rate. The Sogou Group classifies these non-recurring fair value measurement as Level 3 of fair value measurement. The Sogou Group recorded gainsresulting from upward adjustment of US$18,013 in other income for the year ended December 31, 2018. F-25Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 14. PREFERRED SHARES The following table presents the movement for the Company’s Pre-IPO Preferred Shares: Pre-IPO Series APreferred Shares Pre-IPO Series BPreferred SharesSharesAmount Shares AmountBalance as of December 31, 201532,000,000$20,00065,431,579$224,426Adjustment of issuance cost of Pre-IPO Series B Preferred Shares———(22)Balance as of December 31, 201632,000,00020,00065,431,579224,404Redesignation of 32,000,000 Pre-IPO Series A Preferred Sharesinto Class A Ordinary Shares(32,000,000)(20,000)——Redesignation of 65,431,579 Pre-IPO Series B Preferred Sharesinto Class B Ordinary Shares——(65,431,579)(224,404)Balance as of December 31, 2017—$——$— The Sogou Group has determined that there was no embedded beneficial conversion feature attributable to the Pre-IPO Preferred Shares because theinitial effective conversion price of the Pre-IPO Preferred Shares was higher than the fair value of the Company’s pre-IPO ordinary shares. The Sogou Group classified the Pre-IPO Preferred Shares as mezzanine equity, as the Pre-IPO Preferred Shares were redeemable upon certainliquidation events, including a change in control, which is deemed to be a liquidation event, that are considered to be events outside of the Company’scontrol. The following is a summary of some of the key terms of the Pre-IPO Preferred Shares applicable for the periods before the IPO. Dividend Rights The Company could not declare or pay dividends on its Pre-IPO Class A Ordinary Shares or Pre-IPO Class B Ordinary Shares (collectively, “Pre-IPOOrdinary Shares”) unless the holders of the Pre-IPO Preferred Shares then outstanding first received a dividend on each outstanding Pre-IPO Preferred Share inan amount at least equal to the sum of (i) the dividends that would have been payable to the holder of such Pre-IPO Preferred Share if such share had beenconverted into Pre-IPO Ordinary Shares, at the then-applicable conversion rate, immediately prior to the record date for such dividend, and (ii) all accrued andunpaid dividends (“Accrued Dividends”). Dividends were calculated from the date of issuance of the Pre-IPO Series A Preferred Shares at the rate per annumof US$0.0375 per Pre-IPO Series A Preferred Share and from the date of issuance of the Pre-IPO Series B Preferred Shares at the rate per annum of US$0.411per Pre-IPO Series B Preferred Share. Liquidation Rights In the event of any “Liquidation Event,” such as the liquidation, dissolution, or winding up of the Company; a merger or consolidation of theCompany resulting in a change of control; the sale of substantially all of the Company’s assets; or similar events, the holders of Pre-IPO Series B PreferredShares were entitled to receive, prior and in preference to any distribution to ordinary shareholders, an amount per share equal to the greater of (i) US$6.847plus Accrued Dividends or (ii) such amount per share as would have been payable if the Pre-IPO Series B Preferred Shares had been converted into Pre-IPOOrdinary Shares prior to the Liquidation Event, and holders of Pre-IPO Series A Preferred Shares were entitled to receive, after payment to the holders of thePre-IPO Series B Preferred Shares but before any payment to holders of Pre-IPO Ordinary Shares, an amount equal to the greater of (i) 1.3 times their originalinvestment in Pre-IPO Series A Preferred Shares plus Accrued Dividends or (ii) such amount per share as would be payable if the Pre-IPO Series A PreferredShares had been converted into Pre-IPO Ordinary Shares immediately prior to the Liquidation Event. Redemption Rights The Pre-IPO Preferred Shares were not redeemable at the option of the holders. Conversion Rights Each Pre-IPO Preferred Share was convertible at any time at the option of the holder, without the payment of additional consideration by the holder.Each Pre-IPO Preferred Share was convertible into such number of Pre-IPO Class A Ordinary Shares as was determined, in the case of Pre-IPO Series APreferred Shares, by dividing US$0.625 by the then-effective conversion price for Pre-IPO Series A Preferred Shares, which was initially US$0.625 and, in thecase of Pre-IPO Series B Preferred Shares, by dividing US$7.267 by the then-effective conversion price for Pre-IPO Series B Preferred Shares, which wasinitially US$7.267. The conversion prices of the Pre-IPO Preferred Shares were subject to adjustment on a weighted average basis upon the issuance ofadditional equity shares, or securities convertible into equity shares, at a price per share less than US$0.625, in the case of Pre-IPO Series A Preferred Shares,or less than US$7.267, in the case of Pre-IPO Series B Preferred Shares, subject to certain customary exceptions, such as shares issued pursuant to the Sogou2010 Share Incentive Plan. Each Pre-IPO Preferred Share was subject to automatic conversion into Pre-IPO Class A Ordinary Shares upon the closing of aninitial public offering of the Company with certain parameters based on the then-effective conversion ratio of such Pre-IPO Preferred Share, which was one-for-one for both Pre-IPO Series A Preferred Shares and Pre-IPO Series B Preferred Shares. F-26Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Voting Rights Each holder of Pre-IPO Preferred Shares was entitled to cast the number of votes equal to the number of Pre-IPO Class A Ordinary Shares into whichthe Pre-IPO Preferred Shares held by such holder were then convertible. Other Rights The holders of Pre-IPO Preferred Shares had various other rights typical of preferred share investments. 15. TREASURY STOCK Pursuant to letter agreements entered between Sohu and the former president and chief financial officer of the Sohu Group in connection with herresignation, as of December 31, 2016, the Company was obligated to repurchase 720,000 of its Pre-IPO Class A Ordinary Shares from the former president andchief financial officer of the Sohu Group for an aggregate price of US$7,200. The Company included the 720,000 Pre-IPO Class A Ordinary Shares in treasurystock at their repurchase cost of US$3,190, which was the fair value of the Pre-IPO Class A Ordinary Shares as of the repurchase date. The US$4,010 differencebetween the total repurchase price and the fair value of the repurchased shares as of the repurchase date is regarded as compensation paid to the formerpresident and chief financial officer of the Sohu Group for her contribution to the Sogou Group and was recognized as share-based compensation expense in2016. The Company completed the repurchase of the 720,000 Pre-IPO Class A Ordinary Shares in January, 2017. The treasury stock account also includes 10,327,500 and 5,805,000 Class A ordinary shares that were issued upon the early exercise of options(See “Option Modification” in Note 16—Share-based Compensation), but remained subject to original vesting restrictions both before and after exercise, andremained unvested as of December 31, 2017 and 2018, respectively. Although the Class A Ordinary Shares have been determined to be treasury stock foraccounting purposes, they are outstanding for legal purposes, given that the underlying shares were placed in trusts with the original option grantees asbeneficiaries. 16. SHARE-BASED COMPENSATION Compensation expense recognized for share-based awards granted by the Sogou Group, Sohu, and Tencent, respectively, was as follows: For the Year Ended December 31, 2016 2017 2018 Share-based compensation expense related toSogou share-based awards$12,049$23,037$14,116Sohu share-based awards494—Tencent share-based awards76368288Total$12,861$23,723$14,204 There was no capitalized share-based compensation expense for the years ended December 31, 2016, 2017 and 2018. a. Sogou Share-based Awards Sogou 2010 Share Incentive Plan The Company adopted a share incentive plan on October 20, 2010 and adopted an amendment to the plan effective August 22, 2014 that increasedthe aggregate number of Sogou Class A Ordinary Shares issuable under the plan to 41,500,000 (as amended to date, the “Sogou 2010 Share Incentive Plan”).Awards of share rights may be granted under the Sogou 2010 Share Incentive Plan to management and other key employees of the Sogou Group and of anypresent or future parents or subsidiaries or VIEs of the Sogou Group. The maximum term of any share incentive award granted under the Sogou 2010 ShareIncentive Plan is ten years from the grant date. The Sogou 2010 Share Incentive Plan will expire on October 19, 2020. The options contractually granted under the Sogou 2010 Share Incentive Plan may be placed in one of the following three categories: F-27Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents (1) Performance-based options, which vest and become exercisable either in four equal installments or in two to four installments of specified sharenumbers over their specified vesting periods, with each installment vesting upon a service period requirement being met, as well as the SogouGroup’s achievement of performance targets for the corresponding period. For purposes of recognition of share-based compensation expense,each installment is considered to be granted as of the date that the performance targets have been set; or (2) Service-based options, which vest and become exercisable either in four equal installments or in two to four installments of specified sharenumbers over their specified vesting periods, with each installment vesting only upon a service period requirement being met; or (3) IPO-based options, which were subject to completion of an IPO and vesting/ exercisability in five equal installments, with (i) the firstinstallment vesting upon the expiration of all underwriters’ lockup periods applicable to the Company’s IPO and (ii) each of the foursubsequent installments vesting on the first, second, third, and fourth anniversary dates of the completion of the IPO. A summary of each of the above three categories of options as of December 31, 2018 is presented below (in thousands): Contractually Granted Granted(For Purposes of Share-basedCompensation Expense)Vested and ExercisableExercisedPerformance-based options29,68727,19927,06026,592Service-based options1,6741,674486156IPO-based options7,2507,2502,9302,930Total38,61136,12330,47629,678 A summary of share option activity under the Sogou 2010 Share Incentive Plan as of and for the year ended 2018 is presented below: Numberof Shares(In thousands)WeightedAverageExercisePrice WeightedAverageRemainingContractualLife (Years) AggregateIntrinsicValue Outstanding as of January 1, 20189,753$0.4625.56Granted1,7040.001Exercised(4,515)0.399Forfeited/Expired(497)0.001Outstanding as of December 31, 20186,445$0.4195.29$31,137Vested as of December 31, 2018 and expected to vestthereafter6,059$0.4465.10$29,109Exercisable as of December 31, 2018798$0.0017.15$4,188 The aggregate intrinsic value in the preceding table represents the difference between the closing price of Sogou Class A Ordinary Shares of $5.25 on thelast trading day in 2018 and the exercise price of the options. For the years ended December 31, 2016, 2017 and 2018, total share-based compensation expense recognized for share options under the Sogou2010 Share Incentive Plan was US$7,595, US$23,037 and US$12,547, respectively. As of December 31, 2018, there was US$6,377 of unrecognizedcompensation expense related to unvested share options granted under the Sogou 2010 Share Incentive Plan, which is expected to be recognized over aweighted average period of 1.46 years. For the years ended December 31, 2016, 2017 and 2018, the total fair values of the share options vested on their respective vesting dates wereUS$9,682, US$21,710, and US$28,530, respectively. For the years ended December 31, 2016, 2017, and 2018, total intrinsic value of options exercised was US$15,174, US$11,136, and US$33,180,respectively. Prior to the completion of the Company’s IPO, the fair values of the Class A Ordinary Shares were assessed using the income approach/discountedcash flow method or based on the mid-point of the estimated IPO price range, in each case with a discount for lack of marketability because the Class AOrdinary Shares underlying the award were not publicly traded at the time of grant. The assessment required complex and subjective judgments regarding theSogou Group’s projected financial and operating results, its unique business risks, the liquidity of its ordinary shares, and its operating history and prospectsat the time the grants were made. After the completion of the Company’s IPO, the fair values of the ordinary shares were determined based on the trading priceof the Company’s ADSs in the public market. F-28(1)(1)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The fair value of the share options granted under the Sogou 2010 Incentive Plan was estimated on the date of grant with the assistance of a qualifiedprofessional appraiser, using the BP Model with the following assumptions used: 2016 2017 2018Average risk-free interest rate1.90% ~ 2.77%2.14% ~ 3.00%3.36% ~ 3.51%Exercise multiple2 ~ 32 ~ 32Expected forfeiture rate (post-vesting)0% ~ 12%0% ~ 12%12%Weighted average expected option life779Volatility rate43% ~ 50%39% ~ 47%40% ~ 46%Dividend yield0%0%0%Weighted average fair value of share options3.2610.3512.26 The Sogou Group estimated the risk-free rate based on the market yields of U.S. Treasury securities with an estimated country-risk differential as ofthe valuation date. An exercise multiple was estimated as the ratio of the fair value of the Class A Ordinary Shares over the exercise prices as of the time theoptions would be expected to be exercised, based on consideration of research studies regarding exercise patterns based on historical statistical data. In theSogou Group’s valuation analysis, a multiple of three was applied for management and a multiple of two was applied for other key employees. The SogouGroup estimated the forfeiture rate to be 0% or 1% for share options granted to management and 12% for share options granted to other key employees. Asthe Company’s ordinary shares had been publicly traded for only one year as of December 31, 2018, the expected volatility at the valuation date wasestimated based on the historical volatility of specified comparable companies and Sogou for the periods before the grant dates with length commensuratewith the expected term of the options. The Company has no history or expectation of paying dividends on its ordinary shares. Accordingly, the dividendyield was estimated to be 0%. Sogou 2017 Share Incentive Plan In October 2017, the Company adopted a share incentive plan (the “Sogou 2017 Share Incentive Plan”), which provides that the aggregate numberof Sogou Class A Ordinary Shares issuable under the plan is 28,000,000. Share incentive awards may be granted under the Sogou 2017 Share Incentive Planto our management and employees and of any of our present or future parents or subsidiaries. The maximum term of any share incentive award granted underthe Sogou 2017 Share Incentive Plan is ten years from the grant date. The options contractually granted under Sogou 2017 Share Incentive Plan may be placed in one of the following categories: (1) Performance-based options, which vest and become exercisable in four equal installments, with each installment vesting upon a service periodrequirement being met, as well as the Sogou Group’s achievement of performance targets for the corresponding period. For purposes ofrecognition of share-based compensation expense, each installment is considered to be granted as of the date that the performance targets havebeen set; or (2) Service-based options, which vest and become exercisable in four equal installments, with each installment vesting only upon a service periodrequirement being met. A summary of the above two categories of options as of December 31, 2018 is presented below (in thousands): Contractually Granted Granted(For Purposes of Share-basedCompensation Expense) Vested and Exercisable ExercisedPerformance-based options70———Service-based options730730——Total800730—— F-29Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents A summary of share option activity under the Sogou 2017 Share Incentive Plan as of and for the year ended 2018 is presented below: Numberof Shares(In thousands)WeightedAverageExercisePrice WeightedAverageRemainingContractualLife (Years) AggregateIntrinsicValueOutstanding as of January 1, 2018—$——Granted7670.001Exercised——Forfeited/Expired(37)0.001Outstanding as of December 31, 2018730$0.0019.57$3,829Vested as of December 31, 2018 and expected to vest thereafter544$0.0019.57$2,857Exercisable as of December 31, 2018—$——$— The aggregate intrinsic value in the preceding table represents the difference between the closing price of Sogou Class A Ordinary Shares of $5.25 on thelast trading day in 2018 and the exercise prices of the options. For the years ended December 31, 2018, total share-based compensation expense recognized for share options under the Sogou 2017 Share IncentivePlan was US$1,569 and there was US$4,001 of unrecognized compensation expense related to unvested share options granted under the Sogou 2017 ShareIncentive Plan as of December 31, 2018, which is expected to be recognized over a weighted average period of 2.12 years. The method used to determine the fair value of share options granted under the Sogou 2017 Share Incentive Plan was the same as the method usedfor the share options granted under the Sogou 2010 Incentive Plan as described above, except for the assumptions used in the BP Model as presented below. 2018Average risk-free interest rate3.41% ~ 3.95%Exercise multiple2Expected forfeiture rate (post-vesting)12%Weighted average expected option life10Volatility rate40% ~ 46%Dividend yield0%Weighted average fair value of share options10.09 Sohu Management Sogou Share Option Arrangement Under an arrangement (the “Sohu Management Sogou Share Option Arrangement”) that was approved by the board of directors of Sohu and theCompany in March 2011, Sohu has the right to provide to members of Sohu’s Board of Directors, management and other key employees of Sohu, and certainmanagement and other key employees of the Sogou Group the opportunity to purchase from Sohu up to 12,000,000 Class A Ordinary Shares of Sogou at afixed exercise price of US$0.625 or US$0.001 per share. Of these 12,000,000 Class A Ordinary Shares, 8,800,000 are Sogou Class A Ordinary Sharespreviously held by Sohu and 3,200,000 are Sogou Class A Ordinary Shares that were newly-issued on April 14, 2011 by the Company to Sohu at a price ofUS$0.625 per share, or a total of US$2.0 million. The options contractually granted under the Sohu Management Sogou Share Option Arrangement may be placed in one of the following categories: (1) Performance-based options, which vest and become exercisable in four equal installments, with each installment vesting upon a service periodrequirement being met, as well as the Sogou Group’s achievement of performance targets for the corresponding period. For purposes ofrecognition of share-based compensation expense, each installment is considered to be granted as of the date that the performance targets havebeen set; or (2) Service-based options, which were granted to members of Sohu’s Board of Directors. All of these share options vested and became exercisablein 2015, as the service period requirement had been met. As the requisite service was provided by members of Sohu’s Board of Directors toSohu and not to the Sogou Group, no share-based compensation expense related to these options was recognized in the Sogou Group’sconsolidated statements of comprehensive income. F-30 (1)(1)Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents A summary of the above two categories of options as of December 31, 2018 is presented below (in thousands): Contractually Granted Granted(For Purposes of Share-basedCompensation Expense) Vested and Exercisable ExercisedPerformance-based options8,2908,2908,2908,290Service-based options1515156Total8,3058,3058,3058,296 A summary of share option activity as of and for the year ended December 31, 2018 is presented below: Numberof Shares(In thousands) WeightedAverageExercisePrice WeightedAverageRemainingContractualLife (Years) AggregateIntrinsicValueOutstanding as of January 1, 20189$0.0017.38Granted—Exercised—Forfeited/Expired—Outstanding as of December 31, 20189$0.0016.38$47Vested as of December 31, 2018 and expected to vest thereafter9$0.0016.38$47Exercisable as of December 31, 20189$0.0016.38$47 The aggregate intrinsic value in the preceding table represents the difference between the closing price of Sogou Class A Ordinary Shares of $5.25 on thelast trading day in 2018 and the exercise price of the options. For the years ended December 31, 2016, 2017, and 2018, total share-based compensation expense recognized for share options under the SohuManagement Sogou Share Option Arrangement was US$444, nil, and nil, respectively. As of December 31, 2018, there was no unrecognized compensationexpense related to the unvested share options. For the years ended December 31, 2016, 2017 and 2018, the total fair values of the share options vested on their respective vesting dates wereUS$515, nil, and nil, respectively. For the years ended December 31, 2016, 2017, and 2018, total intrinsic value of options exercised was US$4,501, US$249, and nil, respectively. The method used to determine the fair value of share options granted under the Sohu Management Sogou Share Option Arrangement was the same asthe method used for the share options granted under the Sogou 2010 Incentive Plan as described above, except for the assumptions used in the BP Model aspresented below. There was no share-based compensation expense recognized under the Sohu Management Sogou Share Option Arrangement for the yearended December 31, 2017 and 2018. 2016Average risk-free interest rate2.01% ~ 2.15%Exercise multiple2 ~ 3Expected forfeiture rate (post-vesting)0%Weighted average expected option life6Volatility rate43% ~ 47%Dividend yield0%Weighted average fair value of share options3.02 Option Modification In the first and second quarter of 2013, a portion of the share options granted under the Sogou 2010 Share Incentive Plan and the Sohu ManagementSogou Share Option Arrangement were exercised early, and the resulting Sogou ordinary shares were transferred to trusts with the original option grantees asbeneficiaries. The trusts will distribute the ordinary shares to those beneficiaries in instalments based on the vesting requirements under the original optionagreements. Although these trust arrangements caused a modification of the terms of these share options, the modification was not considered substantive.Accordingly, no incremental fair value related to these ordinary shares resulted from the modification, and the remaining share-based compensation expensefor these ordinary shares continued to be recognized over the original remaining vesting period. As of December 31, 2018, 5,805,000 Class A Ordinary Sharesissued upon the early exercise of options granted under the Sogou 2010 Share Incentive Plan had remained unvested in accordance with the vestingrequirements under the original option agreements. All of the Class A Ordinary Shares issued upon such early exercise that have become vested have beenincluded in the disclosures under the headings “Sogou 2010 Share Incentive Plan” and “Sohu Management Sogou Share Option Arrangement” above. F-31 (1)(1) Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents In the first quarter of 2018, the Company changed the vesting conditions of options for the purchase of 2,181,192 Class A Ordinary Sharescontractually granted under the Sogou 2010 Share Incentive Plan by removing as a condition of vesting Sogou Group’s achievement of performance targetsfor the period corresponding to the vesting schedule. Of these options, options for the purchase of 1,601,427 Class A Ordinary Shares had not been deemedgranted, because their performance targets for the current period had not been set, so the removal of the performance targets resulted in these optionsbecoming subject to vesting only upon service-period requirements being met and being deemed granted immediately upon the effectiveness of the changes.For the remaining options for the purchase of 579,765 Class A Ordinary Shares, which had been deemed granted, the removal of the performance targetsconstituted a modification. The modification was not considered substantive, because the performance targets had been achieved before the modification.Based on valuation results, no incremental fair value related to these Sogou ordinary shares was recognized in connection with the modification, and theremaining share-based compensation expense for these options continued to be recognized over their remaining vesting periods. Share Repurchase Transaction Pursuant to letter agreements entered between Sohu and the former president and chief financial officer of the Sohu Group in connection with herresignation, as of December 31, 2016, the Company was obligated to repurchase 720,000 of its Pre-IPO Class A Ordinary Shares from the former president andchief financial officer of the Sohu Group for an aggregate price of US$7,200. The Company included the 720,000 Pre-IPO Class A Ordinary Shares in treasurystock at their repurchase cost of US$3,190, which represents the fair value of the Pre-IPO Class A Ordinary Shares as of the repurchase date. The US$4,010difference between the total repurchase price and the fair value of the repurchased shares as of the repurchase date is regarded as compensation paid to theformer president and chief financial officer of the Sohu Group for her contribution to the Sogou Group and was recognized as share-based compensationexpense in 2016. The Company completed the repurchase of the 720,000 Pre-IPO Class A Ordinary Shares in January, 2017. b. Sohu Share-based Awards Certain of the Sogou Group’s employees were granted awards under the Sohu.com Inc.’s Amended and Restated 2010 Stock Incentive Plan (the“Sohu 2010 Stock Incentive Plan”). Prior to May 31, 2018, the Sohu 2010 Stock Incentive Plan provided for the issuance of common stock of Sohu.com Inc.to employees of the Sohu Group, which for such purpose included employees of the Sogou Group, pursuant to share-based awards, including stock optionsand restricted stock units. Upon the dissolution of Sohu.com Inc. on May 31, 2018, Sohu.com Limited assumed all then existing obligations of Sohu.com Inc.with respect to equity incentive awards that had been granted under the Sohu 2010 Stock Incentive Plan and remained outstanding, and such awards wereconverted into the right to receive upon exercise or settlement ordinary shares of Sohu.com Limited under the Sohu.com Limited 2018 Share Incentive Plan(the “Sohu 2018 Share Incentive Plan”) rather than shares of the common stock of Sohu.com Inc., subject to the other terms of the awards. The share-basedcompensation expense arising from such grants was allocated to the Sogou Group and recognized as share-based compensation expense in the Sogou Group’sconsolidated statements of comprehensive income. As of December 31, 2018, there were no unvested Sohu restricted share units held by employees of the Sogou Group. For the years endedDecember 31, 2016, 2017 and 2018, share-based compensation expense of US$49, US$4, and nil, respectively, related to these restricted share units wasallocated from Sohu and recognized in the Sogou Group’s consolidated statements of comprehensive income. As of December 31, 2018, there was nounrecognized compensation expense related to these unvested restricted share units. c. Tencent Share-based Awards Certain persons who became the Sogou Group’s employees when Tencent’s Soso search-related businesses were transferred to the Sogou Group inSeptember 2013 had been granted restricted share units under Tencent’s share award arrangements prior to the transfer of the businesses. Following thetransfer of the businesses, these Tencent restricted share units will continue to vest under the original Tencent share award arrangements provided thetransferred employees continue to be employed by the Sogou Group during the requisite service period. After the transfer of the Soso search-relatedbusinesses, the Sogou Group applied the guidance in ASC 505-50 to measure the related compensation expense, which is deemed to have been incurred byTencent as an investor on the Sogou Group’s behalf, based on the then-current fair value at each reporting date. To determine the then-current fair value ofthe Tencent restricted share units granted to these employees, the public market price of the underlying shares at each reporting date was applied. For the years ended December 31, 2016, 2017 and 2018, share-based compensation expense of US$763, US$682, and US$88, respectively, related tothese Tencent restricted share units was recognized in the Sogou Group’s consolidated statements of comprehensive income. As of December 31, 2018, therewere no unvested Tencent restricted share units held by employees of the Sogou Group and there was no unrecognized compensation expense related to theseunvested restricted share units. F-32Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 17. TAXATION a. PRC Value-added Tax The Company’s subsidiaries and VIEs in China are subject to VAT. The Sogou Group’s revenues were subject to VAT at rates of 6% or 17%, for the years ended December 31, 2016 and 2017 and for the period fromJanuary 1, 2018 to April 30, 2018, and at rates 6% or 16% after May 1, 2018, depending on the type of service or product that the Sogou Group offers. b. Income Taxes Cayman Islands Under the current laws of Cayman Islands, the Company is not subject to tax on income or capital gains. In addition, upon any payment of dividendsby the Company to its shareholders, no Cayman Islands withholding tax will be imposed. British Virgin Islands Under the current laws of British Virgin Islands, Sogou BVI is not subject to tax on income or capital gains. Hong Kong The Company’s subsidiaries in Hong Kong are subject to income tax at a rate of 16.5% for the years ended December 31, 2016, 2017 and 2018.Hong Kong does not impose a withholding tax on dividends. PRC The PRC Corporate Income Tax Law (the “CIT Law”) generally applies an income tax rate of 25% to all enterprises, but grants preferential taxtreatment to qualified “High and New Technology Enterprises” (“HNTEs”), Software Enterprises, and “Key National Software Enterprises” (“KNSEs”). Entities Qualified as HNTEs HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. During this three-year period, an HNTE must conduct a qualification self-review each year to ensure it meets the HNTE criteria and is eligible for the 15% preferential tax ratefor that year. If an HNTE fails to meet the criteria for qualification as an HNTE in any year, the enterprise cannot enjoy the 15% preferential tax rate in thatyear, and must instead use the regular 25% CIT rate. Sogou Technology qualified as an HNTE for the three years ended December 31, 2017, 2018, and 2019, and will need to re-apply for HNTEqualification in 2020. Sogou Information qualified as an HNTE for the three years ended December 31, 2018, 2019, and 2020, and will need to re-apply forHNTE qualification in 2021. Sogou Network was qualified as an HNTE for the years ended December 31, 2016, 2017 and 2018, and will need to re-apply forHNTE qualification in 2019. Entities Qualified as Software Enterprises and KNSEs The CIT Law and its implementing regulations provide that a “Software Enterprise” is entitled to an income tax exemption for two years beginningwith its first profitable year and a 50% reduction to a rate of 12.5% for the subsequent three years. An entity that qualifies as a KNSE is entitled to a furtherreduced preferential income tax rate of 10%. Enterprises wishing to enjoy the status of a Software Enterprise or a KNSE must perform a self-assessment eachyear to ensure they meet the criteria for qualification and file required supporting documents with the tax authorities before using the preferential CIT rates.These enterprises will be subject to the tax authorities’ assessment each year as to whether they are entitled to use the relevant preferential CIT treatments. Ifat any time during the preferential tax treatment years an enterprise uses the preferential CIT rates but the relevant authorities determine that it fails to meetapplicable criteria for qualification, the relevant authorities may revoke the enterprise’s Software Enterprise/KNSE status. Sogou Technology performed a self-assessment and filed the required supporting documents and passed the relevant government authorities’assessment in each of the years 2016, 2017 and 2018, and thus was qualified as a KNSE and entitled to a preferential income tax rate of 10% for 2015, 2016and 2017. As a result, a reversal of income tax of US$3,857, US$1,467 and US$3,773 for the preferential income tax rate was recorded in the consolidatedstatements of comprehensive income for the year ended December 31, 2016, 2017 and 2018. F-33Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Sogou Network performed a self-assessment and filed the required supporting documents in 2016 for Software Enterprise status for 2015. SogouNetwork was qualified as a Software Enterprise after the relevant government authorities’ assessment in 2016 and was entitled to a preferential income taxrate of 12.5% for 2015. As a result, a reversal of income tax of US$2,569 for the preferential income tax rate was recorded in the consolidated statements ofcomprehensive income for the year ended December 31, 2016. PRC Withholding Tax on Dividends Under the CIT Law and its implementation rules, the profits of a foreign-invested enterprise arising in 2008 and thereafter that are distributed to itsimmediate holding company outside the PRC are subject to withholding tax at a rate of 10%. A lower withholding tax rate will be applied if there is abeneficial tax treaty between the PRC and the jurisdiction of the foreign holding company. A holding company in Hong Kong, for example, will be eligible,with approval of the PRC local tax authority, to be subject to a 5% withholding tax rate under the Arrangement Between the PRC and the Hong Kong SpecialAdministrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income if such holding company isconsidered to be a non-PRC resident enterprise and holds at least 25% of the equity interests in the PRC foreign-invested enterprise distributing thedividends. However, if the Hong Kong holding company is not considered to be the beneficial owner of such dividends under applicable PRC taxregulations, such dividend will remain subject to withholding tax at a rate of 10%. Aggregate undistributed profits of certain of the Company’s subsidiaries and VIEs located in PRC were approximately US$311,841 as ofDecember 31, 2018. The Company does not intend to have any of its subsidiaries and VIEs located in PRC distribute any of their undistributed profits in theforeseeable future, but rather expects that such profits will be reinvested by such subsidiaries and VIEs for their PRC operations. Accordingly, no withholdingtax was recorded as of December 31, 2018. If those profits were to be distributed or they were determined to be no longer permanently reinvested, theCompany would have to record a deferred income tax liability in respect of those undistributed profits of approximately US$31,184 as of December 31, 2018if those profits were subject to withholding tax at a rate of 10%. Composition of Income Tax Expense All income tax expense for the years ended December 31, 2016, 2017 and 2018 was PRC corporate income tax for PRC entities. The current anddeferred portions of income tax expense included in the consolidated statements of comprehensive income are as follows: For the Year EndedDecember 31,20162017 2018Income from PRC entities$64,885$126,104$73,720(Loss)/income from non-PRC entities(8,746)(29,482)26,214Income before income tax expenses56,13996,62299,934Current income tax expense3,11818,382462Deferred tax (benefit)/expense(3,091)(3,960)691Income tax expense$27$14,422$1,153 Effective Tax Rate Reconciliation of the PRC CIT tax rate of 25% to the Sogou Group’s effective tax rate for the years of 2016, 2017 and 2018 is as follows: For the Year EndedDecember 31, 2016 2017 2018 PRC statutory tax rate25.0%25.0%25.0%Tax differential from statutory rate in other jurisdictions5.2%6.8%0.4%Effect of tax holidays(17.2)%(14.4)%(5.1)%Permanent book-tax differences (15.1)%(7.5)%(18.5)%Tax-exempt income——(7.0)%Changes in deferred tax asset allowance2.1%5.0%6.4%Effective income tax rate—14.9 %1.2% The income tax reversals resulting from the preferential income tax rates that Sogou Technology was entitled to as a KNES in 2015, 2016 and 2017 andthat Sogou Network was entitled to as a 2015 Software Enterprise are included in the “Effect of tax holidays” in the table above. F-34 (1)(2) (3)(1) Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The permanent book-tax differences mainly consisted of R&D expenses super deductions. Under PRC regulations issued in September 2018 that areapplicable retroactively beginning January 1, 2018, additional R&D expenses have become eligible for deduction from taxable income. Tax-exempt income consisted of interest on financial instruments and capital gains from long-term investments. The aforementioned financial instrumentsand long-term investments were held by the Company’s subsidiaries located in Hong Kong. The combined effects of the income tax expense exemptions and reductions available to the Sogou Group are as follows: For the year endedDecember 31,20162017 2018Tax holiday effect$9,656$13,914$5,097Basic income per share$0.04$0.05$0.01 c. Deferred Tax As of December 31, 2017 and 2018, the significant temporary differences between the tax and financial statement bases of assets and liabilities thatgave rise to deferred tax balances were principally related to the following: As of December 31,2017 2018Deferred tax assets:Net operating loss carry forwards$9,540$10,392Temporary non-deductible advertising cost carried forward8211,336Accrued expenses22,32021,934Accrued payroll expense2,1392,178Provision for inventory and doubtful receivables1184,298Total deferred tax assets34,93840,138Deferred tax liabilities:Depreciation of fixed assets(3,780)(4,868)Others—(27)Total deferred tax liabilities(3,780)(4,895)Less: Valuation allowance(16,152)(21,450)Deferred tax assets, net$15,006$13,793 As of December 31, 2017 and 2018, the Sogou Group made a valuation allowance against its deferred tax assets to the extent that such deferred taxassets were not expected to be realized by each individual entity within the Sogou Group. The Sogou Group evaluated a variety of factors in determining theamount of the valuation allowance, including each individual entity’s operating history and financial forecast. As of December 31, 2018, the Sogou Group had net operating losses from PRC entities of approximately US$59,057 available to offset againstfuture net profit for income tax purposes. The Sogou Group anticipated that it was more likely than not that these net operating losses would not be utilizedbased on its estimate of the operating performance of these PRC entities. Therefore, US$10,392 in deferred tax assets generated from net operating losses wereoffset by a valuation allowance. These net operating losses are expected to expire during periods between December 31, 2019 and December 31, 2024. The following table sets forth the movement of the valuation allowance for net deferred tax assets for the periods presented: For the Year EndedDecember 31, 20162017 2018Beginning balance$13,387$11,317$16,152Additions3,0214,8176,851Reversals(4,235)(680)(779)Foreign currency translation adjustment(856)698(774)Ending balance$11,317$16,152$21,450 F-35(2) (3) Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 18. CHINA CONTRIBUTION PLAN The Company’s subsidiaries and VIEs in the PRC participate in a government-mandated multi-employer defined contribution plan, pursuant towhich certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company’s PRC basedsubsidiaries and VIEs to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly compensation of qualifiedemployees. The Sogou Group has no further legal obligation beyond its monthly contribution. For the years ended December 31, 2016, 2017 and 2018, the Sogou Group contributed a total of approximately US$29,269, US$33,290, andUS$40,094, respectively. 19. NET INCOME PER ORDINARY SHARE The following table sets forth the basic and diluted net income per ordinary share computation and provides a reconciliation of the numerator anddenominator for the periods presented (in thousands except per share data): For the Year EndedDecember 31,20162017 2018Numerator:Net income attributable to Sogou Inc.$56,112$82,200$98,781Less: Dividends attributable to preferred shareholders28,09224,388—Net income attributable to ordinary shareholders28,02057,81298,781Numerator for net income per ordinary share—basic$28,020$57,812$98,781Reversal of preferred share dividends1,2001,042—Numerator for net income per ordinary share—diluted$29,220$58,854$98,781DenominatorWeighted average number of ordinary shares outstanding—basic236,167257,173388,731Incremental shares from if-converted method32,00027,704—Incremental shares from treasury stock method2,0762,4287,167Weighted average number of ordinary shares outstanding—diluted270,243287,305395,898Net income per ordinary share—basic$0.12$0.22$0.25Net income per ordinary share—diluted$0.11$0.20$0.25 65,431,579 Pre-IPO Preferred Shares, 56,647,614 Pre-IPO Preferred Shares, and options for the purchase of 30,000 Class A Ordinary Shares,respectively, were excluded from the computation of diluted net income per ordinary share for the years ended December 31, 2016, 2017 and 2018, becauseof their anti-dilutive effect. The dilutive effects of Pre-IPO Preferred Shares and share options were calculated using the if-converted method and the treasuryshare method, respectively. F-36Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 20. RELATED PARTY TRANSACTIONS The table below sets forth the significant related parties of the Sogou Group and their relationship to the Sogou Group: Related Party’s Name Relationship with the Sogou GroupSohuUnder common control of Sohu.com Limited with the Sogou GroupTencentHolder of Class B Ordinary Shares The table below sets forth the significant related party transactions of the Sogou Group: For the Year EndedDecember 31, 2016 2017 2018Transactions with Sohu:Expenses of research and development undertaken by Sohu (See Note 3u—Cost Allocations)$788$707$670Share-based compensation expense related to Sogou employees undertaken by Sohu(See Note 3u—Cost Allocations)494—Online marketing activities provided to Sohu88348677Online marketing activities provided by Sohu2,4821,123393Rental of Sohu.com Internet Plaza paid to Sohu5,4848,0918,369Others—41464Transactions with Tencent:Share-based compensation expense related to Soso search-related businesses employeesundertaken by Tencent (See “Tencent Share-based Awards” in Note 3t—Share-basedCompensation Expense)76368288Online marketing activities provided to Tencent8,63415,59940,758Online marketing activities provided by Tencent32,77461,565108,542Bandwidth services provided by Tencent2,9293,2994,183Rental paid to Tencent414378383Others1,2923,1373,463 The Sogou Group provided online marketing services to Sohu and Tencent, and received similar online marketing services from Sohu and Tencent.Related revenues and expenses are measured at the amount of consideration agreed to and paid by the related parties, which approximates amounts chargedto third parties. The table below sets forth the amounts due to related parties: As of December 31,2017 2018Due from/to related parties—currentDue from Sohu$820$60Due from Tencent2,1512,548Total$2,971$2,608Due to Sohu$1,237$145Due to Tencent21,87238,280Total$23,109$38,425Due from related parties—non currentDue from Sohu$2,215$2,108Due from Tencent122116Total$2,337$2,224 The balance due from/to Sohu mainly consists of online marketing services provided by or to Sohu, and rental and lease deposits prepaid to Sohu. The balance due from/to Tencent mainly consists of online marketing services provided to or by Tencent, etc. F-37Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 21. COMMITMENTS AND CONTINGENCIES Contractual obligations Operating Commitments As of December 31, 2018, the Sogou Group had operating commitments related to operating lease obligations, bandwidth purchase obligations,content and service purchase obligations and etc., as follows: As of December 31, OperatingLeaseObligations BandwidthPurchase Content andOtherPurchase Others Total2019$15,884$62,329$248$5,221$83,68220206,8051,067——7,87220215,974311——6,2852022799———7992023271———271Thereafter—————Total$29,733$63,707$248$5,221$98,909 For the years ended December 31, 2016, 2017 and 2018, rental expense included in the operating lease was approximately US$10,075, US$12,818 andUS$15,732, respectively. Litigation The Sogou Group is a party to various legal proceedings which it considers routine and incidental to its business, and is currently involved inseveral lawsuits in PRC courts where its competitors instituted proceedings or asserted counterclaims against the Sogou Group or the Sogou Group institutedproceedings or asserted counterclaims against its competitors. For example, there are various legal proceedings currently pending between the Sogou Groupand affiliates of Baidu, Inc. (“Baidu”) in which the Sogou Group alleges that Baidu’s input method infringes certain of its patents relating to Sogou InputMethod and seeks monetary damages, while Baidu has asserted in counterclaims or in legal proceeding that it has initiated against the Sogou Group thatSogou Input Method infringes certain of its patents, and seeks monetary damages. There is also a lawsuit pending against us in which Shanghai CishuPublications Ltd. has alleged that the Sogou Group used vocabulary content without permission and seeks monetary damages. In addition, the Sogou Groupis subject to ongoing unfair competition claims against it brought by each of Baidu, ShenMa, operated by UCWeb Inc., which is a subsidiary of AlibabaGroup Holding Limited, and affiliates of Qihoo 360 Technology Co., Ltd., separately, in which they allege that certain functions of Sogou Input methodunfairly divert users to the Sogou Group, and seek monetary damages and cessation of the alleged unfair competitive practices. There are also four putativeclass action lawsuits that have been filed against the Company in the United States, three in a State court in the State of California and one in the UnitedStates District Court for the Southern District of New York, that allege violations of U.S. securities laws in connection with the Company’s IPO in 2017. The Sogou Group records a liability when the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated.As of December 31, 2018, the Sogou Group estimated the range of reasonably possible outcomes and has recorded liabilities for the most probable outcomewithin that range. The Sogou Group also evaluates, on a regular basis, developments in litigation matters that could affect the amount of liability that hasbeen previously accrued and makes adjustments as appropriate. Based on the information currently available, management believes that the total liabilitiesto the Sogou Group that may arise as a result of currently pending legal proceedings are not reasonably likely to have a material adverse effect on the SogouGroup’s business, results of operations, financial condition, and cash flows. As of December 31, 2017 and 2018, the Sogou Group had recorded estimated liabilities of US$3,822 and US$3,440, respectively, as a component ofaccrued and other short-term liabilities related to litigation contingencies. 22. VIEs a. Background PRC laws and regulations prohibit or restrict foreign ownership of companies that operate Internet information and content, Internet access, value-added telecommunications, and certain other businesses in which the Sogou Group is engaged or could be deemed to be engaged. Consequently, the SogouGroup conducts certain of its operations and businesses in the PRC through its VIEs. Sogou consolidates in its consolidated financial statements the VIEs, of which Sogou is the primary beneficiary. F-38 (1)(1) Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents b. VIEs Consolidated within the Sogou Group The Sogou Group adopted the guidance of accounting for VIEs, which requires VIEs to be consolidated by their primary beneficiary. Managementevaluated the relationships between Sogou and its VIEs and the flow of economic benefits under contractual arrangements with its VIE Sogou Informationand its shareholders. Sogou Information is the parent company of the Sogou Group’s other three VIEs. In connection with such evaluation, management alsotook into account the fact that, as a result of contractual arrangements with Sogou Information and its shareholders, Sogou controls the shareholders’ votinginterests in the VIEs. As a result of such evaluation, management concluded that Sogou is the primary beneficiary of the VIEs consolidated. Under the contractual agreements with Sogou Information and its shareholders, Sogou has power to direct activities of the VIEs, and can have assetstransferred freely out of the VIEs without any restrictions. Therefore Sogou considers that there are no assets of the VIEs that can be used only to settleobligations of the VIEs, except for registered capital and statutory surplus reserves of the VIEs. As the VIEs are incorporated as limited liability companiesunder the PRC Company Law, creditors of the VIEs do not have recourse to the general credit of Sogou. Currently there is no contractual arrangement thatcould require Sogou to provide additional financial support to the VIEs. As the Sogou Group is conducting certain business in the PRC mainly through theVIEs, Sogou may provide such support on a discretionary basis in the future, which could expose Sogou to a loss. The following is a summary of the Sogou Group’s VIEs, Sogou Information, Shi Ji Guang Su, Shi Ji Si Su, and Chengdu Easypay: Basic Information Sogou Information Sogou Information was incorporated in December 2005. As of December 31, 2018, the registered capital of Sogou Information was US$2.5 millionand the Company’s Chief Executive Officer Xiaochuan Wang, Sohu, and Tencent (collectively the “Nominee Shareholders”) held 10%, 45%, and45% interests, respectively, in Sogou Information. Shi Ji Guang Su Shi Ji Guang Su was acquired in September 2013 as part of the Sogou-Tencent Transactions. As of December 31, 2018, the registered capital of Shi JiGuang Su was US$3.3 million and Sogou Information held 100% of the equity interest in this entity. Shi Ji Si Su Shi Ji Si Su was acquired in April 2015 for cash consideration of US$30. As of December 31, 2018, the registered capital of Shi Ji Si Su wasUS$10.5 million and Sogou Information held 100% of the equity interest in this entity. Chengdu Easypay Chengdu Easypay was incorporated in January 2015. As of December 31, 2018, the registered capital of Chengdu Easypay was US$16.3 million andSogou Information and Shi Ji Si Su together held 100% of the equity interest in this entity. F-39Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Financial Information The following table sets forth the assets, liabilities, results of operations, and cash flows of the VIEs, taken as a whole, that were included in theSogou Group’s consolidated balance sheets, statements of comprehensive income, and statements of cash flows: As of December 31,2017 2018ASSETSCash and cash equivalents$15,945$20,467Short-term investments—7,305Account and financing receivables, net32,65164,584Prepaid and other current assets2,4381,213Intra-Sogou Group receivable due from the Company and the Company’s subsidiaries70,14429,755Due from related parties of the Sogou Group10617Total current assets121,284123,341Long-term investments8,72326,129Fixed assets, net96392Goodwill3,6433,468Intangible assets, net772—Other assets312315Total assets$134,830$153,645LIABILITIESAccounts payable$18,955$57,051Accrued and other short-term liabilities44,75149,493Receipts in advance7,8893,647Accrued salary and benefits1,2921,692Taxes payable9,2326,582Due to related parties of the Sogou Group20,39420,552Total current liabilities102,513139,017Total liabilities$102,513$139,017 For the Year EndedDecember 31,20162017 2018Net revenue$159,361$257,424$423,270Net income/(loss)$41,084$28,944$(19,534) For the Year EndedDecember 31,Cash flows of the VIEs 2016 2017 2018Net cash provided by operating activities$3,721$5,198$51,657Net cash used in investing activities(3,112)(5,218)(48,161)Net cash used in by financing activities——— There is no VIE where the Sogou Group has a variable interest but is not the primary beneficiary. Summary of VIE Agreements Currently in Effect Agreements between Sogou Technology and Nominee Shareholders of Sogou Information Loan and share pledge agreements between Sogou Technology and the shareholders of Sogou Information. The loan agreement provides for a loanto Xiaochuan Wang, who holds 10% of the equity interest in Sogou Information, to be used by him to make contributions to the registered capital of SogouInformation in exchange for his equity interest in Sogou Information. The loan is interest free and is repayable on demand, but Mr. Wang may repay the loanonly by transferring to Sogou Technology his equity interest in Sogou Information. Under the pledge agreement, all of the shareholders of Sogou Informationpledge their equity interests to Sogou Technology to secure the performance of their obligations under certain VIE agreements. If any shareholder of SogouInformation breaches any of his or its obligations under any VIE agreements, Sogou Technology is entitled to exercise its rights as the beneficiary under theshare pledge agreement. The share pledge agreement terminates only after all of the obligations of the shareholders under the VIE agreements are no longerin effect. F-40Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Equity interest purchase rights agreement between Sogou Technology, Sogou Information, and the shareholders of Sogou Information. Pursuant tothis agreement, Sogou Technology and any third party designated by it have the right, exercisable at any time when it becomes legal to do so under PRC law,to purchase from the shareholders of Sogou Information all or any part of their equity interests at the lowest purchase price permissible under PRC law. Business operation agreement among Sogou Technology, Sogou Information, and the shareholders of Sogou Information. The agreement sets forththe right of Sogou Technology to control the actions of the shareholders of Sogou Information in their capacities as such and to control the actions of SogouInformation. The agreement has a term of 10 years and is renewable at the request of Sogou Technology. Powers of attorney executed by the shareholders of Sogou Information in favor of Sogou Technology with a term of 10 years that is extendable atthe request of Sogou Technology. These powers of attorney give Sogou Technology the right to appoint nominees to act on behalf of each of the three SogouInformation shareholders in connection with all actions to be taken by Sogou Information. Business Arrangements between Sogou Technology and Sogou Information Technology consulting and service agreement between Sogou Technology and Sogou Information. Pursuant to this agreement Sogou Technologyhas the exclusive right to provide technical consultation and other related services to Sogou Information in exchange for a fee. The agreement has a term of10 years and is renewable at the request of Sogou Technology. c. Risks in Relation to the VIE Structure It is possible that the Sogou Group’s conduct of certain of its operations and businesses through its VIEs could be found by PRC authorities to be inviolation of PRC law and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. If such afinding were made by PRC authorities, regulatory authorities with jurisdiction over the licensing and operation of such operations and businesses wouldhave broad discretion in dealing with such a violation, including levying fines, confiscating the Sogou Group’s income, revoking the business or operatinglicenses of the affected businesses, requiring the Sogou Group to restructure its ownership structure or operations, or requiring the Sogou Group todiscontinue all or any portion of its operations. Any of these actions could cause significant disruption to the Sogou Group’s business operations, and have asevere adverse impact on the Sogou Group’s cash flows, financial position, and operating performance. The Sogou Group’s management considers thepossibility of such a finding by PRC regulatory authorities under current law and regulations to be remote. In addition, it is possible that the contracts among Sogou Technology, Sogou Information, and the nominee shareholders of Sogou Informationwould not be enforceable in China if PRC government authorities or courts were to find that such contracts contravene PRC laws and regulations or areotherwise not enforceable for public policy reasons. In the event that the Sogou Group was unable to enforce these contractual arrangements, the SogouGroup would not be able to exert effective control over the its VIEs. Consequently, the VIEs’ results of operations, assets and liabilities would not beincluded in the Sogou Group’s consolidated financial statements. If such were the case, the Sogou Group’s cash flows, financial position, and operatingperformance would be materially adversely affected. The Sogou Group’s contractual arrangements Sogou Technology, Sogou Information, and the nomineeshareholders of Sogou Information are approved and in place. Management believes that such contracts are enforceable, and considers the possibility remotethat PRC regulatory authorities with jurisdiction over the Sogou Group’s operations and contractual relationships would find the contracts to beunenforceable. The Sogou Group’s operations and businesses rely on the operations and businesses of its VIEs, which hold certain recognized and unrecognizedrevenue-producing assets. The recognized revenue-producing assets include goodwill and intangible assets acquired through business acquisitions. Goodwillprimarily represents the expected synergies from combining an acquired business with the Sogou Group. Intangible assets acquired through businessacquisitions mainly consist of copyrights, domain names and trademarks, and developed technologies. Unrecognized revenue-producing assets held by theVIEs include certain licenses for the provision of content over the Internet and other licenses, patents, trademarks, copyrights, domain names, and tradesecrets. The VIEs also have an assembled workforce, focused primarily on research and development, whose costs are expensed as incurred. The SogouGroup’s operations and businesses may be adversely impacted if the Sogou Group loses the ability to use and enjoy assets held by its VIEs. F-41Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 23. PROFIT APPROPRIATION The Company’s China-based subsidiaries and VIEs are required to make appropriations to certain non-distributable reserve funds. Under the China Foreign Investment Enterprises laws, those of the Company’s China-based subsidiaries that are considered under PRC law to beWFOEs are required to make appropriations from their after-tax profit as determined under generally accepted accounting principles in the PRC (the “after-tax-profit under PRC GAAP”) to non-distributable reserve funds, including (i) a general reserve fund, (ii) an enterprise expansion fund, and (iii) a staff bonusand welfare fund. Each year, at least 10% of the after-tax-profit under PRC GAAP is required to be set aside as a general reserve fund until such appropriationsfor the fund equal 50% of the registered capital of the applicable entity. The appropriation for the other two reserve funds is at the Company’s discretion asdetermined by the Board of Directors of each entity. Pursuant to the China Company Laws, those of the Company’s China-based subsidiaries that are considered under PRC law to be domesticallyfunded enterprises, as well as the Company’s VIEs, are required to make appropriations from their after-tax-profit under PRC GAAP to non-distributablereserve funds, including a statutory surplus fund and a discretionary surplus fund. Each year, at least 10% of the after-tax-profit under PRC GAAP is requiredto be set aside as statutory surplus fund until such appropriations for the fund equal 50% of the registered capital of the applicable entity. The appropriationfor the discretionary surplus fund is at the Company’s discretion as determined by the Board of Directors of each entity. Upon certain regulatory approvals and subject to certain limitations, the general reserve fund and the statutory surplus fund can be used to offsetprior year losses, if any, and can be converted into paid-in capital of the applicable entity. For the years ended December 31, 2016, 2017 and 2018, the total amount of profits contributed to these funds by the Sogou Group was US$4,592,US$4,619, and US$2,662, respectively. As of December 31, 2017 and 2018, the total balance of profits contributed to these funds by the Sogou Group wasUS$21,143 and US$23,805, respectively. As a result of these and other restrictions under PRC laws and regulations, the Company’s China-based subsidiaries and VIEs are restricted in theirability to transfer a portion of their net assets in the form of non-distributable reserve funds to the Company in the form of dividends, loans, or advances. Eventhough the Company currently does not require any such dividends, loans, or advances from its China-based subsidiaries and VIEs for working capital andother funding purposes, the Company may in the future require additional cash resources from its China-based subsidiaries and VIEs due to changes inbusiness conditions, to fund future acquisitions and development, or to declare and pay dividends to or make distributions to its shareholders. 24. RESTRICTED NET ASSETS Relevant PRC law and regulations permit payment of dividends by PRC-based operating entities only out of their retained earnings, if any, asdetermined in accordance with PRC accounting standards and regulations. In addition, a PRC-based operating entity is required to annually appropriate 10%of net after-tax income to the statutory surplus reserve fund prior to payment of any dividends, unless the amount of the reserve fund has reached 50% of theentity’s registered capital. As a result of these and other restrictions under PRC law and regulations, PRC-based operating entities are restricted in their abilityto transfer a portion of their net assets to the Company in the form of dividends, loans or advances. Even though the Company currently does not require anysuch dividends, loans or advances from PRC-based operating entities for working capital and other funding purposes, the Company may in the future requireadditional cash resources from PRC-based operating entities due to changes in business conditions, to fund future acquisitions and development, or todeclare and pay dividends to its shareholders. The balance of restricted net assets was $66,970, or 6.7% of the Company’s total consolidated net assets as ofDecember 31, 2018. 25. SUBSEQUENT EVENTS The Company performed an evaluation of subsequent events through March 28, 2019, which is the date the financial statements were issued, anddid not identify any material events or transactions that would require adjustment to or disclosure in the financial statements. F-42Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 4.17 [Tencent logo]Cooperation Agreement between Weixin Official Platform and Sogou Search English Translation Cooperation Agreement between Weixin Official Platform and Sogou Search Agreement No.: [19-SD-10584] Party A: Shenzhen Tencent Computer Systems Co., Ltd.Contact person:Mailing address:Tel:Email: Party B: Beijing Sogou Information Service Co., Ltd.Contact person:Mailing address:Tel:E-mail: Whereas: 1. Party A, Party B and their relevant affiliates entered into a Business Development and Resource Sharing Agreement on September 16, 2013, whereby theparties entered into a strategic cooperation; 2. Party B desires to use public data on Party A’s Weixin official platform to provide search services, and both parties have negotiated their intentions inrespect of such cooperation; 3. Party A and Party B signed No. 14-SGO-04344, No. 15-SD-10681, No. 17-SD-10269, and No. 17-SD-00731 Cooperation Agreements between WeixinOfficial Platform and Sogou Search (the “Original Agreements”) in May 2014 and November 2015 and on March 21, 2017 and September 15, 2017respectively. NOW THEREFORE, in order to specify the terms of the cooperation, establish data usage specifications, and safeguard the legitimate rights and interests ofWeixin official platform users, Party A and Party B hereby enter into the following cooperation agreement in line with the principle of equality and mutualbenefits and win-win cooperation: 1Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Chapter I Definitions and Interpretations I. Definitions Unless otherwise defined in this Agreement, the following terms shall have the following specific meanings: 1. Chinese Law: Referring to any laws, rules, regulations, judicial interpretations and other legal norms currently in force and promulgated and implemented in the future injurisdictions of mainland China. 2. Official Platform Data and Contents: Referring to the public contents on Party A’s Weixin official platform, including but not limited to public registration information of official platformsubscription accounts and service account operators, and all information publicly distributed by official platform subscription accounts and service accountoperators through Weixin official platform (different from point-to-point information and region or subscriber specific information), the specific scope ofcontents of which shall be subject to the assessment and determination by Party A according to law. 3. Sogou Search Services: Referring to such search services as content retrieval and result response on Sogou search engines, including PC end (www.sogou.com, www.soso.com) andwireless end (including Sogou, Soso mobile web search and Sogou search app client), based on Official Platform Data and Contents. 4. Trade Secrets: Referring to the technical, financial, commercial and other information owned by either party hereto and/or its subsidiaries or affiliated companies andtreated by such party as trade secrets, which have the following characteristics: (a) Unknown to the public; (b) Able to bring economic benefits to the right owner; (c) Being practical; and (d) Treated by the right owner as secrets and appropriate protective measures having been taken for it. 2Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 5. Force Majeure: Referring to earthquake, typhoon, fire, flood, war, strike, riot, hacker attack, operator technical failure or change of policy or any other natural or man-madedisaster occurred during the term of this Agreement, which is unpredictable (or the occurrence or consequences of which is inevitable even thoughpredictable) and beyond the control of either party and renders the full performance by either party of this Agreement impossible. 6. Official Platform Source Pages: The source pages (currently bearing a domain suffix of weixin.qq.com) under Weixin official platform, or other pages designated by Weixin official platform. II. Interpretations 1. Unless explicitly indicated as working days, the term “day” mentioned herein refers to calendar day. 2. The headings contained in this Agreement are for reference purposes only, and shall not affect the meaning or interpretation of any part of this Agreement. 3. As the context requires, the plural shall include the singular and vice versa. 4. A reference to a chapter, clause and paragraph shall be a reference to a chapter, clause and paragraph of this Agreement. Chapter II Representations and Warranties III. Legal Status Each party represents and warrants that, from the signing date of this Agreement: 1. It is qualified to engage in the transaction hereunder, and such transaction complies with its business scope; 2. It has full power to enter into this Agreement and to perform its obligations hereunder; 3. Its authorized representative has sufficient authority to sign this Agreement on its behalf. IV. Legal Force 1. From the effective date, this Agreement shall be legally binding upon both parties. 2. Each party warrants that its execution and performance of this Agreement and the business transactions carried out pursuant to this Agreement will notviolate any Chinese Law. 3Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Chapter III Cooperation Contents, and Rights and Obligations of the Parties V. Cooperation Contents and Scope 1. During the term of this Agreement, Party A and Party B will cooperate, based on Official Platform Data and Contents, in providing users in mainlandChina (excluding Hong Kong, Macao and Taiwan) with Sogou Search Services. Except for Official Platform Data and Contents (limited to data providedby Party A) prescribed herein, Sogou shall not grab, acquire or use other contents involving Weixin or Weixin official platform in any way includingthrough a Spider program or through any third party channels. 2. During the term of this Agreement, in the form of inventory plus regular increment , Party A will provide Party B with Official Platform Data andContents within mainland China (excluding Hong Kong, Macao and Taiwan) and provide users in mainland China (excluding Hong Kong, Macao andTaiwan) with Sogou Search Services based on the foregoing data. In this Agreement, Incremental Package includes all the articles and contents of theofficial platform subscription accounts provided by Party A to Party B within mainland China (excluding Hong Kong, Macao and Taiwan) from time totime, unless Party A believes that it is inappropriate to provide pursuant to the applicable laws or regulations or relevant agreements. The specific formin which the service will be displayed and the product scheme of Party B shall be used and put online only after they are confirmed by Party A in writing(including by email). If any technical issues occur to Official Platform Data and Contents, Party A shall provide technical support to fix the issues orprovide a fixing proposal. Party A’s technical supporting team is listed as follows: Contact person: , contact information: . Party B’s technicalsupporting team is listed as follows: Contact person: , contact information: . One Party shall immediately inform the other Party, if any changes tothe technical team Contact person. 3. Party A shall furnish the publishing time of Weixin articles and recommended scores of the related articles based on the data regarding thumbs-ups,comments, originality, account followers etc. to Party B, and help Party B optimize the search results. Party A’s recommendation data is confidential,and Party B shall not abuse those recommendation data out of the scope of this Agreement or make it public or disclose to any third parties withoutParty A’s prior written consent. 4. During the term of this Agreement, in addition to the cooperation prescribed in this Agreement, Party B will also promote Party A’s official platformproducts in a manner agreed by the parties by utilizing Party B’s own user platforms and flow resources. 5. During the term of this Agreement, Party B shall, according to Party A’s requirements, provide related popular search words, hit rate, classification,search volume, click rate and other related data of search services based on Official Platform Data and Contents for Party A to manage user operation andimprove user experience. Except for the Official Platform Data and Contents searched on Weixin app client pages, the Official Platform Data andContents search services provided by Party B shall not provide and display to users the reading volume, “like” quantity and other related data. Party Ashall keep the above data confidential, and without the prior written consent of Party B, Party A shall not publish, provide or reveal the above data toany third party. In addition, Party B shall take reasonable and effective technical measures to ensure the security of Official Platform Data and Contentsprovided by Party A, including but not limited to measures to prevent any third party from grabbing, acquiring and using official platform data in PartyB’s products by artificial or technical means, and Party A shall be entitled to limit, suspend, partially or entirely terminate the provision of officialplatform data hereunder. 4Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 6. During the term of this Agreement, as to default search results, Party B will display the top 100 official platform data search results for viewing. If theuser needs to view more search results, the user shall log in with the applicable account. In such a strategy restricting unlogged users of Party B’sproducts from viewing official platform data search results and similar strategies displaying varied search results by logging status, user level and otherstandards, unless with the written consent of Party A, Party B shall only offer the Weixin authorized logging, and logging in through third-partyauthorization shall be prohibited. 7. Party A authorizes Party B to provide Sogou Search Services in respect of Official Platform Data and Contents only in mainland China (excluding HongKong, Macao and Taiwan) and for noncommercial purposes. The explicit prior written consent of Party A is required if Party B needs to use OfficialPlatform Data and Contents in any other territory, in any other form or for commercial purposes. 8. Neither party is required to pay to the other party or any third party any fees in respect of the cooperation hereunder. 9. Without the consent of Party A, Party B shall not, itself or assist any third party to, develop or put online any ranking lists or influence lists or otherranking products or functions of any Weixin official account or its articles and other information and contents, and shall not use the data, informationand contents acquired from the cooperation hereunder to realize such products or functions. 10. Without the consent of Party A, Party B shall not provide subscription systems independent from Weixin official platform (i.e., users may not subscribeor collect data or contents of Weixin official platform through any platform other than Weixin official platform), and shall not use or use in a disguisedway data or contents of Weixin official platform to provide any product or service that is the same as or similar to Weixin official platform products,functions or interfaces. Party B also undertakes not to, and not to assist any third party to, put online such functions. VI. Rights and Obligations of the Parties 1. Each party confirms that the documents it provides to the other party (including but not limited to business registration, tax registration and othercommercial documents) are true and free from misrepresentation or fraud. 5Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 2. Party A warrants that it has the power to provide Party B with Official Platform Data and Contents according to this Agreement, and to provide OfficialPlatform Data and Contents and updates thereof according to cooperation needs. Party A shall also use reasonable commercial efforts to make sure thatdata information is timely provided to Party B. 3. Party A shall use reasonable commercial efforts to make sure the data interfaces and data fields it provides meet the invocation timeliness and qualityrequirements as agreed upon by the parties. 4. When using Official Platform Data and Contents, Party B shall indicate that they are sourced from Party A. Party B is obliged to correctly andcompletely indicate the data source to be Party A and mark “services provided by Party A”, and such use of Party A’s product name shall be confirmedby Party A in writing. 5. The Official Platform Data and Contents hereunder are for use by Party B in Sogou Search Services only, and without the written permission of Party A,Party B shall not use the related data and contents for any form of sales and commercial utilization other than the purposes prescribed hereby (includingbut not limited to bidding rank, media stream and recommendation, except for the home page of Sogou Weixin search.), or reveal, provide or permit anythird party to use the same in any way. 6. Party B may exhibit Weixin official platform Data and Contents solely in the manner of Weixin Official Platform Source Pages. Without Party A’swritten consent, Party B shall not arbitrarily alter official platform Data and Contents provided by Party A, or display the information content of WeChatofficial platform in any way other than the source pages of WeChat official platform, including but not limited to arbitrarily editing, sorting, alter ortampering Weixin official platform data and content, or exhibit the same in a way other than the typesetting style approved. 7. Party B’s display of plugins or functions auxiliary to Official Platform Source Pages, including link to home page (profile) of Weixin official account,link to Weixin advertisement system, and comment function, must be linked to their source pages, rather than displaying them in any form other thanWeixin Official Platform Source Pages, and Party B shall not shelter, insert in, or hinder by pop-up windows in any form any auxiliary plugins orfunctions. When any user of Party B logs into his Weixin account, his browsing and reading of Weixin official platform information and contents,number of “likes” given and other recording data shall be synchronized with Party A in a way prescribed by Party A. Party B shall make sure such usercan normally use “like”, comment and other plugins and functions that are provided by Party A and auxiliary to source pages. 8. When exhibiting official platform data, Party B shall guide and instruct its users to follow the Weixin official account that releases such content, andsuch guidance and instruction shall be obvious, accurate, effective and clear. 9. During the performance of this Agreement, Party B shall take safe, effective and rigorous measures to prevent any third party other than parties heretofrom grabbing, intercepting, acquiring and using official platform data in any way including but not limited to a Spider program. Party A may requireParty B to immediately clean up, rectify or effectively upgrade the prevention measure, if Party A is aware of any third party violation. Party B shallactively cooperate with Party A to take corresponding measures. Party B shall make response within 24 hours after receiving Party A’s written notice andupdate Party A the processing status every 48 hours in writing during the handling process. Party A has the right to investigate Party B’s liability forbreach of contract in accordance with this Agreement, if Party B fails to complete the aforesaid clean-up work with the time frame confirmed by bothparties through negotiation or fails to meet the clean-up requirements determined by both parties. 6Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10. During the performance of this Agreement, Party B may not set up any subscription systems independent from Weixin official platform based on WeixinOfficial Platform Data and Contents. 11. The written consent (including email, Weixin, or QQ discussion group of personnel designated by the parties) from Party A shall be obtained before thename of any product or service relating to Party A (including but not limited to Weixin) as prepared or edited by Party B is put online. 12. Without the approval and consent of Party A, Party B shall not itself use or authorize any third party to use “Weixin”, “official account”, “officialplatform” and other terms or expressions in connection with Weixin or Weixin official platform in the name of any existing or future function,application or product. If any existing or future function, application or product of Party B uses any official platform data, the name of which shall besubmitted to Party A for examination beforehand, without the approval and consent of Party A, Party B shall not itself use or authorize any third party touse such names. For purposes of this clause, the examination period of Party A will be 5 working days. The failure of Party A to give a reply during theexamination period shall be deemed as a rejection. 13. Party B shall immediately rectify its products and services (including but not limited to “Weixin headlines”) which have been put online in accordancewith the rights, obligations and cooperation terms prescribed hereby. If Party B fails to complete the rectification within the time limit specified by PartyA, then Party A shall be entitled to claim for liability for breach of contract according to this Agreement. Moreover, during the rectification period, PartyA has the right to suspend providing data to Party B and to request Party B to delete the existing data. Chapter IV Operations and Security Strategies VII. Operation Specifications During the term of this Agreement, Party B shall comply with the provisions of Weixin official platform operation rules, including Weixin Official PlatformService Agreement, Weixin Official Platform Operation Specifications, Tencent Service Agreement, Software Licensing and Service Agreement of TencentWeixin and related specific rules. The related rules are published by Party A on relevant webpages and will be updated according to statutory requirementsand operational needs. When any update requires any business adjustment by Party B, Party A shall inform Party B of such in advance. 7Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. VIII. Security Strategy Synchronization 1. The cooperation hereunder involves Party A’s product operation and backstage security strategies. Party A owns the operation and management powerover Official Platform Data and Contents, and the provision, use and strategic adjustment of such data and contents shall be subject to the confirmationof Party A. Party B shall cooperate with Party A in real-time synchronization as notified by Party A (including but not limited to governmentsupervision requirements, and complaint handling), and make sure the Official Platform Data and Contents strategies are at all times consistent withthose of Party A. Any content confirmed by Party A to be deleted shall be synchronized by Party B at the same time and kept from exhibition in any way(including snapshot). In addition, Party B shall inform Party A of its strategies in real time. 2. The parties shall establish a security strategy coordination mechanism, and determine security strategies for official account data and contents accordingto requirements of Party A. IX. Complaint & Crisis Management 1. Each party shall take responsibility for and clarify system failure or information delay caused by its own reasons. In the event of informationtransmission delay caused by basic communication platforms of operators, or business breakdown or service cessation caused by change of state laws,regulations, policies or adjustment of operators’ policies, which give rise to consumer complaint against Party A, or business breakdown or servicecessation caused by technical failure in the process of information transmission, change of state laws, regulations, policies or adjustment of operators’policies, either party shall immediately inform the other party so that the parties can handle the same together. 2. Party A has the right to deal with Official Platform Data and Contents that involve violation of state laws or regulations or infringe upon legitimaterights and interests of others according to government requirements, user complaint and other reasons and to timely inform Party B for synchronoushandling, to which Party B shall provide active cooperation and assistance as required by Party A and ensure consistent handling strategies and results. 3. Party B shall be responsible for handling and clarification of user complaint, punishment imposed by operators or other investigation by governmentagencies due to reasons caused by Party B. Party A shall be responsible for handling and clarification of user complaint, punishment imposed byoperators or other investigation by government agencies due to reasons caused by Party A. In addition, each party shall be liable for compensation forthe loss incurred therefrom in accordance with the principles above prescribed. 4. Party B shall provide open, explicit and effective complaint handling channels and mechanisms, and shall be responsible for operational liabilitiescaused by its slackness in handling (within 12 hours after the receipt of a notice from Party A) complaints and other problems. 8Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Chapter V User Privacy Protection X. User Privacy Protection 1. The parties hereof shall fully respect and protect user privacy security, and shall not disclose nonpublic information of users without the permission ofusers. Relevant data information shall only be used for Sogou Search Services expressly stipulated herein and shall not be used for any other purposes. 2. Party B shall ensure that privacy protection systems and procedures which are as robust as those of Party A shall be developed in respect of the use ofrelevant information, so as to ensure that the user privacy information can be effectively protected. Chapter VI Intellectual Property Protection XI. Intellectual Property Protection 1. Neither party may use any trademark and logo owned by the other party during the cooperation in this Agreement for any purpose other than those inthis Agreement; other use for the purpose of this Agreement other than for the explicit cooperation hereunder must be subject to the prior consent of theright owner. 2. Party B shall use the intellectual property logo and relevant information of the relevant data information for the cooperation hereunder and incompliance with relevant laws and regulations and agreement between the parties, and shall not modify, shield, delete or otherwise change or un-exhibitrelevant logos at will. 3. If either party discovers that any third party infringes the intellectual properties or other lawful rights and interests of the cooperation products, it shallpromptly notify the other party, and take measures to claim against the infringer. 4. Party A shall own the intellectual properties of Weixin Public Platform and related functions, contents and names according to law. In any case, theintellectual properties owned by Party A shall not be transferred in any form. Any intellectual property of the contents generated from the use of WeixinPublic Platform services by a user shall belong to such user or relevant right owner, and Party B shall not infringe the legitimate intellectual properties ofthe user or relevant right owner. 5. The Parties and their staff undertake that they shall not disparage or otherwise damage the trademark, company name and domain name owned by theother party, nor disparage, copy, distort, destroy or otherwise damage the internet webpage or website of the other party. 6. This Article shall survive the termination of the term of this Agreement or termination of relevant agreements. 9Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Chapter VII Confidentiality Obligation XII. General Obligations. 1. The commercial, marketing, technical, business or other material of either party (“Disclosing Party”) that has been or will be disclosed to the other party(“Receiving Party”) before the date of this Agreement and during the term of this Agreement was either designated as confidential information (or similarmark) at the time of disclosure, or disclosed in a confidential circumstance, or commercially reasonably determined by the parties to be confidentialinformation (“Confidential Information”). During the term of this Agreement and three (3) years thereafter, the Receiving Party must: (A) keepConfidential Information confidential; (B) not use Confidential Information for purposes other than the purposes specified in this Agreement; and(C) not disclose to any other person other than employees of such party (or employees of its affiliates, lawyer, accountant or other consultants) on a need-to-know basis for the performance of their duties; provided that the above person shall sign a written confidentiality agreement in which the degree ofconfidentiality obligation shall not be lower than that of this Article. 2. The obligation stipulated in the preceding Article does not apply to the following information: (A) information that is in the public domain at the time ofdisclosure or becomes part of the public domain after disclosure, other than as a result of the breach of the confidentiality obligation by the ReceivingParty; (B) information that is in the possession of the Receiving Party at the time of disclosure and to which the Receiving Party bears no confidentialityobligation; (C) information obtained by the Receiving Party from a source other than the Disclosing Party through no breach of this Agreement;(D) information provided by the Disclosing Party to a third party without being subject to any confidentiality obligation; or (E) informationindependently developed by the Receiving Party without using any information disclosed by the Disclosing Party. 3. Upon expiration or termination of this Agreement, or upon request of the Disclosing Party at any time, the Receiving Party shall: (A) return to the otherparty (or destroy, upon request of the other party) all materials and data containing Confidential Information of the other party, and (B) within ten(10) days after request of the other party, assure to the other party in writing that the above materials have been returned or destroyed. XIII. Disclosure of Trade Secret The disclosure of any Trade Secret by either party under any of the following circumstances shall not be deemed as a breach of this Agreement: Such information is disclosed with the prior written consent of the other party, and disclosed by a party according to the requirement of law to which it issubject, provided that the disclosing party shall inform the other party in writing in advance of the exact nature of the Trade Secret to be disclosed. 10Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. XIV. Publicity and Statement Any intended publicity of any press release, announcement, statement or advertisement of any event in connection with this Agreement or arising from thisAgreement (including but not limited to the cooperation relationship between the parties) or promotion of such event shall be submitted to the other party forreview and shall be subject to the prior written consent of the other party, but the other party shall not unreasonably withhold or delay such consent.Notwithstanding the foregoing provisions, either party may: (A) subject to the compliance with confidentiality provisions, disclose this Agreement andrelevant contents to its shareholders, directors, officers, employees, lawyers, accountants and other professionals, or (B) disclose this Agreement and relevantcontents according to the requirements of the securities laws or other relevant laws of its jurisdiction. Chapter VIII Breach of the Agreement XV. Liability for Breach of Contract 1. Either party which breaches any obligation stipulated herein shall bear liability for breach of contract, and indemnify the other party for all lossessuffered by the other party therefrom. 2. If both parties have fault, the parties shall respectively bear their own liability according to the degree of their respective fault for breach of contract. 3. If Party B breaches this Agreement, Party A shall be entitled to require Party B to modify, rectify, adjust or cease its products or services, and shall beentitled to suspend or terminate the call and push of data content on public platform according to the degree of breach until termination of thecooperation hereunder. 4. If Party B uses any data on public platform in violation of laws and regulations or this Agreement, which causes any loss to a third party, Party B shallpromptly clarify and apologize on public media with nationwide influence, and indemnify such third party for the losses suffered by it; where Party Bfails to perform this Article, Party A shall be entitled to claim against Party B all expenses incurred by Party A for the settlement, litigation, mediation,arbitration and other dispute resolutions, such as attorney fee, investigation expenses, court costs, arbitration expenses, damages, and compensations. Chapter IX Taxation XVI. General Requirements Either party shall pay its own taxes according to the provisions of Chinese Law. Chapter X Term and Termination XVII. Term This Agreement shall come into force conditioned upon being affixed stamps by the parties. The term of this Agreement commences from March 1, 2019 andexpires till Feb.29, 2020. The parties have the intention of long-term cooperation, and after the expiration of this Agreement Party B has the right to renewthis Agreement under the same conditions with written notice in one month prior to the expiry date . 11Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. XVIII. Termination This Agreement shall be immediately terminated upon the occurrence of any of the following circumstance: 1. Either party declares bankruptcy or enters into procedures for liquidation or dissolution. 2. If either party breaches this Agreement, which causes this Agreement to be unable to be performed continually, or the continued performance cannotachieve the purpose of this Agreement, or such breach has infringed the lawful rights and interests of the other party, the other party shall give a 5working days’ prior written notice to such party to terminate this Agreement; otherwise, either party may reserve the right of recourse. 3. In case of new provisions, the parties may sign a supplementary agreement through friendly negotiation, which shall have equal legal effect with thisAgreement. 4. If, during the term of this Agreement, the conclusion or performance basis of this Agreement is fundamentally changed due to the issuance of newrules under state laws, regulations, relevant state departments and telecom operators or the change of policy environment, either party may notify theother party to modify the original agreement through negotiation. If the negotiation fails, either party may terminate this Agreement by giving a 5working days’ prior written notice to the other party, and shall not bear any liability. XIX. Matters after Termination 1. The termination of this Agreement shall not affect the outstanding settlement hereunder or the payment obligation and other obligations or rights ofeither party accrued before the termination. 2. Notwithstanding the termination of this Agreement, Chapter V and the obligations stipulated therein shall continue to have binding force upon theparties. 3. Upon termination of this Agreement, Party B shall cease acquiring data and content from Party A’s public platform within the period required by Party A,and delete existing contents according to the requirement of Party A. Chapter XI Governing Law and Dispute Resolution XX. Law The signing, effectiveness, interpretation and enforcement of this Agreement and resolution of dispute hereunder shall be governed by the laws of thePeople’s Republic of China. 12Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. XXI. Negotiation and Mediation Any dispute arising from this Agreement shall be settled through friendly negotiation between the parties; if negotiation fails, either party may file a lawsuitbefore the People’s Court of Nanshan District, Shenzhen at the domicile of Party A. Chapter XII Supplementary Provisions XXII. Waiver No failure by a party to exercise or timely exercise any right, power or priority under this Agreement shall operate as a waiver of that right, power or priority,nor shall any single or partial exercise of any right, power or priority prevent the future exercise of any right, power or priority. XXIII. Modification This agreement shall not be modified unless by a written agreement signed by the parties. XXIV. Entire Agreement This Agreement constitutes the entire agreement between the parties and supersedes all previous discussions, negotiations and agreements. XXV. Successors This Agreement shall bind upon and inure to the benefit of the parties and their respective lawful successors and assigns. XXVI. Force Majeure 1. In case of Force Majeure, the performance of obligations of the parties hereunder will be suspended within the affected scope and duration of ForceMajeure. Neither party shall bear any liability therefrom. 2. Either party which claims to suffer Force Majeure shall notify the other party no later than 5 working days after the occurrence of Force Majeure, andsubsequently a written certification with respect to Force Majeure confirmed by relevant authorities, and shall minimize the impact of Force Majeure tothe extent possible. 13Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 3. In case of Force Majeure, the parties shall immediately discuss the problem resolution plans. If Force Majeure lasts for more than thirty (30) days, and hasa material adverse impact on the performance of this Agreement, either party may terminate this Agreement. XXVII. Assignment Without the prior written consent of the other party, neither party may assign this Agreement or its rights and obligations hereunder to any third party in partor in whole. XXVIII. Notice Any notice or other communications sent according to this Agreement shall be in writing (including email), and sent to the following address of the parties(including email address) or other address and/or email address subsequently notified by a party to the other party in writing: If to Party A: Address: Email address: If to Party B: Address:Email address: XXIX: Miscellaneous 1. This Agreement shall be made in two counterparts in Chinese with each party holding one. Such two counterparts shall have the same legal effect. 2. Any matter not mentioned herein shall be subject to the provisions of Chinese Law. 3. Appendixes hereto are integral part of this Agreement. In case of any conflict between the appendixes and this Agreement, this Agreement shall prevail.Any matter not referred to herein shall be subject to the appendixes hereto and the separate written agreements between the parties. [Remainder of this page intentionally left blank] 14Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Signed by: Party A (Seal): Shenzhen Tencent Computer Systems Co., Ltd.Party B (Seal): Beijing Sogou Information Service Co., Ltd. Authorized Representative:Authorized Representative: Date :Date: 15Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 4.18A English Translation Supplemental Agreement to the Amended and Restated Business Development and Resource Sharing Agreement This Supplemental Agreement to the Amended and Restated Business Development and Resource Sharing Agreement (“Supplemental Agreement”) is madeby the following parties on September 20, 2018: (1) Shenzhen Tencent Computer Systems Co., Ltd., a corporation duly established and valid existing under the laws of the People’s Republic of China,with its legal address at 5/F-10/F, FIYTA Building, High-tech South 1st Road, Hi-tech Park, Nanshan District, Shenzhen (“Tencent”); (2) Sohu.com Limited, a corporation duly established and valid existing under the laws of Cayman Islands, with its legal address at PO Box 309,Ugland House, Grand Cayman, KY 1-1104, Cayman Islands (“Sohu”); (3) Sogou Inc., a corporation duly established and valid existing under the laws of the Cayman Islands, with its legal address at P.O. Box 31119 GrandPavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1-1205 Cayman Islands (“Sogou Inc.”); (4) Beijing Sogou Technology Development Co., Ltd., a corporation duly established and valid existing under the laws of the People’s Republic ofChina, with its legal address at Room 01, 9/F Sohu.com Internet Plaza, No. 1 Park Zhongguancun East Road, Haidian District, Beijing (“SogouChina”); (5) Beijing Sogou Network Technology Co., Ltd., a corporation duly established and valid existing under the laws of the People’s Republic of China,with legal address at Room 03, 10/F, Building 9, No. 1 Park Wangzhuang Road, Haidian District, Beijing (“Sogou Network”); (6) Beijing Sogou Information Service Co., Ltd., a corporation duly established and valid existing under the laws of the People’s Republic of China,with its legal address at Room 02, 9/F Sohu.com Internet Plaza, No. 1 Park Zhongguancun East Road, Haidian District, Beijing (“SogouInformation”); (7) Shenzhen Shi Ji Guang Su Information Technology Co., Ltd., a corporation duly established and valid existing under the laws of the People’sRepublic of China, with its legal address at 16/F, Tencent Building, Kejizhongyi Road, Yuehai Street, Nanshan District, Shenzhen, GuangdongProvince, China (“Shi Ji Guang Su”) The parties mentioned above shall hereinafter be referred to individually as a “Party”, and collectively as the “Parties”. In particular, SogouInc., Sogou China, Sogou Network, Sogou Information and Shi Ji Guang Su are collectively referred to as “Sogou”. Whereas, The Parties entered into the Amended and Restated Business Development and Resource Sharing Agreement (the “Agreement”) on September 25, 2017. 1Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Upon amicable consultation, the Parties amend relevant provisions of the Agreement as follows: 1. Amendment to Long-term Business Cooperation 1.1 The Parties agree that except for Clause 1(2) on the long-term business cooperation of the Agreement, the validity period of the other provisions ofClause 1 of the Agreement shall be extended to September 15th, 2023. 2. Amendment to the Strategic Principles of Business Development and Resource Sharing 2.1 Tencent and Sohu agree that from September 16, 2018 to September 15, 2023 (“Cooperation Period”) respectively, if it sets any default generalsearch engine in its products in the form of embedment or otherwise (different from on-site/in-product search engine ), such default general searchengine shall be the search engine powered by Sogou. For the purpose hereof, the Parties clarify as follows: (1) For the purpose of Clause 2.1 hereof, Tencent and Sohu will not deprive users of their rights of choosing, at their discretion, search productservices that compete with Sogou. (2) General search engine means a search engine whose search contents are from public information on various Internet websites that is available tothird-party “Spider” program or from open database on various Internet websites; on-site/in-product search engine means a search engine thatonly extracts information within the website or products (including public or non-public information) to retrieve and return results. (3) The search function inside Weixin/WeChat is not the above-mentioned “general search engine “, and is not subject to the above provision that“such default general search engine shall be the search engine powered by Sogou”. However, from September 16, 2018 to September 15, 2019,under equivalent conditions and subject to Tencent’s requirements for user experience, Sogou Search will be the preferred third-party searchfunction to power such a Weixin/WeChat search function that allows Weixin/WeChat users to access Internet information outsideWeixin/WeChat for that period, and that the arrangement herein may be extended for additional successive one-year periods throughSeptember 2023. 3. Miscellaneous 3.1 Effectiveness. This Supplemental Agreement shall become effective when the Parties hereto sign or seal on the date first written above. 3.2 Validity. This Supplemental Agreement shall become an integral part of the Agreement when it becomes effective, and shall have the same legalforce as the Agreement. If there is any discrepancy between the provisions of this Supplemental Agreement and the Agreement, this SupplementalAgreement shall prevail, and the other provisions of the Agreement shall remain fully effective. 2Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 3.3 Definition and Interpretation. Unless otherwise stated, the words used herein shall have the same meanings set forth in the Agreement. 3.4 Counterparts. This Supplemental Agreement may be made in multiple counterparts. All counterparts shall be originals when they are signed anddelivered, and together constitute the same one agreement (The remainder of this page is intentionally left blank.) 3Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. [Signature Page] IN WITNESS WHEREOF, the Parties hereto have caused this Supplemental Agreement to be executed by their respective authorized representatives on thedate and year first written above. Shenzhen Tencent Computer Systems Co., Ltd.Sohu.com Limited (Seal)(Seal) Signature:Signature: Name:Name: Title:Title: Sogou Inc.Beijing Sogou Technology Development Co., Ltd. (Seal)(Seal) Signature:Signature: Name:Name: Title:Title: Beijing Sogou Network Technology Co., Ltd.Shenzhen Shi Ji Guang Su Information Technology Co., Ltd. (Seal)(Seal) Signature:Signature: Name:Name: Title:Title: Beijing Sogou Information Service Co., Ltd. (Seal) Signature: Name: Title: Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 8.1 Subsidiaries and Consolidated Variable Interest Entities of the Registrant Wholly-Owned Subsidiaries: · Sogou (BVI) Limited, incorporated in the British Virgin Islands · Beijing Sogou Technology Development Co., Ltd., incorporated in the PRC · Sogou Hong Kong Limited, incorporated in Hong Kong · Vast Creation Advertising Media Services Limited, incorporated in Hong Kong · Beijing Sogou Network Technology Co., Ltd., incorporated in the PRC · Sogou Technology Hong Kong Limited, incorporated in Hong Kong · Tianjin Sogou Network Technology Co., Ltd., incorporated in the PRC · Sogou (Shantou) Internet Microcredit Co., Ltd., incorporated in the PRC · Sogou (Hangzhou) Intelligent Technology Co., Ltd., incorporated in the PRC · Hefei Jing Hong Yun Zhi Network Technology Co., Ltd., incorporated in the PRC · Shanghai Sogou Network Technology Co., Ltd., incorporated in the PRC Consolidated Variable Interest Entities: · Beijing Sogou Information Service Co., Ltd. incorporated in the PRC · Shenzhen Shi Ji Guang Su Information Technology Co., Ltd., incorporated in the PRC · Beijing Shi Ji Si Su Technology Co., Ltd., incorporated in the PRC · Chengdu Easypay Technology Co., Ltd., incorporated in the PRC · Hainan Sogou Information Technology Co., Ltd., incorporated in the PRC Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 12.1 I, Xiaochuan Wang, certify that: 1. I have reviewed this annual report on Form 20-F of Sogou Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for thecompany and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting. Date: March 28, 2019 By: /s/ Xiaochuan WangName: Xiaochuan WangTitle: Chief Executive Officer Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 12.2 I, Joe Zhou, certify that: 1. I have reviewed this annual report on Form 20-F of Sogou Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for thecompany and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting. Date: March 28, 2019 By: /s/ Joe ZhouName: Joe ZhouTitle: Chief Financial Officer Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 13.1 Certification Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 In connection with the Annual Report on Form 20-F of Sogou Inc. (the “Company”) for the year ended December 31, 2018 as filed with the Securitiesand Exchange Commission on the date hereof (the “Report”), I, Xiaochuan Wang, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.§1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition of the Company as of December 31, 2018and results of operations of the Company for the year ended December 31, 2018. /s/ Xiaochuan WangName:Xiaochuan WangTitle:Chief Executive Officer Date:March 28, 2019 Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 13.2 Certification Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 In connection with the Annual Report on Form 20-F of Sogou Inc. (the “Company”) for the year ended December 31, 2018 as filed with the Securitiesand Exchange Commission on the date hereof (the “Report”), I, Joe Zhou, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition of the Company as of December 31, 2018and results of operations of the Company for the year ended December 31, 2018. /s/ Joe ZhouName:Joe ZhouTitle:Chief Financial Officer Date:March 28, 2019 Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 15.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-222343) of Sogou Inc. of our report dated March 28,2019 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 20-F. /s/ PricewaterhouseCoopers Zhong Tian LLP Beijing, the People’s Republic of ChinaMarch 28, 2019 Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 15.2 March 28, 2019 Sogou Inc.Level 15, Sohu.com Internet Plaza,No. 1 Unit Zhongguancun East Road, Haidian District,Beijing 100084People’s Republic of China Re: Consent of Commerce & Finance Law Offices We hereby consent to the use of our firm name and summaries of our firm’s opinions under the headings “Risk Factors” and “Business Overview —Organizational Structure” in the annual report on Form 20-F of Sogou Inc. (the “Company”) for the Company’s fiscal year ended December 31, 2018 to befiled with the U.S. Securities and Exchange Commission (the “SEC”) on or about March 28, 2019 (the “Form 20-F”), and to the incorporation by reference inthe Company’s Registration Statement on Form S-8 (File No. 333-222343) filed with the SEC on December 29, 2017 of such references to our firm andsummaries of our firm’s opinions included under such headings. We also hereby consent to the filing of this consent letter as an exhibit to the Form 20-F. Yours sincerely, /s/ Commerce & Finance Law Offices Commerce & Finance Law Offices Source: SOGOU INC., 20-F, March 28, 2019Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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