SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-50984

eLong, Inc.

Cayman Islands

Xingke Plaza, Tower B, Third Floor
10 Middle Jiuxianqiao Road, Chaoyang District
Beijing 100015, People’s Republic of China
(Address of principal executive offices)

Guangfu Cui, Chief Executive Officer
Telephone: +(8610) 5860-2288 / Facsimile: +(8610) 6436-6019
Xingke Plaza Building, Tower B, Third Floor
10 Middle Jiuxianqiao Road, Chaoyang District
Beijing 100015, People’s Republic of China

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 two ordinary shares, par value $0.01 per ordinary share		The Nasdaq Global Market

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

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 December 31, 2009: 18,817,507 ordinary shares, par value US$0.01 per share; 28,550,704 high-vote ordinary shares, par value US$0.01 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

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 the Securities Exchange Act of 1934. Yes o No þ

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 1934 from 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 U.S. Securities Exchange Act of 1934 during 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 filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o

Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:

U.S. GAAP þ International Financial Reporting Standards as issued by 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: Item 17 o Item 18 o

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). Yes o No þ

 

 

TABLE OF CONTENTS

		Page
PART I
Item 1: Identity of Directors, Senior Management and Advisers			4
Item 2: Offer Statistics and Expected Timetable			4
Item 3: Key Information			4
Item 4: Information on the Company			20
Item 4A: Unresolved Staff Comments			31
Item 5: Operating and Financial Review and Prospects			31
Item 6: Directors, Senior Management and Employees			47
Item 7: Major Shareholders and Related Party Transactions			60
Item 8: Financial Information			70
Item 9: The Offer and Listing			70
Item 10: Additional Information			72
Item 11: Quantitative and Qualitative Disclosure About Market Risk			77
Item 12: Description of Securities other than Equity Securities			77
PART II
Item 13: Defaults, Dividend Arrearages and Delinquencies			78
Item 14: Material Modifications to the Rights of Security Holders and Use of Proceeds			78
Item 15: Controls and Procedures			79
Item 16A: Audit Committee Financial Expert			80
Item 16B: Code of Ethics			80
Item 16C: Principal Accountant Fees and Services			81
Item 16D: Exemptions from the Listing Standards for Audit Committees			81
Item 16E: Purchases of Equity Securities by the Issuer and Affiliated Purchasers			81
Item 16F: Changes in Registrant’s Certifying Accountant			81
Item 16G: Corporate Governance			82
PART III
Item 17: Financial Statements			82
Item 18: Financial Statements			82
Item 19. Exhibits			82
Exhibit 4.38
Exhibit 4.39
Exhibit 8.1
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1
Exhibit 13.2
Exhibit 15.1
Exhibit 15.2
Exhibit 15.3
Exhibit 15.4

In this annual report on Form 20-F, references to “we,” “us,” “our company,” “our” and “eLong” are to eLong, Inc., its subsidiaries, and additionally, in the context of describing our operations, our affiliated Chinese entities. References to “China” or the “PRC” are to the People’s Republic of China, excluding for the purpose of this annual report Hong Kong, Macau and Taiwan. Unless otherwise noted, references to “Expedia” are to Expedia, Inc. (Nasdaq: EXPE), and references to “Expedia Asia Pacific” are to Expedia Asia Pacific-Alpha Limited. References to “eLong Information” are to our subsidiary, eLongNet Information Technology (Beijing) Co., Ltd. With respect to our affiliated Chinese entities, “Beijing Information” refers to Beijing eLong Information Technology Co., Ltd.; “Beijing Air” refers to Beijing eLong Air Services Co., Ltd.; “Beijing Travel” refers to Beijing eLong International Travel Co., Ltd.; “Hangzhou Air” refers to Hangzhou eLong Air Service Co., Ltd.; “Beijing Xici” refers to Beijing Xici Interactive Information Technology Co. Ltd.; and “Beijing Media” refers to Beijing Asiamedia Interactive Advertising Co. Ltd.

Unless the context otherwise requires, references in this annual report to “shares” or “ordinary shares” are to our ordinary shares, par value US$0.01 per share. Such references do not cover our high-vote ordinary shares, as we refer separately to such shares using the term “high-vote ordinary shares.” References to “ADSs” are to our American depositary shares, each of which represents two ordinary shares, and references to “ADRs” are to the American depositary receipts that evidence our ADSs. References to the “Nasdaq stock market” are to the Nasdaq Global Market. References to our “articles of association” are to our Second Amended and Restated Articles of Association.

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America, or “U.S. GAAP.” Our consolidated financial statements are expressed in Renminbi, the legal currency of China. References to “RMB” are to Renminbi and references to “U.S. dollars,” “US$” or “$” are to United States dollars. Our financial year ends on December 31 of each calendar year and, unless otherwise indicated, references to any year refer to the calendar year ended December 31 of the year specified.

The “eLong” characters in Chinese as well as “eLong.com” in English are among our registered trademarks in China. This annual report also contains product and service names of companies other than eLong that are trademarks of their respective owners.

We intend to make this annual report publicly available from our Internet website (http://www.eLong.net) without charge promptly following the date of filing with the U.S. Securities and Exchange Commission (the “SEC”). None of the information contained on our websites is incorporated by reference into this annual report. We assume no obligation to update or revise any part of this annual report, whether as a result of new information, future events or otherwise, unless required to do so by applicable law.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Statements in this annual report and any exhibits thereto concerning our future business, operating results and financial condition are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,” “should” and “will” and similar expressions as they relate to our company are intended to identify such forward-looking statements, but are not the exclusive means of doing so. These forward-looking statements are based upon management’s current views and expectations with respect to future events and are not a guarantee of future performance. Furthermore, these statements are, by their nature, subject to a number of risks and uncertainties that could cause our actual performance

and results to differ materially from those discussed in the forward-looking statements. Factors that could affect our actual results and cause our actual results to differ materially from those referred in any forward-looking statement include, but are not limited to, eLong’s losses sustained in prior years, declines or disruptions in the travel industry, the international financial crisis, slowdown in the PRC economy, an outbreak of bird flu, H1N1 flu, SARS or other disease, eLong’s reliance on having good relationships with hotel suppliers and airline ticket suppliers, our reliance on the TravelSky GDS system for our air business, the possibility that eLong will be unable to continue timely compliance with Section 404 or other requirements of the Sarbanes-Oxley Act, the risk that eLong will not be successful in competing against new and existing competitors, risks associated with Expedia, Inc.’s (Nasdaq: EXPE) majority ownership interest in eLong, fluctuations in the value of the Renminbi, changes in eLong’s management team and other key personnel, changes in third-party distribution partner relationships and other risks mentioned in this annual report, including but not limited to risks and other factors mentioned in “Item 3: Key Information—Risk Factors,” “Item 4: Information on the Company—Business” and “Item 5: Operating and Financial Review and Prospects.”

You should not rely upon forward-looking statements as predictions of future events. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained in this annual report are qualified by reference to this cautionary statement.

Not applicable.

Not applicable.

You should read the following information in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report and “Item 5: Operating and Financial Review and Prospects” below.

The selected consolidated statements of operations (other than ADS data) and selected consolidated cash flow data for the years ended December 31, 2007, 2008 and 2009, and the selected consolidated balance sheet data as of December 31, 2008 and 2009, are derived from our consolidated financial statements included elsewhere in this annual report and should be read in conjunction with those consolidated financial statements and related notes. The selected consolidated statements of operations (other than ADS data) and selected consolidated cash flow data for the years ended December 31, 2005 and 2006 and the selected consolidated balance sheet data as of December 31, 2005, 2006 and 2007 are derived from our consolidated financial statements which are not included in this annual report.

Our consolidated financial statements are prepared in accordance with U.S. GAAP. Our consolidated financial statements are expressed in Renminbi, the legal currency of China. Solely for the convenience of the reader, this annual report contains translations of Renminbi amounts into U.S. dollars at specified rates. For more information regarding exchange rates, see the section entitled “Exchange Rate Information” below.

SELECTED CONSOLIDATED FINANCIAL DATA

		eLong, Inc.
		Year ended December 31,
		2005				2006				2007				2008				2009				2009
		RMB				RMB				RMB				RMB				RMB				US$
		(in thousands, except for per share data)
Selected Consolidated Statements of Operations Data
Net revenues			179,842				249,841				297,586				327,313				357,894				52,432
Gross profit			139,395				187,596				215,089				230,317				250,959				36,766
Total operating expenses			(185,624	)			(203,608	)			(229,678	)			(271,999	)			(239,712	)			(35,118	)
Income/(loss) from operations			(46,229	)			(16,012	)			(14,589	)			(41,682	)			11,247				1,648
Income/(loss) from continuing operations			(43,285	)			(444	)			(25,691	)			(76,593	)			19,903				2,916
Net income/(loss)			(60,518	)			1,040				(25,588	)			(76,593	)			19,903				2,916
Income/(loss) per share from continuing operations			(0.87	)			(0.01	)			(0.51	)			(1.54	)			0.42				0.06
Total basic income/(loss) per share			(1.22	)			0.02				(0.51	)			(1.54	)			0.42				0.06
Total diluted income/(loss) per share			(1.22	)			0.02				(0.51	)			(1.54	)			0.40				0.06
Income/(loss) per ADS from continuing operations			(1.74	)			(0.02	)			(1.02	)			(3.08	)			0.84				0.12
Total basic income/(loss) per ADS			(2.44	)			0.04				(1.02	)			(3.08	)			0.84				0.12
Total diluted income/(loss) per ADS			(2.44	)			0.04				(1.02	)			(3.08	)			0.80				0.12

		eLong, Inc.
		As of December 31,
		2005				2006				2007				2008				2009				2009
		RMB				RMB				RMB				RMB				RMB				US$
		(in thousands)
Selected Consolidated Balance Sheet Data
Cash and cash equivalents			988,560				1,199,323				1,138,447				321,541				639,468				93,683
Working capital(1)			1,013,590				1,106,345				1,079,590				898,693				938,834				137,540
Property and equipment, net			33,306				37,809				43,962				52,484				44,005				6,447
Total assets			1,188,421				1,334,908				1,331,668				1,137,964				1,183,950				173,450
Long-term obligations			2,287				980				—				477				1,186				174
Accumulated deficit			(103,097	)			(102,056	)			(127,644	)			(204,237	)			(184,334	)			(27,005	)
Shareholders’ equity			1,088,330				1,199,799				1,184,611				1,012,181				1,043,500				152,874

		eLong, Inc.
		Year ended December 31,
		2005				2006				2007				2008				2009				2009
		RMB				RMB				RMB				RMB				RMB				US$
		(in thousands)
Selected Consolidated Cash Flow Data
Net cash provided by (used in) operating activities			30,478				76,554				42,349				(14,076	)			69,014				10,111
Net cash provided by (used in) investing activities			(32,813	)			72,985				(43,638	)			(641,501	)			248,306				36,377
Net cash provided by (used in) financing activities			404,058				95,140				7,355				(98,331	)			948				139

Exchange Rate Information

We conduct substantially all of our business in China and our revenues and expenses are primarily denominated in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollar amounts at specific rates solely for the convenience of the reader. The translations of Renminbi amounts into U.S. dollar amounts are based on the noon buying rate in the City of New York for cable transfers of Renminbi as published by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from Renminbi amounts to U.S. dollar amounts and from U.S. dollar amounts to Renminbi amounts in this annual report were made at a rate of RMB6.8259 to US$1.00, the noon buying rate in effect as of December 31, 2009. The noon buying rate as of March 31, 2010 was RMB6.8258 to US$1.00. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollar or Renminbi amounts, as the case may be, at any particular rate, the rates stated herein, or at all. The Chinese government imposes controls over the conversion of Renminbi into foreign currencies. For discussion of the effects of currency control and fluctuating exchange rates on the value of our shares and ADSs, see “Item 3: Key Information—Risk Factors—Risks Related to Doing Business in the People’s Republic of China—Fluctuation in the value of the Renminbi may materially and adversely affect our financial results and the value of our company and ADSs” and “Item 3: Key Information—Risk Factors—Risks Related to Doing Business in the People’s Republic of China—Governmental control of currency conversion may affect our ability to pay dividends and the value of our ADSs.”

The table below sets forth the average noon buying rates between Renminbi and U.S. dollars for each of the years indicated, calculated by averaging the noon buying rates on the last day of each month shown.

Average Exchange Rates of Renminbi per U.S. Dollar

		Average
Year ended December 31, 2005			8.1826
Year ended December 31, 2006			7.9579
Year ended December 31, 2007			7.5806
Year ended December 31, 2008			6.9193
Year ended December 31, 2009			6.8295

The table below sets forth the high and low exchange rate between Renminbi and U.S. dollars for each of the six months from October 2009 through March 2010.

Recent Exchange Rates of Renminbi per U.S. Dollar

		High				Low
October 2009			6.8292				6.8248
November 2009			6.8300				6.8255
December 2009			6.8299				6.8244
January 2010			6.8295				6.8258
February 2010			6.8330				6.8258
March 2010			6.8270				6.8254

Risk Factors

You should carefully consider each of the following risks and uncertainties associated with our company and the ownership of our securities. You should pay particular attention to the fact that we conduct substantially all of our operations in China and are governed by a legal and regulatory environment that differs significantly from that of the United States. Additional risks not currently known to us or that we currently deem immaterial may also have an adverse impact on our business operations.

Risks Related to Our Business

We have sustained losses in the past and cannot assure you that we will be profitable in the future.

We sustained net losses in 2004, 2005, 2007 and 2008, and achieved net income in 2006 and 2009. We cannot assure you that we will be profitable during 2010 or at any time in the future.

A slow-down of, or increased volatility in, economic growth in China may adversely affect our growth and profitability.

Our financial results have been, and are expected to continue to be, significantly affected by the condition of the economy and the travel industry in China. Travel expenditures are sensitive to business and personal discretionary spending levels and tend to decline during general economic downturns. In recent years, the PRC economy has seen increased volatility, including a slowdown related to the international financial crisis during the fourth quarter 2008 and gradual recovery in the latter half of 2009 and first quarter of 2010. It is uncertain whether the recent recovery in the PRC economy will continue. In addition, the PRC economy has been affected by a number of natural disasters, including the unseasonably strong winter storms in the first quarter of 2008 and the severe Sichuan earthquake in the second quarter of 2008. We believe that demand for travel services in China will continue to be linked to the condition of the broader PRC economy in the future. We believe a slow-down of, or increased volatility in, economic growth in China is likely to reduce expenditures for travel which would have a material adverse effect on our revenues and results of operations.

Declines or disruptions in the travel industry may reduce our revenues.

Our business is affected by the condition of the travel industry in China. Adverse trends or events that tend to reduce travel and are likely to reduce our revenues include:

	•		outbreaks, or the fear of outbreaks, of H1N1 flu (swine flu), severe acute respiratory syndrome, avian flu or other diseases;
	•		travel-related accidents;
	•		unseasonable or extreme weather;
	•		natural disasters;
	•		increased prices or fees in the hotel, airline or other travel-related sectors;
	•		threats of war or threats or incidents of terrorism;
	•		general economic downturns.

As a result of any of these events, over which we have no control, our results could be severely and adversely affected.

We may not be able to compete successfully against our current or future competitors.

We face numerous sources of competition in the PRC travel marketplace, including other providers of hotel and flight reservation services, such as Ctrip, travel metasearch services such as Qunar and traditional travel agencies. We do not have exclusive arrangements with our suppliers and our business involves relatively low fixed costs. We face the threat of new competitors, as the barriers to entry in our industry are relatively low. We also face increasing competition from hotels and airlines as they increase their efforts to sell online directly to consumers, as well as from travel services which are owned and operated by PRC state-owned telecommunications companies. In addition, some of our competitors may enter into alliances, cross-shareholdings or other arrangements with certain hotel, flight or other travel service providers which may limit our ability to reach commercial arrangements with such third parties. Moreover, large state-owned companies, internet search engines, e-commerce companies and/or international travel companies may choose to enter the PRC travel market in the future, either as sole entrants or in cooperation with our existing or future competitors. Some of our current and future competitors have competitive advantages over us, including more well-known brand names, larger customer bases and greater financial, marketing and other expertise and resources. We cannot assure you that we will be able to successfully compete against our current or future competitors.

We are dependent on our ability to establish and maintain favorable arrangements with our travel suppliers, internet search engines and distribution partners.

We are dependent on continued relationships on satisfactory commercial terms with air, hotel and other travel service providers, as well as with internet search engines. In particular, the ability to contract in advance for the guaranteed availability of hotel rooms is crucial to our business. However, we do not have exclusive arrangements with our travel suppliers or with the internet search engines, and we must renew our contracts on an ongoing basis. In addition, these third party service providers may impose new or greater requirements upon us to provide guaranteed deposits, escrow funds, prepaid commissions or other preferential terms. We cannot assure you that we will be able to maintain our current relationships, establish new ones, or obtain favorable contractual terms from our service providers.

We also rely on the ability to advertise on major internet search engines in China, including Baidu and Google, which assist consumers to locate our services on the internet. We believe internet search engines will continue to be a significant channel for consumers to research travel services in the future. In March 2010, Google China announced that it would no longer maintain a web search platform in mainland China, and would instead redirect web traffic from www.google.cn to www.google.com.hk located in Hong Kong. A suspension or reduction of the operations of Baidu or Google, or our inability to advertise on these or other internet search engine in China on commercially acceptable terms, could have a material adverse affect on our growth and results of operations in the future.

We are also dependent on continued relationships and agreements with the TravelSky GDS system to which we pay fees for searches of air fares, as well as certain third-party distribution partners, such as state-owned telecommunications companies and other private label partners to which we pay a commission for hotel reservations they generate for us by transferring their customer calls and online inquiries to us. We estimate that third-party distribution partners accounted for approximately one-third of our total revenue in 2008 and approximately one-fourth of our total revenue in 2009. Our relationships with these third parties are non-exclusive, and, as a result, they may choose to directly provide travel services or to cooperate with our current or future competitors. We cannot assure you that we will be able to maintain satisfactory relationships, obtain favorable contractual terms with such distribution partners or establish new relationships with distribution partners in the future.

We must successfully promote our eLong brand in order to grow our business. We must introduce new consumers to the eLong brand and ensure high levels of service in order for the eLong brand to be associated with quality and value. If we fail to ensure high quality service and strengthen our brand recognition among our current and potential customers and business partners, our growth and operating results may be adversely affected.

eLong, Inc. is a Cayman Islands corporation, and is therefore treated as a foreign entity under applicable PRC laws and regulations. The PRC government extensively regulates Internet access, the distribution of online information, the conduct of online commerce, and the provision of travel agency services through strict licensing requirements and other regulations. These regulations include provisions limiting foreign ownership in PRC companies providing information on the Internet and other online Internet services, air ticket booking services and travel agency services. As a result, we conduct our business through contractual arrangements between our subsidiaries, including eLong Information and our affiliated Chinese entities, including Beijing Information, Beijing Air, Hangzhou Air, Beijing Travel and Beijing Xici, which hold licenses and approvals that are essential for our business operations.

We cannot assure you that PRC government authorities will not determine that our current ownership structure and these contractual arrangements are not in compliance with current or future laws and regulations. If we or any of our affiliated Chinese entities are found to be in violation of any existing or future PRC laws or regulations, the relevant governmental authorities would have broad discretion in taking action, including, without limitation:

	•		levying fines or confiscating our income or the income of our affiliated Chinese entities;
	•		revoking our business licenses or the business licenses of our affiliated Chinese entities;
	•		requiring us and/or our affiliated Chinese entities to restructure our ownership structure or operations; and
	•		requiring that we and/or our affiliated Chinese entities discontinue any or all portions of our Internet content provision, air ticketing or travel agency businesses.

Any of the above could cause significant disruptions to, and have a material adverse effect on, our operations and financial performance.

Our operations may be materially and adversely affected if we or any of our affiliated Chinese entities fails to obtain or maintain all relevant permits and approvals in the heavily regulated air ticketing, travel agency, and Internet industries.

The Chinese government extensively regulates the air ticketing and travel agency industries, as well as most Internet related activities. In order to conduct our business, we or our affiliated Chinese entities must possess and maintain valid permits or approvals from the relevant regulatory authorities. Any failure to obtain or maintain any of the required permits or approvals may subject us to various penalties, such as fines or suspension of operations in these regulated businesses, could disrupt our business operations and have a material adverse effect on our financial performance.

We are controlled by Expedia and conflicts of interest may arise between Expedia and us.

Through its beneficial ownership of 100% of our high-vote ordinary shares, as of March 31, 2010, Expedia controls approximately 96% of our voting power and has the power to control the election and appointment of our board of directors, thus we are a “controlled company” as defined in Rule 5615 of the Nasdaq Listing Rules. As a result of our ownership structure, Expedia is generally able to exercise control over all matters requiring approval by our board of directors or our shareholders. Conflicts of interest may arise between Expedia and us, including corporate opportunities, potential acquisitions or transactions as well as other matters. For example, Expedia could prevent a sale of our company or cause the removal or replacement of any or all of our board of directors or senior executive officers, even if such actions would be beneficial to our other shareholders. In addition, some of our directors may have interests in both us and in Expedia, which could cause them to have conflicts of interest.

Other than contracts for cooperation in specific areas as discussed in this annual report, Expedia is under no obligation to provide us with benefits relating to its travel related businesses. Thus we cannot assure you that we will realize any future benefits as a result of being controlled by Expedia, and we may be adversely affected by any conflicts of interest between eLong and Expedia.

We depend on our senior executives and other employees, and our business may be severely disrupted if we lose their services.

Our business operations depend on the continuing performance and service of our senior executives and other key employees. We rely on their expertise in operations, finance, technology and travel services and we depend on their relationships with suppliers and regulators. Historically, we have experienced substantial turnover at all levels of our company including our senior management. If one or more of our senior executives or other key employees are unable or unwilling to continue in their present positions, we may not be able to easily replace them, and may incur additional expenses to recruit and train replacement personnel. Moreover, if any of our senior executives joins or forms a competitor, we may lose customers and suppliers. We cannot guarantee that we will be able to successfully enforce the noncompetition provisions of our employment agreements with such senior executives or key employees.

We may not use our cash, cash equivalents, restricted cash and short-term investments effectively.

Cash, cash equivalents, restricted cash and short-term investments comprise a significant portion of our total assets. Our failure to make effective use of our cash, cash equivalents, restricted cash and short-term investments could have a material adverse effect on our financial results, operations and competitive position.

We may not be able to successfully execute future acquisitions, alliances or affiliations or to efficiently manage any acquired businesses.

A component of our business strategy is to consider acquisitions or affiliations with businesses in areas that may provide incremental revenue and support our development. Acquisitions or affiliations may subject us to risks and uncertainties. For example, acquisitions require a significant commitment of management time, capital investment and other resources. We cannot assure you that we will be successful in identifying, negotiating and completing acquisitions on commercially acceptable terms. In addition, any acquisitions that we complete may not be successfully integrated into our existing operations, and thus our operations and results may be adversely affected.

Our results may fluctuate due to seasonality in the travel industry in China.

The travel service industry in China is characterized by seasonal fluctuations and accordingly our revenues may vary from quarter to quarter. Historically, the first quarter of each year generally contributes a smaller portion of our annual revenues, due to reduced business activity during the Chinese New Year holiday. In addition, the seasonality of the PRC travel market is affected by PRC national and provincial government regulation of the calendar of public holidays, including for example, the decision by the State Council in 2008 to restructure the annual calendar of public holidays by adding a few shorter holidays and reducing the May 1st holiday from one week to three days. Our results in the future may continue to be affected by seasonal fluctuations in the use of our services by our customers and regulatory adjustments to the calendar of public holidays in China.

Our business depends on the technology infrastructure and service of third parties.

We rely on third-party computer systems and service providers, including the computerized reservation systems of hotels, airlines and third party service providers such as TravelSky as well as our distribution partners, to make reservations and confirmations, issue air tickets, make deliveries and receive payments. Third parties provide, for instance, telecommunications access lines, computer systems and software licensing, support and maintenance services and air ticket delivery. Any interruption in these or other third-party services or deterioration in their performance could impair the quality of our service. Furthermore, if our arrangements with any of these third parties are suspended, terminated, or no longer available on commercially acceptable terms we may not find an alternate source of support on a timely basis on satisfactory terms.

Our business is subject to risks associated with protection of confidential data, online payments and credit card fraud.

An increasing portion of our revenue is paid by customers using credit cards, debit cards or online payment methods. There have been and likely will continue to be attempts to use fraudulently obtained credit card or other online payment information to pay for our products and services. As fraudulent credit card and payment schemes evolve and become more sophisticated, it may become increasingly difficult and costly for us to detect, minimize and prevent such fraud, which could cause us to incur significant and unforeseen financial losses.

Our transactions are conducted through our websites or through other network and telecommunications systems. In such transactions, the maintenance and secure transmission of confidential information (such as customer itineraries, hotel and other reservation information, personal information and billing information) is essential to maintain consumer and supplier confidence. Due to rapidly advancing technology and the growing sophistication and variety of data security threats, our current security measures may not be adequate to prevent confidentiality and data breaches and to minimize any losses caused thereby. Security breaches on our own, public or third party systems, could expose us to significant losses, adverse publicity and litigation for leakage or disclosure of confidential customer or supplier information, which could harm our reputation and ability to attract and retain customers and suppliers.

We do not have comprehensive off-site backup systems or business insurance.

Our call center and substantially all of our computer and communications systems are located at our headquarters in Beijing and therefore vulnerable to damage or interruption from man-made or natural causes. Moreover, we do not have a comprehensive disaster recovery solution and do not carry business interruption insurance to compensate us for any such losses that may occur.

We depend on our systems and information infrastructure to support all aspects of our booking transactions. If we are unable to upgrade and maintain our systems, we may experience system outages, capacity constraints, system obsolescence or other unintended system disruptions which may result in slower response times, impaired customer service, delays in fulfilling customer orders and ticket deliveries, and inaccurate reporting or processing of travel information. Any of these factors or any business disruption or disaster may result in substantial costs, losses and diversion of resources, which may adversely affect our operations and results.

Our commission revenues may decrease if our hotel suppliers fail to accurately report data concerning our customer hotel stays.

A substantial majority of our revenues is currently generated through commissions received from hotels for room nights booked through us. Generally, we do not receive direct payments for hotel bookings from our customers, instead, we receive commissions from the hotels after the completion of a customer’s stay. We maintain records of customer bookings and then verify these with each hotel, generally on a monthly basis, in order to determine the commission payable to us. In addition to our records, we rely on the hotels and customers to provide us accurate information regarding customer check-in and check-out dates. If our hotel suppliers provide us with inaccurate information with respect to number or length of stays of our customers, our revenues may be adversely affected.

We may become involved in litigation regarding our intellectual property rights or our website contents.

From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of resources. In addition, third parties may initiate litigation against us for alleged infringement of their proprietary rights. In the event of a successful claim of infringement and our failure or inability to develop non-infringing technology or to obtain a license for the infringed or similar technology on a timely basis on commercially acceptable terms, our business could suffer.

Our websites contain information about hotels, flights and popular vacation destinations, and other travel-related topics. Third parties could take legal action against us for making allegedly false, inaccurate or misleading information accessible on our websites. Any claims could be expensive and time consuming to defend and divert management’s attention and resources.

Our contractual arrangements with our consolidated affiliated Chinese entities may result in adverse tax consequences to us.

As a result of our corporate structure and the contractual arrangements between eLong Information and each of our affiliated Chinese entities, we are subject to a five percent PRC business tax on revenues derived from eLong Information’s contractual arrangements with these affiliated entities, although these revenues are eliminated upon consolidation. We would be subject to adverse tax consequences if the PRC tax authorities were to determine that the contracts between eLong Information and these consolidated affiliated entities were not on an arm’s-length basis. For example, the PRC tax authorities could request that our consolidated affiliated entities adjust their taxable income upward for PRC tax purposes. Such a pricing adjustment could adversely affect us by increasing our consolidated affiliated entities’ tax expenses, which could subject our consolidated affiliated entities to interest due on late payments and other penalties for under-payment of taxes.

If our affiliated Chinese entities violate their contractual agreements with us, our business could be harmed, and we may have to resort to litigation to enforce our rights, which could be time-consuming and ineffective.

We depend substantially on our affiliated Chinese entities to conduct our operations. While we have no direct ownership interest in these entities, we have established effective economic control through a series of contracts with these affiliated Chinese entities and their shareholders. These agreements may not be as effective in providing control as direct ownership of these businesses. In the event that there is a dispute with respect to our agreements with our affiliated Chinese entities or their shareholders, we would have to rely on the PRC legal system for remedies. Any legal proceeding relating to such dispute could result in a material disruption of our business and damage to our reputation, and the outcome of such litigation would be uncertain.

We may be unable to collect long-term loans to the shareholders of our consolidated affiliated entities in China.

As of the date of this annual report, we have made long-term loans in an aggregate principal amount of RMB16.5 million (US$2.4 million) to the individual shareholders of our consolidated affiliated entities. We extended these loans to enable the shareholders to fund the initial capitalization of these entities and subsequent increases in their registered capital. We may in the future provide additional loans to the individual shareholders of our consolidated affiliated entities in China in connection with any increase in their capitalization to the extent necessary and permissible under applicable law. Our ability to ultimately collect these loans, which we eliminated upon consolidation, is uncertain and will depend on the profitability of these consolidated affiliated entities and their operational needs as well as the enforceability of the loan agreements.

Risks Related to Doing Business in the People’s Republic of China

We would be adversely affected by the cancellation, modification or discontinuation of any preferential tax treatments currently available to us.

We currently benefit from a number of preferential tax treatments, any or all of which may be cancelled, modified or discontinued in the future, depending on future tax legislation, regulations and interpretations by the PRC tax authorities.

Our subsidiary, eLong Information, and one of our affiliated Chinese entities, Beijing Information, each enjoyed a 15% preferential enterprise income tax rate in 2009 as they qualified as “High New Technology Enterprises” under the PRC Corporate Income Tax Law (the “CIT Law”) and related regulations. The CIT Law, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises, but a lower 15% tax rate for High New Technology Enterprises. We cannot assure you that eLong Information and Beijing Information will continue to qualify for the lower tax rate, or that we or any eLong subsidiary or affiliate will qualify for any other preferential tax rates, in future years.

The CIT Law also provides that enterprises established in foreign countries or regions for which the “de facto management bodies” are located within the PRC will be considered as PRC “resident enterprises” and will be subject to corporate income tax at the rate of 25% on their global income. On April 22, 2009, the State Administration of Taxation issued the Notice on Issues Regarding Recognition of Overseas Incorporated Enterprises Controlled by PRC Domestic Enterprises as PRC Resident Enterprises Based on the De Facto Management Body Criteria (the “Tax Residency Notice”). Under the Tax Residency Notice, which was retroactively effective as of January 1, 2008, an overseas enterprise will be deemed to be a PRC tax resident, and thus subject to corporate income tax of 25% on its global income if it satisfies four specified conditions: (i) the company’s management team responsible for daily operations is located in China, or the location where the management team carries out their responsibilities is in China; (ii) finance and personnel decisions are made or need approval by institutions or people in China; (iii) the company’s major property, accounting ledger, company seal and minutes of board meetings and shareholder meetings are kept in China; and (iv) at least half of the members of the board of directors with voting rights or the management team habitually live in China. Otherwise, a “non-resident enterprise” is subject to withholding tax at the rate of 10% with respect to its PRC-sourced dividend income distributed from earnings accumulated after January 1, 2008, subject to applicable tax agreements or treaties between the PRC and other tax jurisdictions. Although we are controlled by a company located outside of the PRC, Expedia, through Expedia Asia Pacific, we cannot assure you that the PRC tax authorities will not treat eLong, Inc. as a PRC tax resident, and if so, we would be subject to PRC corporate income tax on our worldwide income, and such determination may have retroactive effect.

On August 24, 2009, the State Administration of Tax issued a Notice on Questions Relating to Individual Income Tax on Equity Compensation. The notice clarifies circumstances in which equity compensation shall be taxable at the normal income tax rates for wage income, rather than at the lower rate available through use of a preferential tax calculation method. We cannot assure that the PRC tax authorities will not choose to apply this notice to our current or prior equity compensation grants and require payment of additional individual income tax by our current or former employees, or by us.

The cancellation, modification or discontinuation of any of our current preferential tax benefits may have a material adverse effect on our financial results.

Fluctuation in the value of the Renminbi may materially and adversely affect our financial results and the value of our company and ADSs.

The value of the Renminbi against the U.S. dollar and other currencies fluctuates and is affected by numerous factors, including among other things, changes in political and economic conditions in China and the U.S. The conversion of RMB into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. Currently, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. In the future, the PRC government may adopt a more flexible currency policy, which could result in increased exchange rate volatility and significant further appreciation of the RMB against the U.S. dollar.

Although substantially all of our revenue-generating operations are transacted in Renminbi, the substantial majority of our financial assets are denominated in U.S. dollars. We recorded a small foreign currency exchange loss in 2009 of RMB0.4 million (US$0.1 million) due to the appreciation of the Renminbi, but we recorded a far larger foreign currency exchange loss of RMB60.9 million in 2008. As we do not hedge our US dollar holdings, if the Renminbi appreciates further in the future, we may record significant foreign currency exchange losses on our United States dollar-denominated assets and these losses could materially and adversely affect our results of operations and financial condition.

Uncertainties and restrictions in the PRC legal system may have a material and adverse impact on our business and financial condition.

There are substantial uncertainties regarding the interpretation of current PRC laws and regulations, as well as with respect to the numerous new rules, regulations, notices and official interpretations enacted by PRC government authorities each year. It is possible that new laws, regulations, notices and official interpretations will affect our existing and future businesses in ways which cannot predict, mitigate or prevent, and that any new laws, regulations, notices and interpretations may be applied retroactively. The PRC authorities retain broad discretion in the interpretation of, and determination of violations of, laws and regulations, including levying fines and penalties, revoking or narrowing the scope of business licenses and requiring other corrective actions. Any such action could have a material adverse effect on our business, results of operations and financial condition.

We may be required to withhold PRC income tax on any dividends we pay you (if any), and any gain you realize on the transfer of ADSs or ordinary shares may also be subject to PRC withholding tax.

We may be treated as a PRC resident enterprise for PRC tax purposes. If we are so treated by the PRC tax authorities and we pay dividends considered derived from sources within the PRC, we would be obligated to withhold PRC income tax of up to five percent on payments of dividends on our ordinary shares and/or ADSs to investors that are non-resident enterprises of the PRC located in Hong Kong, and ten percent on payments of dividends on our ordinary shares and/or ADSs to investors that are non-resident enterprises of the PRC located outside Hong Kong. In addition, any gain realized by investors who are non-resident enterprises of the PRC from the transfer of ADSs or ordinary shares could be regarded as being derived from sources within the PRC and be subject to a 10% PRC withholding tax. Such PRC withholding taxes would reduce your investment return on ADSs or ordinary shares and may also materially and adversely affect the price of our ordinary shares or ADSs.

Governmental control of currency conversion may affect our ability to pay dividends and the value of our ADSs.

We receive substantially all of our revenues in Renminbi, which is currently not a fully convertible currency. Under China’s existing foreign exchange regulations, payments of current account items, including profit distributions and interest payments, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange (the “SAFE”). The Chinese government, however, may restrict access in the future to foreign currencies for current account transactions. If this were to occur, we might not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs, which could adversely affect the value of our ADSs.

PRC regulations may limit our ability to transfer our funds held overseas into China.

In 2008, SAFE promulgated a notice regulating the conversion by a foreign-invested company of foreign currency into Renminbi by restricting how the converted Renminbi may be used. The notice provides that the registered capital of a foreign-invested company settled in Renminbi converted from foreign currencies may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the registered capital of a foreign-invested company settled in Renminbi converted from foreign currencies. The use of such Renminbi capital may not be changed without SAFE’s approval, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used. This notice may significantly limit our ability to transfer our existing cash to our affiliated Chinese entities, which may adversely affect our business development, and we may not be able to convert our cash held overseas into Renminbi to invest in, or to acquire, assets or companies in the PRC.

Our subsidiaries and affiliated entities in China are subject to restrictions on paying dividends or making other payments to us, which may decrease our primary internal source of funds.

As a holding company incorporated in the Cayman Islands, we rely on dividends from our subsidiaries in China and consulting and other fees paid to us or our subsidiaries by our affiliated Chinese entities. Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits subject to a 10% withholding tax, if any, determined in accordance with Chinese accounting standards and regulations. Our wholly-owned foreign subsidiaries are required to provide for certain statutory reserves, namely a general reserve, an enterprise expansion fund and a staff welfare and bonus fund. These subsidiaries are required to allocate at least 10% of their after tax profits on an individual company basis as determined under PRC GAAP to the general reserve and have the right to discontinue allocations to the general reserve if such reserve has reached 50% of registered capital on an individual company basis. These reserves are not distributable as cash dividends. Further, if our subsidiaries and affiliated Chinese entities in China incur debt in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us, which would limit our ability to pay dividends on our ordinary shares.

Our online business relies on the telecommunications infrastructure of China’s Internet.

Most access to the Internet in China is maintained through a network owned by the local Chinese telecommunications carriers (e.g. China Unicom and China Telecom) under the regulatory supervision of China’s Ministry of Industry and Information Technology (the “MIIT”). In addition, networks in China connect to the Internet through a government-controlled international gateway, which is the only channel through which domestic Chinese users connect to the international Internet network. We rely on this infrastructure and China Unicom and China Telecom to provide data communications capacity, primarily through local telecommunications lines. We would have no access to alternative networks and services, on a timely basis, if at all, in the event of any infrastructure disruption or failure.

Risks Related to Ownership of Our ADSs or Ordinary Shares and Our Trading Market

Failure to maintain effective internal controls could have a material and adverse effect on the trading price of our ADSs.

Our management has concluded that our internal control over financial reporting is effective, as of December 31, 2009. See “Item 15. Control and Procedures.” Our independent registered public accounting firm, Ernst & Young Hua Ming (“Ernst & Young”) , has issued an attestation report on our internal control over financial reporting, which is included in this annual report. Effective internal controls are necessary for us to produce reliable financial reports. Any failure to maintain the effectiveness of our internal controls over financial reporting, in addition to causing us to be unable to report in future annual reports that such internal controls are effective, could result in the loss of investor confidence in the reliability of our financial statements, which in turn could adversely affect the trading price of our ADSs. Furthermore, we may need to incur additional costs and use additional management and other resources in an effort to maintain compliance with the Sarbanes-Oxley Act or other requirements of U.S. securities laws.

The market price for our ADSs is volatile.

The market price of our ADSs has been volatile and is likely to continue to be so. Since our initial public offering in October 2004, the trading price of our ADSs has ranged from a low of US$3.15 per ADS to a high of $25.99 per ADS. On March 31, 2010, the closing price of our ADSs was US$11.55 per ADS. Our trading price may continue to be subject to wide fluctuations in response to various factors including, but not limited to, the following:

	•		actual or anticipated fluctuations in our quarterly or annual financial or operating results;
	•		changes in financial estimates and evaluations by securities analysts;
	•		general market and index trends in the Nasdaq stock market;
	•		changes in the economic performance or market valuations of other travel, Internet, e-commerce or publicly listed companies with operations in China;
	•		announcements by us or our competitors of new services, acquisitions, strategic partnerships, joint ventures or capital commitments;
	•		additions or departures of key personnel;
	•		sales or repurchases of additional ordinary shares or ADSs by us, our major shareholders or our senior management; and
	•		potential or actual litigation.

Any of these factors may materially and adversely affect the market price of our ADSs.

Future sales by our existing shareholders of a substantial number of our ordinary shares or ADSs could adversely affect the price of our ADSs.

If our major shareholders, including, among others Expedia, Oak Pacific Interactive, Justin Tang, Lawrence Auriana or CRCM Institutional Master Fund, sell substantial amounts of our ordinary shares or ADSs in the public market, the market price of our ADSs could fall. Such sales also might make it more difficult for us to sell securities in the future at a time and price that we deem appropriate. For additional information on our major shareholders, see “Item 7: Major Shareholders and Related Party Transactions — Major Shareholders.”

We believe we are likely to be a passive foreign investment company for the 2009 calendar year and may be a passive foreign investment company for future years, which would result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs.

A non-U.S. corporation will be considered a passive foreign investment company (“PFIC”) for U.S. income tax purposes, for any taxable year if either (i) at least 75% of its gross income is passive income or (ii) 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 that produce or are held for the production of passive income. The annual PFIC determination to be made by a U.S. holder of our ordinary shares (including ADSs) is an inherently factual determination and there is limited guidance regarding the application of the PFIC rules to specific situations. We currently hold a substantial amount of cash and cash equivalents, restricted cash and short-term investments, and the value of our goodwill and other assets may be based in part on the market price of our ordinary shares (including ADSs), which has experienced significant fluctuations. Although the determination of PFIC status is subject to factual uncertainties because it depends upon the valuation of our ordinary shares (including ADSs) and high-vote ordinary shares, as well as our goodwill and other assets and income, we believe we are likely to be a PFIC for 2009. In addition, as the determination of PFIC status is made on an annual basis and depends on variables over which we have limited control, there can be no assurance that we will not be a PFIC for 2010 or any future years. If we are a PFIC in any year, U.S. Holders will be subject to certain adverse United States federal income tax consequences, as discussed in “Item 10: Additional Information—Taxation—United States Federal Income Taxation—Passive foreign investment company rules.”

You may be subject to limitations on transfer of your ADSs or the exercise of your voting rights as an ADS holder.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

As an ADS holder, you may only exercise your voting rights with respect to the underlying ordinary shares in accordance with the deposit agreement. If you provide your voting instructions in the form specified by the depositary pursuant to the deposit agreement, the depositary will endeavor to vote the underlying ordinary shares in accordance with your instructions. However, the depositary may not be able to send voting instructions to you, carry out your voting instructions in a timely manner, and you may not receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore, the depositary will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote.

We currently follow home country practice in lieu of complying with certain requirements of the Nasdaq Listing Rules. This may afford less protection to holders of our ordinary shares and ADSs.

We generally intend to rely on the “home country practice” exception available to foreign private issuers under the Nasdaq Listing Rules, and not present certain matters for a shareholder vote, where such shareholder vote would otherwise be required under the Nasdaq Listing Rules, including Rule 5635 which sets forth certain circumstances requiring shareholder approval. For example, our board of directors adopted the eLong, Inc. 2009 Share and Annual Incentive Plan on May 13, 2009 without seeking prior shareholder approval, as permitted under our articles of association and applicable law of the Cayman Islands. In the future, we may choose to follow home country practice with respect to additional requirements of the Nasdaq Listing Rules, which may result in our ADS holders having fewer shareholder rights and protections than if we had not adopted home country practice.

You may not receive distributions on ordinary shares (if any) or any value for them if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions (if any) which it or the custodian receives on ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive any distribution we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

You may face difficulties in protecting your interests, and your ability to protect your rights through courts in the U.S. may be limited, because we are incorporated under Cayman Islands law, conduct substantially all of our operations in China and all of our senior executive officers reside outside the United States.

We are incorporated in the Cayman Islands, and conduct our operations in China through our subsidiaries and affiliated Chinese entities. All of our senior executive officers and directors reside outside the United States and all or a substantial portion of the assets of those persons are located outside of the United States. As a result, it may not be possible to effect service of process within the United States upon our senior executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws.

It may also be difficult or impossible for you to bring an action against us or against our directors and officers in the Cayman Islands or in China in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. Moreover, the PRC does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts.

Our corporate affairs are governed by our articles of association and by the Companies Law (2009 Revision) and common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent 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. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and provides significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States.

As a result of all of the above, holders of our ADSs or ordinary shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

Item 4: Information on the Company.

4A: History and Development of the Company

eLong, Inc. was incorporated in the British Virgin Islands on April 4, 2001. On May 19, 2004, eLong, Inc. discontinued in the British Virgin Islands and continued in the Cayman Islands as an exempt company with limited liability under the Cayman Islands Companies Law.

On November 2, 2004, we completed the initial public offering of our ADSs. Each ADS represents two of our ordinary shares. Our ADSs are quoted on the Nasdaq Global Market under the ticker symbol “LONG.”

In 2004 and 2005, in a series of transactions, Expedia Asia Pacific acquired 28,550,704 of our high-vote ordinary shares, comprising approximately 52% of our then outstanding shares on a fully-diluted basis and approximately 95% of our voting power. For additional information on Expedia Asia Pacific’s ownership of our high-vote ordinary shares, see “Item 7: Major Shareholders and Related Party Transactions—Major Shareholders.”

Our principal executive office is located at Third Floor, Block B, Xingke Plaza, 10 Middle Jiuxianqiao Road, Chaoyang District, Beijing, 100015 in the People’s Republic of China. Our telephone number is: +86 (10) 5860-2288. Our agent for service of process in the United States is CT Corporation System located at 111 Eighth Avenue, New York, NY 10011.

Acquisitions and Dispositions

A component of our business strategy is to consider acquisitions or affiliations with businesses in areas that may provide incremental revenue and support our further development. As part of this strategy, in 2009 and the first several months of 2010, we acquired the air and hotel travel reservation businesses of a number of small travel service providers in China, including businesses owned by Heng Zhong Online Travel Information (Beijing) Co., Ltd., Beijing Yuanfang Wangjing Information Consulting Co., Ltd. and Shanxi SunnyChina Network Co., Ltd. In some instances the purchase price of the acquired businesses is contingent on the financial performance of the acquired businesses during an agreed period after the closing of the acquisition. Some of the acquired businesses were previously our private label web affiliates. This aspect of our strategy is subject to certain risks and uncertainties. See “Item 3: Key Information—Risk Factors—We may not be able to successfully execute future acquisitions, alliances or affiliations or to efficiently manage any acquired businesses.”

Capital Expenditures

Our capital expenditures for property and equipment were RMB22.2 million in 2007, RMB32.9 million in 2008 and RMB12.0 million in 2009. Principal areas of investment during 2009 related to purchases of hardware and development of computer systems and our technological infrastructure. Our capital expenditures were primarily spent in Beijing and were financed from our internal resources. See “Item 5: Operating and Financial Review and Prospects—Liquidity and Capital Resources” for additional information regarding our capital expenditures.

4B: Business Overview

We are a leading online travel service provider in China. We utilize a centralized modern call center and web-based distribution technologies to provide our services. We seek to serve China’s frequent independent travelers who engage in business and leisure travel, and increasingly use online travel service providers to research, book and purchase travel.

We believe we have built one of the largest travel service distribution networks in China. Through our nationwide 24-hour toll-free call center, our user-friendly Chinese and English language websites and our extensive reseller network, we provide our customers with comprehensive travel information and the ability to book rooms at discounted rates at over 10,000 hotels in over 450 cities across China, and fulfill air ticket reservations in over 80 cities across China. Through Expedia and its affiliates, we also offer the ability to book rooms at over 100,000 hotels outside of China. We offer customers informative content relevant to their hotel and air travel decisions, including tourist and event site destination information, hotel facility information, recent photos (including, for many properties, rotating 360 degree photos of hotel rooms and facilities), and customer reviews and comments. In 2009, we facilitated the sales by our hotel suppliers through our booking services of 4.32 million room nights and sold 2.2 million air tickets.

Our Services

Our revenues are primarily derived from hotel reservations and air ticketing. In 2009, we derived 68% of our revenue before business tax and surcharges from our hotel reservation business and 25% of our revenues from our air ticketing business.

Hotel reservations. As of March 31, 2010, we had supplier relationships with over 10,000 hotels in over 450 cities throughout China, as well as Hong Kong and Macau. We seek to offer a comprehensive range of hotel options at a variety of prices, including budget, three-, four- and five-star hotels as well as short-stay apartments. For the years ended December 31, 2007, 2008 and 2009, we derived 76%, 73% and 68% of our total revenue before business tax and surcharges from our hotel reservation services. Our hotel reservation volume has increased to 4.32 million room nights in 2009, compared to 3.95 million room nights in 2008.

We act primarily as an agent in our hotel transactions. We make room reservations based on customer inquiries and, upon the completion of a customer’s stay, we calculate our commissions, which are generally a percentage of the nightly hotel room rate or a fixed amount per room night, which are paid by the hotels to us on a monthly basis. We also confirm with the hotel the length of the customer’s stay. We pay no penalty to the hotel for “no shows” on confirmed reservations, although we are not paid any commission in respect of such “no show” reservations. Because we generally do not pre-purchase hotel rooms that we book for our customers, we do not carry significant inventory risk.

Due to the fragmented nature of the hotel industry in China, where hotels are generally owned separately, we typically enter into agreements with individual hotels or their owners or operating companies. Depending on our agreement with the individual hotel supplier, we either receive a guaranteed allotment of hotel room nights per month or operate on an “as-requested” basis. For hotels with which we have guaranteed room allotments, the hotel makes available to us a specified minimum number of guaranteed available rooms each day. Our guaranteed allotment allows us to provide improved customer service by enabling us to provide our customers with an instant confirmation of their reservations. We incur no obligation if the guaranteed allocation is not used. For hotels with which we do not have guaranteed room allotments, we confirm the availability of rooms before providing a confirmation to the customer.

Air ticketing. We provide 24-hour air ticketing services through our toll-free call center and websites. We act as an agent for all major airlines in China as well as many international airlines that operate flights originating in China. We make flight reservations through TravelSky, which is the operator of the only nationwide system for air ticket reservations in China, and issue and deliver air tickets using branch offices of our subsidiaries and a network of local agents throughout major cities in China. We receive a commission when we sell an airline ticket, and certain airlines provide discretionary commissions if we achieve performance targets.

Our air ticketing process begins when a customer initiates an inquiry through either one of our websites, our call center or the websites, call centers or employees of one of our partners. The customer is informed of the available flights based on their schedule and desired air carrier and we then confirm a booking for a seat on the selected flight. In cases where the air ticket needs to be issued outside of Beijing or locations where we do not have staff, the booking information is sent to one of our local agents in the city where the ticket is to be issued. We also use local agents and other third party delivery companies to deliver tickets to our customers and collect payments for customers who have not prepaid with credit or debit cards. We then collect the airfare from the delivery company, pay the agent’s commission and the cost of the tickets, and retain the balance. We generally do not pre-purchase air tickets for resale. In 2009, we sold approximately 2.2 million air tickets compared to 1.79 million air tickets in 2008.

In connection with our air ticket service business, we are required by the Civil Aviation Administration of China and International Air Transport Association to provide guarantees for air tickets obtained from various airlines. As of December 31, 2009, the amount under these guarantee arrangements was approximately RMB110 million (US$16.1 million). Based on historical experience and information currently available, we do not believe that it is probable that we will be required to pay any amount under these guarantee arrangements. Therefore, we have not recorded any liability beyond what is required in connection with these guarantee arrangements.

Non-travel services. In 2009, we derived approximately 6% of our revenues from non-travel services, comprised primarily of advertising revenues.

For information on revenue attributable to different products, see “Item 5: Operating and Financial Review and Prospects—Principal Factors Affecting Our Results of Operations.”

Supplier Relationship Management and Distribution

We strive to maintain good relationships with our travel suppliers. We have a team of employees dedicated to enhancing our relationship with existing travel suppliers and developing new relationships with prospective travel suppliers. We have also developed an electronic confirmation system that enables participating hotel suppliers to receive customer reservation information and confirm reservations through our online interface with the hotel supplier. We provide our travel services primarily through the following channels:

Call center. We operate a 24-hour call center that is accessible nationwide on a toll free basis for telephone calls in China, and we have customer service representatives who speak Chinese, English and Korean. Our call center has been an effective distribution channel given the preference of many customers to book their travel arrangements by telephone as well as the relatively low cost of labor in China. However, labor costs in China have risen significantly in recent years, due in part to rising salaries as well as recent legislation such as the PRC Employment Contract Law. We currently expect our call center to remain an important distribution channel going forward.

Websites. We offer our travel services through our eLong-branded websites which include http://www.eLong.com and http://www.eLong.net, and through private label websites offered by our web affiliates. Our websites provide customers with a quick and efficient service that facilitates comparison among a large number of travel suppliers. Customers can browse travel service options, compare prices, book, confirm and cancel orders through our websites.

Telephone booking services. Under the terms of our annual service agreements with various subsidiaries of China Telecom and China Unicom (“China Telecom and China Unicom”), we provide users of China Telecom and China Unicom in some provinces and municipalities with hotel reservation and fulfillment services. When a customer in one of the provinces or municipalities in which we have a cooperation with China Telecom or China Unicom, calls China Telecom or China Unicom for information about hotel reservations, the China Telecom or China Unicom employee may transfer such calls to our call center or make the reservation through our application program interface. China Telecom and China Unicom receive a commission from us, which is a percentage of the nightly room night rate, for the hotel reservations they generate through our booking services.

Reseller network. We have developed a nationwide network of over 2,300 resellers, consisting of primarily smaller travel and air ticketing agencies. These agencies utilize our call center and websites to distribute our travel services, and receive a commission from us, based on the hotel reservations and air ticket bookings they generate for us.

Marketing and Brand Promotion

We market our services through a combination of online marketing, traditional media advertising, co-marketing with established brands of other companies and direct marketing. We seek to build a brand identity that consumers associate with value and convenience.

Advertising. Our advertising efforts are focused on online marketing, and to a lesser extent traditional media advertising. The focus of our advertising efforts is to promote awareness of the eLong brand among potential customers. In order to expand our online presence, we have entered into contracts with Baidu and Google pursuant to which we have purchased travel-related keywords which will direct Baidu and Google users to our websites. See “Item 3: Key Information —Risk Factors —We are dependent on our ability to establish and maintain favorable arrangements with our travel suppliers, internet search engines and distribution partners.” In addition, in September 2009, we launched our eCoupon program, through which we provide coupons and virtual cash accounts for our customers who book selected hotels online through our eLong.com website.

Co-marketing relationships. We seek to expand our market reach and revenues by entering into co-marketing agreements with companies that have a large customer base and strong brand recognition. Through such efforts, we intend to reach more potential customers and capitalize on the brand recognition of other leading companies in China. Generally, both entities share the revenues generated in such co-marketing activities. We have entered into co-marketing agreements with telecommunications service providers, airlines, financial institutions and other companies in China.

eLong membership program. We promote our brand and encourage customer loyalty through our loyalty point and virtual cash programs. Our membership program entitles our customers to accumulate loyalty points which can be exchanged for awards such as free travel services and gifts, as well as for virtual cash which can be paid to the customer as cash (less applicable tax) or credit to a mobile phone account. Our membership program is designed to encourage repeat transactions and is an important element of our customer retention program.

Direct marketing. We conduct direct marketing activities at selected major airports and transportation hubs in China. Our promotional efforts at these locations consist primarily of the distribution of complimentary eLong membership cards. We also conduct email, SMS and phone marketing to our current and potential customers.

Corporate social responsibility. We believe service to our community is an important part of corporate citizenship and also promotes and strengthens our eLong brand. In June 2008, we donated RMB500,000 to the China Wildlife Conservation Association to support the reconstruction of a panda wildlife reserve which had been severely damaged by the Sichuan earthquake.

We compete with other providers of online and offline travel services including Ctrip.com, travel metasearch services such as Qunar, traditional travel agencies and the direct sales channels of hotels and airlines. We compete on the basis of brand recognition, selection, price, ease of use, accessibility of information, breadth of services offered, convenience, and customer service. As China’s travel market continues to grow, we may face further competition from other new domestic hotel room and airline ticket consolidators or international players that may expand into China. We may also face increasing competition from hotels and airlines which may further expand into the direct selling market or engage in alliances with other travel service providers. See “Item 3: Key Information—Risk Factors—Risks Related to Our Business—We may not be able to compete successfully against our current or future competitors.”

To protect our proprietary rights, we rely upon a combination of copyright and trademark laws, trade secrets, and confidentiality agreements with employees and third party service providers. Our standard form labor contracts include confidentiality and trade secret provisions. Moreover, we and our subsidiaries also enter into non-competition agreements with our senior executives. In addition, prior to discussing business and technologies with outside parties, we typically require that the parties enter into a non-disclosure agreement with us. If these discussions result in a license or other business relationship, we also require that the agreement setting forth the parties’ respective rights and obligations include provisions protecting our intellectual property rights.

Through our subsidiaries in China, we have registered various Internet domain names which we use in our business, including www.eLong.com, www.eLong.net, www.eLong.cn, and www.xici.net with domain name registrars. We have also registered the “eLong” characters in Chinese, “eLong.com” in English, “Xici” in Chinese and various other trademarks in China with the PRC National Trademark Office.

See “Item 5: Operating and Financial Review and Prospects—Major Factors Affecting the Travel Industry—Seasonality in the travel service industry” and “Item 3: Key Information—Risk Factors—Risks Relating to Our Business—Our quarterly results are likely to fluctuate because of seasonality in the travel industry in China” for a description of seasonal factors influencing our business.

The PRC government regulates numerous areas which relate to our business, including numerous aspects of the Internet, telecommunications, information services, connections to computer information networks, information security and censorship, as well as air ticketing, advertising and travel agencies. The relevant rules are contained in a number of existing laws and regulations issued by various governmental authorities in the PRC, including:

	•		the State Administration for Industry and Commerce (the “SAIC”);
	•		the Ministry of Commerce (the “MOFCOM”);
	•		the Ministry of Public Security (the “MPS”);
	•		the Civil Aviation Administration of China (the “CAAC”); and
	•		the China National Tourism Administration (the “CNTA”); and
	•		the Beijing Communications Administration (the “BCA”).

We are structured as an online company engaged in the businesses of travel agency, air ticketing and advertising. Current PRC laws and regulations impose substantial restrictions on foreign ownership in these businesses in China. As a result, we conduct operations through a series of contractual arrangements between our subsidiaries and our affiliated Chinese entities. For additional information on our organizational structure, see section “4C: Organizational Structure” below.

In the opinion of our PRC counsel, TransAsia Lawyers, the ownership structure, businesses and operations of our subsidiaries and affiliated Chinese entities in China comply with all existing PRC laws, regulations and rules. In addition, no consent, approval or license, other than those already obtained, is currently required under existing PRC laws, regulations and rules for such ownership structure, businesses and operations.

In 2003, BCA issued a Value-Added Telecoms Services Operating License to Beijing Information, authorizing the provision of mobile-network value-added telecommunications services and call-center services in Beijing. In 2004, the BCA issued a Telecoms and Information Services Operating License to Beijing Information authorizing the provision of Internet information services. Both of these permits have been renewed, remain valid and are subject to annual inspections.

Under the Measures for the Administration of Internet Information Services (2000) (the “ICP Measures”), any entity that provides information to online users of the Internet in China is obliged to obtain an operating license from the MIIT or its provincial or municipal branch. The ICP Measures require that Internet Information Provider License (“ICP license’) holders to display their operating license numbers in a conspicuous location on the home page of their website. ICP license holders are also obliged to monitor their websites in order to remove certain broadly defined categories of harmful content. The ICP Measures also mandate that an ICP license holder must obtain the prior consent of the MIIT prior to establishing an equity or cooperative joint venture with a foreign partner. Beijing Information and Beijing Xici each holds a license for Internet content provision services.

Information Security and Censorship

The principal pieces of PRC legislation concerning information security and censorship include:

	•		The Law of the People’s Republic of China on the Preservation of State Secrets (1988) and its Implementing Rules (1990);
	•		The Law of the People’s Republic of China Regarding State Security (1993) and its Implementing Rules (1994);
	•		Rules of the People’s Republic of China for Protecting the Security of Computer Information Systems (1994);
	•		Notice Concerning Work Relating to the Filing of Computer Information Systems with International Connections (1996);
	•		Administrative Regulations for the Protection of Secrecy on Computer Information Systems Connected to International Networks (1999);
	•		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 the Administrative Measure for the Security Protection of International Connections to Computer Information Networks (2000);
	•		The Decision of the Standing Committee of the National People’s Congress Regarding the Safeguarding of Internet Security (2000); and
	•		Measures for the Administration of Commercial Website Filings for the Record (2002) and their Implementing Rules (2002); and
	•		Measures for the Administration of Protecting Security Communications and Networks (2009).

The above legislation specifically prohibits the use of Internet infrastructure where it results in a breach of public security, the provision of socially destabilizing content or the disclosure of State secrets. Under this legislation, it is mandatory for Internet companies in the PRC to complete security filing procedures with the local public security bureau and for them to regularly update the local public security bureau regarding information security and censorship systems of their websites. In this regard, the Administrative Rules on the Filing of Commercial Websites was promulgated by the Beijing AIC in 2004 and requires websites to:

	•		register with the Beijing AIC and obtain electronic registration marks;
	•		place the registration marks on their websites’ homepages; and
	•		register website names with the Beijing AIC.

We have registered our websites with the Beijing AIC and display our electronic registration mark on our homepage.

Consumer Data Protection & Privacy

In 2008, the MIIT promulgated a Circular Regarding the Campaign against SMS Spam which requires telecom operators to strengthen supervision of SMS channels, including (i) illegal spam SMS sending enterprises; (ii) short message advertisements, and (iii) manufacture and sale of illegal SMS broadcasting equipment. The Circular also requires telecom operators to close down illegal spam message sending terminals and set up a blacklist of illegal operators.

On February 28, 2009, the PRC National People’s Congress adopted the Seventh Amendment of the PRC Criminal Law, which added an offense for the “sale or unlawful provision of personal information” by individuals or enterprises. The new provision makes it unlawful for any employee of a government institution or a financial, telecommunication, transportation, education or medical organization to illegally sell (or by other illegal means provide others with) any other PRC citizen’s personal information obtained by such employee during the performance of his or her duties or services, and provides for penalties, which may include monetary fines, criminal detention or imprisonment for up to three years, depending on the severity of the violation.

Air ticketing

The air ticketing business is subject to the supervision of the CAAC and its regional branches. Effective March 2006, the CAAC promulgated the Rules Concerning the Affirmation for the Qualification of Aviation Transportation Sales Agencies. The air ticketing agency sector is currently regulated by an industrial association, rather than a government-based administration as it was previously. As of March 31, 2010, we are conducting the annual renewal of our air ticketing agency permit.

The principal regulation governing foreign ownership in the air ticketing business in China is the Foreign Investment Industrial Guidance Catalogue (2004). In the past, this regulation prevented foreign investors (including investors from Hong Kong and Macau) from owning 100% of air ticketing agencies in China. However, in accordance with the Second Supplementary Regulations regarding Foreign Investment in Civil Aviation Transportation Industry (effective from January 4, 2007), qualified service providers from Hong Kong or Macau are allowed to own 100% of aviation transportation sale agencies in China with the only restriction that they are still prohibited from selling tickets to passengers for domestic PRC air travel.

Historically, the CAAC and the National Development and Reform Commission (“NDRC”) jointly regulated the pricing of airline tickets as well as commissions payable to air ticketing agencies. However, in May 2008, the CAAC issued the Circular on Change in the Management of Domestic Aviation Service Fares, pursuant to which, after October 1, 2008, air ticketing commissions are subject to negotiations between suppliers and agents, rather than direct regulation by the CAAC and NDRC.

Travel Agency

The travel agency industry is subject to the supervision of the CNTA and local tourism administrations. The principal regulations governing travel agencies in China include: (i) the Regulation on Travel Agencies (the “Travel Agency Regulations”), issued by the State Council in February 2009 and effective May 1, 2009, which replaced the Administration of Travel Agencies Regulations (1996), and (ii) the Implementing Rules for the Regulation on Travel Agencies (the “Travel Agency Implementing Rules”), promulgated by the CNTA in March 2009.

The Travel Agency Regulations permit foreign investors to establish wholly foreign-owned travel agencies, as well as Sino-foreign joint ventures and cooperative travel agencies. Any investor (including foreign investors) intending to establish a travel agency or engage in the domestic tourism and inbound tourism business must have a fixed place of business and necessary business facilities, and have registered capital of at least RMB300,000. A travel agency that has obtained its business permit for two or more years may apply to engage in the operation of the outbound tourism business, provided that it has not been subject to any administrative penalties by the relevant administrative body arising from the infringement of the rights and interests of tourists.

Foreign-owned travel agencies are allowed to open branches nationwide. However, foreign-owned travel agencies are still restricted from engaging in the outbound tourism business in China, unless otherwise determined by the State Council, or provided under any bilateral free trade agreements between the country and China, or the closer economic partnership agreements between China and Hong Kong and Macau.

The Travel Agency Implementing Rules became effective May 3, 2009 and replaced the former Implementing Rules for Regulation on the Administration of Travel Agencies (2001). The Travel Agency Implementing Rules define certain terms used in the Travel Agency Regulations (e.g. the definition of “domestic tourism business,” “inbound tourism business” and “outbound tourism business”), and set out detailed application requirements to establish a travel agency, such as equipment requirements. The Travel Agency Implementing Rules also clarify certain aspects of legal liability for travel agencies as prescribed in the Travel Agency Regulations. For example, according to the Travel Agency Regulations, travel agencies that change an itinerary stipulated in a travel contract shall be fined up to RMB500,000. The Travel Agency Implementing Rules provide that any of the following situations shall be treated as a “change of itinerary”: decrease in the number of tour items; reduction of tour time; increase in the number of changes to tour destinations; increase in shopping time or the extension of shopping time; and changes to the arrangements stipulated in the travel contract between the travel agency and the tourist.

Regulation of Foreign Currency Exchange and Dividend Distribution

Foreign currency exchange. The principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as amended in August 2008. Under these rules, the Renminbi is freely convertible for trade and service-related foreign exchange transactions, but not for direct investment, loans or investments in securities outside China without the prior approval of SAFE.

Pursuant to the Foreign Currency Administration Rules, foreign-invested enterprises in China may purchase foreign exchange without SAFE approval for trade and service-related foreign exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange, subject to a cap approved by SAFE, to satisfy foreign exchange liabilities or to pay dividends. Foreign exchange transactions for direct investment, loan and investment in securities outside China are still subject to limitations and require approvals from SAFE. See “Item 3: Key Information—Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may affect our ability to pay dividends and the value of our ADSs” and “Item 3: Key Information—Risk Factors—Risks Related to Doing Business in China—PRC regulations may limit our ability to transfer our funds held overseas into China.”

In 2008, SAFE promulgated a notice regulating the conversion by a foreign-invested company of foreign currency into Renminbi by restricting how the converted Renminbi may be used. The notice provides that the registered capital of a foreign-invested company settled in Renminbi converted from foreign currencies may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the registered capital of a foreign-invested company settled in Renminbi converted from foreign currencies. The use of such Renminbi capital may not be changed without SAFE’s approval, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used.

Dividend distribution. The principal regulations governing distribution of dividends by foreign-invested companies include:

	•		the Sino-foreign Equity Joint Venture Law (2001);
	•		the Regulations of Implementation of the Sino-foreign Equity Joint Venture Law (2001);
	•		the Foreign Investment Enterprise Law (2000); and
	•		the Regulations of Implementation of the Foreign Investment Enterprise Law (2001).

Our wholly-owned foreign subsidiaries are required to provide for certain statutory reserves, namely a general reserve, an enterprise expansion fund and a staff welfare and bonus fund. These subsidiaries are required to allocate at least 10% of their after tax profits on an individual company basis as determined under PRC GAAP to the general reserve and have the right to discontinue allocations to the general reserve if such reserve has reached 50% of registered capital on an individual company basis.

In addition, our affiliated entities in China are required to allocate 10% of their respective after-tax profits to their respective statutory general reserve, unless such statutory general reserve amounts to over 50% of the entity’s registered capital. After the entities have allocated to their statutory general reserve from their after-tax profits, they may, upon a resolution adopted at shareholders’ meeting, allocate to a discretionary general reserve from their after-tax profits.

The CIT Law provides that a maximum income tax rate of 20% may be applicable to dividends payable to non-PRC investors that are “non-resident enterprises,” to the extent such dividends are derived from sources within the PRC. The State Council’s Implementation Rules for the CIT Law reduced the rate to 10%. We are a Cayman Islands holding company and we may derive a substantial portion of our income from dividends we receive from our affiliated Chinese entities. Thus, dividends paid to us by our affiliated Chinese entities in the PRC may be subject to the 10% income tax if we are considered as a “non-resident enterprise” under the CIT Law.

The CIT Law also provides that enterprises established in foreign countries or regions for which the “de facto management bodies” are located within the PRC will be considered as PRC “resident enterprises” and will be subject to CIT at the rate of 25% on their global income. On April 22, 2009, the State Administration of Taxation issued a Notice on Issues Regarding Recognition of Overseas Incorporated Enterprises Controlled by PRC Domestic Enterprises as PRC Resident Enterprises Based on the De Facto Management Body Criteria (the “Tax Residency Notice”). Under the Tax Residency Notice, which was retroactively effective as of January 1, 2008, an overseas enterprise will be deemed to be a PRC resident enterprise — and thus subject to CIT of 25% on its global income if it satisfies four conditions: (i) the company’s management team responsible for daily operations is located in China, or the location where the management team carries out their responsibilities is in China; (ii) finance and personnel decisions are made or need approval by institutions or people in China; (iii) the company’s major property, accounting ledger, company seal and minutes of board meetings and shareholder meetings are kept in China; and (iv) at least half of the members of the board of directors with voting rights or the management team habitually live in China. Otherwise, a “non-resident enterprise” is subject to withholding tax at the rate of 10% with respect to its PRC-sourced dividend income distributed from earnings accumulated after January 1, 2008, subject to applicable tax agreements or treaties between the PRC and other tax jurisdictions. We are controlled by Expedia, through Expedia Asia Pacific-Alpha Limited, which, as of March 31, 2010, was our controlling shareholder with 96% of the Company’s voting power and had the ability to control substantially all of the Company’s management and business operations. However, we cannot assure you that the PRC tax authorities will not deem eLong, Inc. to be a PRC resident enterprise.

On August 24, 2009, the State Administration of Tax issued a Notice on Questions Relating to Individual Income Tax on Equity Compensation. The notice clarifies circumstances in which equity compensation shall be taxable at the normal income tax rates for wage income, rather than at the lower rate available through use of a preferential tax calculation method. We cannot assure that the PRC tax authorities will not choose to apply this notice to our current or prior equity compensation grants and require payment of additional individual income tax by our current or former employees, or by us. See “Item 3: Key Information About the Company: Risk Factors—Risks Related to Doing Business in China—We would be adversely affected by the cancellation, modification or discontinuation of any preferential tax treatments currently available to us in the PRC.”

Labor Law

In 2008, a new Employment Contract Law of the PRC as well as implementing regulations came into effect. These new laws and regulations expand the rights and protections of employees and increase human resources, litigation and severance costs for employers. For example, the new law requires written employment contracts for all employees, restricts conditions under which an employer can terminate an employee’s employment contract and requires severance payments to be paid to employees upon termination of the employment relationship, unless specified exceptions apply.

Tort Law

In December 2009, the National People’s Congress promulgated a new Tort Liability Law of the People’s Republic of China (the “Tort Law”), which will come into effect on July 1, 2010. The Tort Law expands the duties of manufacturers, sellers and other entities to provide greater protection to consumers, and adds new provisions on product recalls, warnings and punitive damages. In addition the Tort Law imposes joint and several liability on internet service providers if (i) the internet service provider receives notice of infringing conduct and fails to take necessary measures in a timely manner, or (ii) the internet service provider is otherwise aware that an internet user is infringing the rights of another person through the internet service provider and fails to take necessary measures.

4C: Organizational Structure

eLong, Inc. is an indirect subsidiary of Expedia, Inc. (Nasdaq: EXPE), which is an online travel company, empowering business and leisure travelers with the tools and information to efficiently research, plan, book and experience travel. Through the ownership of our high-vote ordinary shares by an indirect subsidiary, Expedia Asia Pacific-Alpha Limited, as of March 31, 2010, Expedia, Inc. controls approximately 96% of our voting power.

eLong, Inc. is incorporated in the Cayman Islands and has three wholly-owned direct subsidiaries: eLong Information, which is incorporated in the PRC, Bravado Investments Limited (“Bravado”) which is incorporated in the British Virgin Islands, and Shanghai Xinwang Computer Technology Co., Ltd., which is incorporated in the PRC.

Foreign ownership of Internet content provision, call center, air ticketing and travel agency businesses is subject to significant restrictions under current PRC laws and regulations. As a result, we conduct operations in China through a series of contractual arrangements with our affiliated Chinese entities, which hold the licenses and permits required to conduct our business. Important licenses for our businesses which are held by our affiliated Chinese entities, include, the Internet content provision service (“ICP license”) and a license for call center services held by Beijing Information; the ICP license and bulletin board system permit held by Beijing Xici; the domestic and international air ticketing licenses held by Beijing Air; the domestic and international air ticketing licenses held by Hangzhou Air; and the domestic and international (inbound/outbound) travel agency licenses held by Beijing Travel. Beijing Information as holder of an ICP license and Beijing Xici are each subject to separate annual inspections in order to maintain these licenses.

As of March 31, 2010, Justin Tang, a member of our board of directors, Guangfu Cui, our CEO, and Jack Wang, our Vice President of Partner Service Group, own 75%, 12.5% and 12.5%, respectively, of Beijing Information as nominee shareholders; Mr. Tang and Mr. Cui, own 75% and 25% respectively, of Beijing Media, as our nominees; Beijing Information and Beijing Media own 93% and 7%, respectively, of Beijing Air; Beijing Information and Beijing Air own 70% and 30%, respectively, of Beijing Travel; Beijing Air owns 100% of Hangzhou Air; and Beijing Information owns 100% of Beijing Xici.

4D: Property and Equipment

We do not own any real estate, and lease all of our facilities. Our headquarters in Beijing, consisting of our call center, sales and marketing, information technology, web and other departments, is located in a leased space of approximately 10,000 square meters at Xingke Plaza, 10 Middle Jiuxianqiao Road, Chaoyang District, Beijing, 100015, PRC. We lease the premises for our headquarters under a number of leases, which will expire in 2015, unless we exercise our early termination rights. We also lease offices in major cities in China including Shanghai, Guangzhou, Shenzhen, Wuhan, Nanjing, Hangzhou, Chongqing and Chengdu, which have a total leased space of approximately 2,600 square meters. We believe that our existing facilities are adequate for our current needs and that additional space will be available to accommodate any future expansion.

Item 4A: Unresolved Staff Comments.

None.

Item 5: Operating and Financial Review and Prospects.

You should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report. This discussion contains forward-looking statements. See “Special Note Regarding Forward Looking Statements” at the beginning of this annual report. We caution you that our business and financial performance are subject to substantial risks and uncertainties. In evaluating our business, you should carefully consider the information provided under “Item 3: Key Information—Risk Factors” in this annual report.

OVERVIEW

We are a leading online travel service provider in China. We provide our customers with travel information and the ability to book rooms, air tickets, vacation packages and other travel related services utilizing a centralized modern call center and web-based distribution technologies.

Major Factors Affecting the Travel Industry

A variety of factors affect the travel industry in China, and hence our results of operations and financial condition, including:

Condition of the overall economy. Our financial results are affected by the overall condition of the economy and demand for travel services in China. China’s economy slowed significantly in the first half of 2009, due in large part to the international financial crisis, followed by a gradual recovery in the latter half of 2009 and first quarter of 2010. We anticipate that demand for travel services in China will continue to be linked to the condition of the broader economy for the foreseeable future.

Seasonality. The travel service industry in China is characterized by seasonal fluctuations and accordingly our revenues may vary from quarter to quarter. Historically, we have generated a larger portion of our revenues in the second half of the year. The first quarter of each year generally contributes the smaller portion of our annual revenues due to reduced business activity during the Chinese New Year holiday. In addition, the seasonality of the PRC travel market is affected by PRC national and provincial government regulation of the calendar of public holidays, including for example, the decision by the State Council in 2008 to restructure the annual calendar of public holidays by adding a few shorter holidays and reducing the May 1st holiday period from one week to three days. Our results in the future may continue to be affected by seasonal fluctuations in the use of our services by our customers and regulatory adjustments to the calendar of public holidays in China.

Disruptions. Individual travelers tend to modify their travel plans based on the occurrence of events such as:

	•		outbreaks, or the fear of outbreaks, of H1N1 flu (swine flu), severe acute respiratory syndrome, avian flu or other diseases;
	•		travel-related accidents;
	•		unseasonable or extreme weather;
	•		natural disasters;
	•		increased prices or fees in the hotel, airline or other travel-related sectors;
	•		threats of war or threats or incidents of terrorism; and
	•		general economic downturns.

Such events, depending on their intensity, duration, and scope, can reduce demand for travel services. Accordingly, our future results may be affected by the occurrence and nature of such events and their effect on the Chinese market for travel services.

OPERATING RESULTS

Principal Factors Affecting Our Results of Operations

Revenues. Our revenues are generated predominantly through our hotel reservation and, to a lesser extent, air ticketing businesses. We act as agents for the travel services that we provide, and earn commissions for our services. We have experienced year-over-year increases in total revenue of 10% from 2007 to 2008 and 9% from 2008 to 2009. Our increase in revenues from 2008 to 2009 was due to the increase in our hotel and air ticketing commissions accompanying the higher volume of hotel room nights we booked and air tickets we sold.

The table below sets forth the revenues from our principal lines of business for the periods indicated.

		Year ended December 31,
		2007								2008								2009
		RMB				%				RMB				%				RMB				US$				%
		(in thousands, except for percentage data)
Revenues
Hotel commissions(1)			240,803				76	%			253,458				73	%			256,830				37,626				68	%
Air ticketing commissions(2)			57,456				18	%			77,205				22	%			96,036				14,069				25	%
Other travel revenue(3)			5,588				2	%			1,284				0	%			2,697				395				1	%
Total travel revenue			303,847				96	%			331,947				95	%			355,563				52,090				94	%
Non travel revenue(4)			11,550				4	%			16,479				5	%			23,969				3,512				6	%
Total Revenues			315,397				100	%			348,426				100	%			379,532				55,602				100	%

As of December 31, 2009, our accounts receivable balance mainly represents amounts due from our travel suppliers, delivery companies and credit card companies. We perform periodic credit evaluations of the financial condition of our suppliers. We make provisions for doubtful accounts, individually and collectively, based on an assessment of the recoverability of individual accounts by considering the age of the receivable, our historical write-off experience and the general credit history of the supplier.

We receive commissions from our suppliers based on the number of hotel room nights we book and air tickets that we sell. The increase in accounts receivable, to RMB45.4 million (US$6.6 million) as of December 31, 2009 from RMB42.5 million as of December 31, 2008 is mainly due to the growth of our hotel and air ticketing business. Under our accounts receivable collection policy, we typically require our hotel and air agent suppliers to pay the balances due us within 30 to 60 days.

Cost of services. Cost of services consists primarily of employee compensation, service platform costs which are directly attributable to the provision of our travel and non travel services, telecommunications expenses, credit card handling fees, rent and related overhead expenses, air ticket delivery costs and share-based compensation. For the years ended December 31, 2007, 2008 and 2009, cost of services as a percentage of our total net revenues was 28%, 30% and 30%, respectively. Because these costs are largely volume-related, we expect that cost of services in future periods will generally fluctuate in line with any expansion or contraction of our business operations as well as the relative proportion of air and hotel revenues in our total business. Our air business generally has lower gross profit per transaction than our hotel business.

Operating expenses. Operating expenses primarily consist of service development, sales and marketing, and general and administrative expenses.

Service development expenses primarily consist of expenses we incur to develop our transaction and service platform, expenses to develop content for and to maintain websites employee compensation for our hotel and air product employees, and share-based compensation. We expect service development expenses to increase as we continue to upgrade our services and invest in technology, websites and hotel and air staffing. Our service development expenses as a percentage of our total net revenues were 16%, 16%, and 16% for the years ended December 31, 2007, 2008 and 2009, respectively.

Sales and marketing expenses include online and offline advertising expenses, commissions to third party distribution partners and resellers, expenses associated with our loyalty program, employee compensation for marketing personnel, and share-based compensation. Sales and marketing expenses as a percentage of our total net revenues were 43%, 50% and 37% for the years ended December 31, 2007, 2008 and 2009, respectively. The decrease in 2009 was largely a result of decreased marketing promotion expenses, decreased labor costs and decreased sales commissions paid to third party distribution partners, in line with decreased transaction volumes in these distribution channels.

General and administrative expenses primarily include finance, legal, human resources, auditing and executive office expenses. General and administrative expenses decreased as a percentage of our total net revenues for the year ended December 31, 2009 to 13% from 16% for the year ended December 31, 2008, and 17% for the year ended December 31, 2007, primarily due to reduced external consulting fees and bad debt provisions, partially offset by an increase in labor costs.

We participate in various PRC government-mandated social insurance and employee welfare plans. These government-mandated plans include unemployment insurance, medical insurance, work injury insurance, maternity insurance, pension benefits and housing funds. We are required to make monthly contributions to these plans at rates which are a fixed percentage of the salary of each employee. We are not obligated to provide retirement benefits beyond the monthly contributions we make during the period of an employee’s employment with us. Contributions to these plans are expensed as incurred. In 2007, 2008 and 2009, we contributed RMB17.8 million, RMB23.5 million and RMB28.2 million (US$4.1 million), respectively, to various government-mandated social insurance and welfare plans. The increase in 2009 was due primarily to increased mandatory social insurance contributions, partially offset by decreased headcount.

During 2009, we recognized a write-off and impairment of property and equipment of RMB0.5 million (US$0.07 million), which was mainly related to computer equipment. During 2008, we recognized a charge of RMB1.0 million (US$0.1 million), which was the write-off of legacy software systems after new systems and operations procedures were implemented, and an impairment of intangible assets of RMB0.4 million (US$0.06 million) for the Fortune Trip trade name, which we do not intend to actively use. During 2007, we recognized an impairment of property and equipment of RMB0.5 million which related to the vacation package business that we suspended in July 2007 and a one-time impairment of intangible assets of RMB0.5 million which related to the customer list of Fortune Trip.

During the year ended December 31, 2009, we recorded foreign currency exchange losses of RMB0.4 million (US$0.1 million) as compared to foreign currency exchange losses of RMB60.9 million (US$8.9 million) in 2008. The foreign currency exchange losses in 2008 and 2009 were the result of the Renminbi’s appreciation against the U.S. dollar and was derived from the remeasurement of our U.S. dollar-denominated cash deposits and short-term investments into Renminbi for financial reporting purposes. This exchange loss was partially offset by 2009 interest income of RMB12.9 million (US$1.9 million).

Under PRC law, our services related revenues are subject to a 5% business tax. In addition, our advertising service revenues are subject to a cultural development surcharge of 3%. Both of these items are captured in “Business tax and surcharges” in the table below under “Results of Operations.”

Income tax. Because we, our subsidiaries and our affiliated Chinese entities are incorporated in different jurisdictions, we file separate income tax returns. Under the laws of the Cayman Islands, eLong, Inc. is exempt from income tax and there are no withholding taxes.

Prior to January 1, 2008, in accordance with prior legislation, all of our subsidiaries and affiliated Chinese entities, except for eLong Information and Beijing Information, were subject to corporate income tax at a rate of 33%. However, enterprises approved as High New Technology Enterprises were eligible for a favorable tax rate of 15% (with a tax exemption for the first three years of operation and a favorable tax rate of 7.5% for the following three years). eLong Information was approved as a High New Technology Enterprise in 2006, and enjoyed an income tax rate of 15% in 2007. Beijing Information was approved as a High New Technology Enterprise and enjoyed a reduced income tax rate of 15% rate in 2007.

The CIT Law imposes a unified income tax rate of 25%, effective January 1, 2008, for both domestic and foreign invested enterprises and provides that High New Technology Enterprises can enjoy a favorable tax rate of 15%. eLong Information and Beijing Information have both been certified as High New Technology Enterprises under the CIT Law for the period from December 2008 to December 2011, and were thus subject to a preferential income tax rate of 15% in 2008 and 2009.

In assessing the realization of deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible or utilized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

Critical Accounting Policies

The discussion and analysis of our operating results and financial condition are based on our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our operating results and financial condition are sensitive to assumptions and estimates that underlie the preparation of our consolidated financial statements. We base our assumptions and estimates on historical experience and on various other assumptions that we believe to be reasonable and which form the basis for making judgments about matters that are not readily apparent from other sources. Our management evaluates these estimates on an ongoing basis. Actual results may differ from these estimates as facts, circumstances and conditions change or as a result of different assumptions.

Our management considers the following factors in reviewing our financial statements:

	•		the selection of critical accounting policies; and
	•		the judgments and other uncertainties affecting the application of those critical accounting policies.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our consolidated financial statements. Our principal accounting policies are set forth in additional detail in Note (2) to our audited consolidated financial statements included in this annual report. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Depreciation. Our property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account their estimated residual value. We review periodically our policies regarding the estimated useful lives of the assets. The useful lives are based on our historical experience with similar assets and taking into account anticipated technological changes.

Impairment of long-lived assets. We periodically review the carrying amounts of long-lived assets, including property, equipment and definitive lived intangible assets, to assess whether they are impaired. We test these assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When such a decline has occurred, we adjust the carrying amount to the recoverable amount. We measure the recoverability of assets by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. In determining estimates of future cash flows, significant judgment in terms of projection of future cash flows and other assumptions is required. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. The fair value is determined based upon a present value of future cash flows.

Impairment of goodwill and certain intangible assets. We annually test whether goodwill and intangible assets, which are not subject to amortization, have been impaired. Such tests are performed more frequently if events and circumstances indicate that the assets might be impaired. We evaluate the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the fair value of the reporting unit is compared to its carrying value including goodwill. The fair value of the reporting unit is determined based upon the present value of estimated future cash flows of the reporting unit. If the fair value of the reporting unit is less than the carrying value, a second step is performed which compares the implied fair value of the reporting unit’s goodwill to the carrying value of the goodwill. In determining the implied fair value of the reporting unit goodwill, the fair values of the tangible net assets and recognized and unrecognized intangible assets are deducted from the fair value of the reporting unit. If the implied fair value of the reporting unit goodwill is lower than its carrying amount, goodwill is impaired and is written down to its implied fair value. Where quoted market prices are not available, fair value is determined using valuation techniques such as discounted cash flows. The impairment test on an intangible asset that is not subject to amortization consists of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Provision for doubtful accounts. We maintain an allowance for doubtful accounts for estimated probable losses resulting from the inability of our customers to make required payments. We base our estimates on the aging of our accounts receivable balance, customer credit-worthiness, and historical write-off experience. If the financial condition of our customers were to deteriorate, actual write-offs might be higher than expected, which could adversely affect our operating results and financial condition through the recording of a higher level of provisions. During the years ended December 31, 2008 and December 31, 2009, we wrote off provisions for accounts receivables of RMB0.1 million and RMB3.2 million, respectively, which were aged one year or longer and deemed to be uncollectable after all means of collection have been exhausted and the potential for recovery is considered remote.

Deferred income tax. Deferred income taxes are provided using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion, or all, of the deferred tax assets will not be realized.

Prior to the adoption of Accounting Standard Codification (“ASC” 805, or ASC 805, Business Combinations (Pre-Codification: Statement of Financial Accounting Standard (“SFAS”), No. 141(R), Business Combinations), in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, the tax benefits associated with the utilization of pre-acquisition net operating loss carryforwards for which a valuation allowance was established at the date of the acquisition are recognized in the consolidated financial statements after the acquisition date as follows: (i) first to reduce to zero any goodwill related to the acquisition; (ii) second to reduce to zero other non-current intangible assets related to the acquisition; and (iii) third to reduce income tax expense. After the adoption of ASC 805, in accordance with ASC subtopic 805-10 (“ASC 805-10”), Business Combinations: Overall (Pre-Codification: SAS No. 141(R), Business Combinations), the tax benefits associated with the utilization of pre-acquisition net operating loss carryforwards for which a valuation allowance was established at the date of the acquisition are recognized in the consolidated financial statements after the acquisition date as an adjustment to income tax expense.

Provision for loyalty points. Cardholders of our eLong membership program can earn loyalty points based on their usage of the cards. We award travel services and other non-cash gifts to the cardholders upon the redemption of loyalty points that are accumulated based on the cardholders’ transactions. We recognize estimated costs to provide free travel and other non-cash gifts based on historical redemption rates and recognize such costs as sales and marketing expenses in the statements of operations. The liabilities for loyalty points are reduced upon the redemption or expiration of the loyalty points. If actual redemption rates differ significantly from our estimates, it will result in an adjustment to our liabilities and the corresponding expenses.

eCoupons. In September 2009, we launched our eCoupon program. Customers who receive our eCoupons register them on-line, and then may use the eCoupons by making an on-line hotel booking with a hotel designated on our eLong.com Chinese language site with the Chinese coupon icon. After completing a hotel stay, the customer will receive a credit in his eLong virtual cash on-line account equal to the amount of eCoupons used. eLong customers then choose to request mobile phone credit or to have the funds (less applicable taxes) transferred to their bank account. Other than the actual redeemed cost of eCoupons, the cost of the eCoupons is allocated to the underlying revenue transactions expected to occur in order to earn the discount. The eCoupons granted to customers expire after a set date in accordance with the terms of the particular eCoupon issuance.

Share-based compensation. We have adopted ASC subtopic 718-10 (“ASC 718-10”), Compensation-Stock Compensation: Overall (Pre-Codification: SFAS No. 123R, Share-Based Payment). Under the fair value based method, compensation cost related to employee stock options and similar equity instruments is measured at the grant date based on the value of the award and is recognized over the requisite service period, which is usually the vesting period. We determine fair value using the Black-Scholes model. Under this model, certain assumptions, including the risk-free interest rate, the expected life of the options and the expected volatility, are required to determine the fair value of the options. Forfeitures are estimated at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. If different assumptions had been used, the fair value of the options, net of estimated forfeitures, would have been different from the amount we computed and recorded, which would have resulted in either an increase or decrease in the compensation cost. We decreased the estimated forfeiture rate in 2009 due to lower rate of turnover among employees who had been granted options and/or performance units. Stock-based compensation awards which are settled in cash upon vesting are classified as liabilities and included in accrued expenses and other current liabilities in the consolidated balance sheet. Compensation cost related to liability-classified awards, is determined based on the current share price and other pertinent factors at grant date, and the proportionate amount of the requisite service that has been rendered to date.

We account for equity instruments issued to non-employee vendors in accordance with the provisions of ASC 718-10 and ASC 505, Equity: (Pre-Codifiction: EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the date on which the counterparty’s performance is complete. We believe that our assumptions, including the risk-free interest rate and expected life used to determine fair value, are appropriate. However, if different assumptions had been used, the fair value of the equity instruments issued to non-employee vendors would have been different from the amount we computed and recorded, which would have resulted in either an increase or decrease in the associated compensation cost.

Revenue recognition. Our revenues are principally derived from the provision of travel services, including hotel reservation, air ticketing and other related travel services.

Revenues from our hotel reservation services are determined by the number of room nights we book and the commissions we earn. Generally, our customers pay the hotels directly, and we collect our commissions based on the number of room nights our customers stay. Our commission from hotel reservation services is recognized after hotel customers have completed their hotel stay, based on our confirmation with the hotel of the customer’s stay. Because we act as an agent in transactions with no risk of loss due to obligations for cancelled visits, we recognize our revenues from hotel transactions on a net basis in our statements of operations.

Revenues derived from our air ticketing service represent the second largest component of our travel-related revenues. Commissions from air ticketing services are recognized upon the delivery of the ticket to the customer, net of estimated cancellations. Estimated cancellations were insignificant for the years ended December 31, 2007, 2008 and 2009. In some instances, airlines provide discretionary commissions if we achieve performance targets. Such commissions are recognized on a cash basis because we cannot reasonably estimate them.

Other travel revenue consists primarily of commission revenue from the sale of travel insurance sold with our air tickets. We recognize this revenue when the travel insurance is issued for the customer, net of cancellations. Non-travel revenue for 2007, 2008 and 2009 primarily includes advertising revenue from Beijing Xici. Additional description of our revenue recognition policies is contained in our consolidated financial statements.

We believe our revenue recognition policies are consistent with ASC subtopic 605-10 (“ASC 605-10”), Revenue Recognition: Overall (Pre-Codification: Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements) and ASC subtopic 605-45, Revenue Recognition: Principal Agent Considerations (Pre-Codification: EITF 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent). As we operate as an agent of our travel suppliers, we have no risk of loss due to obligations for cancelled services. As such, we are not the primary obligor in the travel reservation services and we therefore recognize commissions on a net basis.

Results of Operations

The following table sets forth certain information relating to our results of operations as of the dates and for the periods indicated:

		Year ended December 31,
		2007				2008				2009				2009
		RMB				RMB				RMB				US$
Revenues:
Travel			303,846,548				331,947,035				355,562,669				52,090,225
Other			11,550,123				16,478,511				23,969,363				3,511,532
Total revenues			315,396,671				348,425,546				379,532,032				55,601,757
Business tax and surcharges			17,810,292				21,112,717				21,638,510				3,170,060
Net revenues			297,586,379				327,312,829				357,893,522				52,431,697
Cost of services			82,497,585				96,996,309				106,934,784				15,666,034
Gross profit			215,088,794				230,316,520				250,958,738				36,765,663
Operating expenses:
Service development			48,602,279				52,584,041				58,121,508				8,514,849
Sales and marketing			126,971,094				163,528,250				133,195,446				19,513,243
General and administrative			52,005,466				53,652,427				47,670,045				6,983,701
Amortization of intangible assets			1,060,000				848,906				653,439				95,729
Charges related to property and equipment and intangible assets			1,038,896				1,384,814				71,635				10,495
(Loss)/ income from operations			(14,588,941	)			(41,681,918	)			11,246,665				1,647,646
Other income (expenses):
Interest income			55,470,781				29,020,353				12,880,473				1,887,000
Foreign exchange loss			(65,819,578	)			(60,937,889	)			(431,856	)			(63,267	)
Other			131,630				—				(11,608	)			(1,701	)
Total other (expenses)/income, net			(10,217,167	)			(31,917,536	)			12,437,009				1,822,032
(Loss)/income from continuing operations before income tax expense			(24,806,108	)			(73,599,454	)			23,683,674				3,469,678
Income tax expense			885,343				2,993,678				3,780,585				553,859
(Loss)/income from continuing operations			(25,691,451	)			(76,593,132	)			19,903,089				2,915,819
Income from discontinued operations before income tax expense			112,260				—				—				—
Income tax expense of discontinued operations			8,420				—				—				—
Total income from discontinued operations, net of tax			103,840				—				—				—
Net (loss)/income			(25,587,611	)			(76,593,132	)			19,903,089				2,915,819

2009 Compared to 2008

Revenues. The following table sets forth certain information relating to our revenues for the years ended December 31, 2008 and 2009.

		Year ended December 31,
		2008								2009
						% of												% of				%
		RMB				revenues				RMB				US$				revenues				growth
		(in thousands, except percentage data)
Revenues
Hotel commissions			253,458				73	%			256,830				37,626				68	%			1	%
Air ticketing commissions			77,205				22	%			96,036				14,069				25	%			24	%
Other travel revenue			1,284				0	%			2,697				395				1	%			110	%
Total travel revenue			331,947				95	%			355,563				52,090				94	%			7	%
Non travel revenue			16,479				5	%			23,969				3,512				6	%			45	%
Total revenues			348,426				100	%			379,532				55,602				100	%			9	%

The following table sets forth the number of room nights booked and the average commission per room night, as well as the number of air tickets sold, for the years ended December 31, 2008 and 2009.

		Year ended December 31,
										%
		2008				2009				growth
Number of room nights booked (000s)			3,945				4,316				9	%
Average commission per room night (RMB)			64				60				(6	%)
Number of air tickets sold (000s)			1,788				2,205				23	%
Average commission per air ticket (RMB)			43				44				2	%

For the year ended December 31, 2009, we generated gross revenues of RMB379.5 million (US$55.6 million), an increase of 9% over RMB348.4 million in revenues generated in the year ended December 31, 2008. The increase was primarily attributable to a 7% year on year increase in our travel revenue. Our travel revenue consists primarily of hotel and air ticketing, and the changes in each category in 2009 are discussed below.

Hotel Reservations. The increase in our hotel reservations revenues from RMB253.5 million in 2008 to RMB256.8 million (US$37.6 million) in 2009, a year on year growth of 1%, reflect an increase in the number of hotel room nights we booked from 3.95 million in 2008 to 4.32 million in 2009 and a decrease in commission per room night to RMB60 (US$8.8), down RMB4 from 2008. The increase in the number of hotel room nights was due to our increased customer base, which includes both old and new customers. We also increased our hotel product offerings from approximately 7,000 hotels as of December 31, 2008 to over 9,800 hotels as of December 31, 2009. The decrease in commission per room night was due to a decline in average room rate per room night, a growth in the proportion of room nights from budget hotels and our eCoupon program.

Air ticketing. The increase in our air ticketing commission revenues from RMB77.2 million in 2008 to RMB96.0 million (US$14.1 million) in 2009, a year on year growth of 24%, was mainly attributable to an increase in the number of air tickets booked which increased from 1.79 million in 2008 to 2.21 million in 2009, and an increase in revenue per air ticket from RMB43 in 2008 to RMB44 (US$6.4) in 2009. The 2009 growth was the result of continuing investment in our website, call center and customer service.

Other travel revenues. Our other travel revenues increased from RMB1.3 million in 2008 to RMB2.7 million (US$0.4 million) in 2009 mainly due to an increase in commission revenue due to the volume growth of travel insurance sold with our air tickets.

Business tax and surcharges. We recorded more business taxes and surcharges in 2009 compared to 2008 due to increases in our revenues. Business tax was 6.1% of total revenue in 2008 and decreased to 5.7% in 2009, primarily due to a decrease in the number of our inter-company transactions.

Cost of services and gross profit. For the year ended December 31, 2009, our cost of services was 30% of our total net revenues, which was the same as 2008.

Operating expenses. The following table sets forth a breakdown of our operating expenses for the years ended December 31, 2008 and 2009.

		Year ended December 31,
		2008								2009
						% of net												% of net				%
		RMB				revenues				RMB				US$				revenues				growth
		(in thousands, except for percentage data)
Operating expenses
Service development			52,584				16	%			58,122				8,515				16	%			11	%
Sales and marketing			163,528				50	%			133,195				19,513				37	%			(19	%)
General and administrative			53,653				16	%			47,670				6,984				13	%			(11	%)
Amortization of intangible assets			849				—				653				96				—				(23	%)
Changes related to property and equipment and intangible assets			1,385				1	%			72				10				—				(95	%)
Total operating expenses			271,999				83	%			239,712				35,118				67	%			(12	%)

Our operating expenses in 2009 decreased by 12% to RMB239.7 million (US$35.1 million) from RMB272.0 million in 2008.

Service development. Our service development expenses increased 11% to RMB58.1 million (US$8.5 million) in 2009 from RMB52.6 million in 2008 primarily due to an increase in headcount, partially offset by a decrease in professional fees. Our service development expenses were 16% of net revenues in both 2008 and 2009.

Sales and marketing. In 2009, our sales and marketing expenses decreased 19% to RMB133.2 million (US$19.5 million) from RMB163.5 million in 2008, which was mainly due to decreased marketing promotion expenses, labor costs and sales commissions. Our sales and marketing expenses were 37% of net revenues in 2009 as compared to 50% in 2008.

General and administrative. Our general and administrative expenses decreased 11% to RMB47.7 million (US$7.0 million) in 2009 from RMB53.7 million in 2008 which was primarily due to a decrease in professional fees and lower bad debt provisions, partially offset by an increase in labor costs. Our general and administrative expenses as a percentage of net revenues for 2009 decreased to 13% compared to 16% in 2008.

Other income (expenses), net. We recorded net other income of RMB12.4 million (US$1.8 million) in 2009 compared to net other expenses of RMB31.9 million in 2008. The net other income in 2009 was primarily due to interest income of RMB12.9 million (US$1.9 million) in 2009, partially offset by a foreign exchange loss of RMB0.4 million (US$0.1 million) resulting from the appreciation of the Renminbi during 2009. In 2008, we recorded a much larger foreign exchange loss of RMB60.9 million due to the significant appreciation of the Renminbi, partially offset by interest income of RMB29.0 million.

Income tax expense. We incurred a tax expense of RMB3.8 million (US$0.5 million) in 2009, compared to a tax expense of RMB3.0 million in 2008. The increase in income tax expense in 2009 compared to 2008 is mainly due to current tax payable for eLong Information.

Net income. Net income was RMB19.9 million (US$2.9 million) in 2009 from income from operations of RMB11.2 million in 2009, as a result of the factors discussed above. We recorded a net income applicable to ordinary shareholders of RMB19.9 million (US$2.9 million) for the year ended December 31, 2009 and a net loss applicable to ordinary shareholders of RMB76.6 million for the year ended December 31, 2008.

2008 Compared to 2007

Revenues. The following table sets forth certain information relating to our revenues for the years ended December 31, 2007 and 2008.

		Year ended December 31,
		2007								2008
						% of								% of				%
		RMB				revenues				RMB				revenues				growth
		(in thousands, except percentage data)
Revenues
Hotel commissions			240,803				76	%			253,458				73	%			5	%
Air ticketing commissions			57,456				18	%			77,205				22	%			34	%
Other travel revenue			5,588				2	%			1,284				0	%			(77	%)
Total travel revenue			303,847				96	%			331,947				95	%			9	%
Non travel revenue			11,550				4	%			16,479				5	%			43	%
Total revenues			315,397				100	%			348,426				100	%			10	%

The following table sets forth the number of room nights booked and the average commission per room night, as well as the number of air tickets sold, for the years ended December 31, 2007 and 2008.

		Year ended December 31,
										%
		2007				2008				growth
Number of room nights booked (000s)			3,711				3,945				6	%
Average commission per room night (RMB)			65				64				(1	%)
Number of air tickets sold (000s)			1,416				1,788				26	%
Average commission per air ticket (RMB)			41				43				5	%

For the year ended December 31, 2008, we generated gross revenues of RMB348.4 million, an increase of 10% over RMB315.4 million in revenues generated in the year ended December 31, 2007. The increase was primarily attributable to a 9% year on year increase in our travel revenue. Our travel revenue consists of hotel, air ticketing and other travel.

Hotel Reservations.The increase in our hotel reservations revenues from RMB240.8 million in 2007 to RMB253.5 million in 2008, a year on year growth of 5%, reflects an increase in the number of hotel room nights we booked from 3.71 million in 2007 to 3.95 million in 2008 and a decrease in commission per room night to RMB64, down RMB1 from 2007. The increase in the number of hotel room nights was due to our increased customer base, which includes both old and new customers as well as increases in revenue from our third party distribution channels including China Telecom and China Unicom. We also increased our hotel product offerings from approximately 4,800 hotels as of December 31, 2007 to over 7,000 hotels as of December 31, 2008.

Air ticketing. The increase in our air ticketing commission revenues from RMB57.5 million in 2007 to RMB77.2 million in 2008, a year on year growth of 34%, was mainly attributable to an increase in the number of air tickets booked which increased from 1.42 million in 2007 to 1.79 million in 2008, and an increase in revenue per air ticket from RMB41 in 2007 to RMB43 in 2008. The 2008 growth was the result of investment in technology to improve our call center and customer service.

Other travel revenues. Our other travel revenues decreased from RMB5.6 million in 2007 to RMB1.3 million in 2008 mainly due to the suspension of our vacation package business in July 2007 and the termination of our contract with Travelscape in March 2008.

Our non-travel service revenues increased from RMB11.6 million in 2007 to RMB16.5 million in 2008 mainly due to an increase in internet advertising revenue of Beijing Xici.

Business tax and surcharges. We recorded more business taxes and surcharges in 2008 compared to 2007 due to increases in our revenues. Business tax was 5.6% of total revenue in 2007 and increased to 6.1% in 2008, primarily due to the increase of internal revenues arising from transfer pricing between eLong Information and Beijing Air.

Cost of services and gross profit. For the years ended December 31, 2007 and 2008, our cost of services was 28% and 30% of our total net revenues, respectively. The two percent reduction in our gross margin from 72% in 2007 to 70% in 2008 was primarily due to our air ticketing business, which has a lower gross margin than our hotel business, accounting for a larger percentage of our revenue in 2008 as compared to 2007.

Operating expenses. The following table sets forth a breakdown of our operating expenses for the years ended December 31, 2007 and 2008.

		Year ended December 31,
		2007								2008
						% of net								% of net				%
		RMB				revenues				RMB				revenues				growth
		(in thousands, except for percentage data)
Operating expenses
Service development			48,602				16	%			52,584				16	%			8	%
Sales and marketing			126,971				43	%			163,528				50	%			29	%
General and administrative			52,006				18	%			53,653				16	%			3	%
Amortization of intangible assets			1,060				—				849				—				(20	%)
Changes related to property and equipment and intangible assets			1,039				—				1,385				1	%			33	%
Total operating expenses			229,678				77	%			271,999				83	%			18	%

Our operating expenses in 2008 increased by 18% to RMB272.0 million from RMB229.7 million in 2007.

Service development. Our service development expenses increased 8% to RMB52.6 million in 2008 from RMB48.6 million in 2007 primarily due to additional amounts we invested in our technology, website, hotel, and air product offerings. Our service development expenses were 16% of net revenues in both 2007 and 2008.

Sales and marketing. In 2008, our sales and marketing expenses increased 29% to RMB163.5 million from RMB127.0 million in 2007, which was mainly due to the increased sales commissions in line with growth in third party distribution channels including China Telecom and China Unicom and increased online marketing efforts as compared to 2007. Our sales and marketing expenses were 50% of net revenues in 2008 as compared to 43% in 2007.

General and administrative. Our general and administrative expenses increased 3% to RMB53.7 million in 2008 from RMB52.0 million in 2007 which was primarily due to increased employee compensation and system development costs, partially offset by decreased external consulting fees. Our general and administrative expenses as a percentage of net revenues for the year ended December 31, 2008 decreased to 16% compared to 18% for the year ended December 31, 2007, primarily due to increased revenues.

Other income (loss), net. We recorded net other loss of RMB31.9 million in 2008 compared to net other loss of RMB10.2 million in 2007. The net other loss in 2008 was primarily due to a foreign exchange loss of RMB60.9 million resulting from the appreciation of the Renminbi during 2008, partially offset by interest income of RMB29.0 million in 2008.

Income tax expense. We incurred a tax expense of RMB3.0 million in 2008, compared to a tax expense of RMB0.9 million in 2007. The increase in income tax expense in 2008 compared to 2007 is mainly due to provision of a valuation allowance for eLong Information.

Net loss. Net loss increased to RMB76.6 million in 2008 from a net loss of RMB25.6 million in 2007, as a result of the factors discussed above. We recorded a net loss applicable to ordinary shareholders of RMB76.6 million for the year ended December 31, 2008 and a net loss applicable to ordinary shareholders of RMB25.6 million for the year ended December 31, 2007.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

As of December 31, 2009, we had approximately RMB639.5 million (US$93.7 million) in cash and cash equivalents and RMB313.5 million (US$45.9 million) of short-term investments. Our cash and cash equivalents consist of cash on hand and demand deposits placed with banks or other financial institutions. Our short-term investments are time deposits of nine months duration in commercial banks located outside of China. In addition, we hold RMB60 million (US$8.8 million) of restricted cash, which consists of time deposits in an escrow account in China required to support our air ticket business.

The following table sets forth a summary of our cash flows for the periods indicated.

		Year ended December 31,
		2007				2008				2009				2009
		RMB				RMB				RMB				US$
		(in thousands)
Net cash provided by (used in) operating activities			42,349				(14,076	)			69,014				10,111
Net cash provided by (used in) investing activities			(43,638	)			(641,501	)			248,306				36,377
Net cash provided by (used in) financing activities			7,355				(98,331	)			948				139
Effect of foreign exchange rate changes on cash			(66,943	)			(62,997	)			(341	)			(50	)
Net increase (decrease) in cash and cash equivalents			(60,876	)			(816,905	)			317,927				46,577
Cash and cash equivalents at beginning of year			1,199,323				1,138,446				321,541				47,106
Cash and cash equivalents at end of year			1,138,447				321,541				639,468				93,683

Operating activities. Net cash provided by operating activities in 2009 was RMB69.0 million (US$10.1 million), compared to net cash used in operating activities in 2008 of RMB14.1 million and net cash provided by operating activities in 2007 of RMB42.3 million. The change from cash outflow in 2008 to cash inflow in 2009 was mainly due to net income of RMB19.9 million (US$2.9 million) in 2009 compared with net loss of RMB76.6 million in 2008, and a decrease in foreign exchange loss from RMB61.1 million in 2008 to RMB0.7 million (US$0.1 million) in 2009. The change from cash inflow in 2007 to cash outflow in 2008 was mainly due to increased headcount and labor costs of RMB128.9 million in 2008 compared to RMB116.7 million in 2007, as well as higher advertising and promotion expenses of RMB125.4 million in 2008 compared to RMB89.0 million in 2007.

Investing activities. Our net cash provided by investing activities was RMB248.3 million (US$36.4 million) in 2009, compared to net cash used in investing activities of RMB641.5 million in 2008 and RMB43.6 million in 2007. The change from cash outflow in 2008 to cash inflow in 2009 was mainly due to RMB635.6 million (US$93.1 million) cash received in proceeds from short-term investments, partially offset by RMB313.6 million (US$45.9 million) cash payment in purchase of short-term investments. The level of cash used in investing activities was significantly higher in 2008 than in 2007 primarily due to short-term investments of RMB655.0 million and capital expenditures of RMB32.9 million.

Financing activities. Our net cash provided by financing activities was RMB0.9million (US$0.1 million) in 2009, compared to net cash used in financing activities of RMB98.3 million and net cash provided by financing activities of RMB7.4 million in 2008 and 2007, respectively. The net cash provided by financing activities in 2009 was mainly from the exercise of stock options and stock warrants of RMB1.2 million (US$0.2 million). The net cash used in financing activities in 2008 was mainly from our repurchase of ordinary shares of RMB103.4 million. The net cash from financing activities in 2007 was mainly from the exercise of stock options of RMB3.1 million and proceeds received on behalf of related parties of RMB4.8 million.

Our capital expenditures totaled RMB22.2 million, RMB32.9 million and RMB12.0 million (US$1.8 million) in 2007, 2008, and 2009, respectively. Our capital expenditures in 2009 related primarily to purchases of software, computer equipment, servers and computer software to support the development of our business. Capital expenditures in 2010 have been, and are expected to continue to be, funded through operating cash flows and through our existing capital resources.

Capital Resources

As of December 31, 2009, our primary sources of liquidity were RMB639.5 million (US$93.7 million) in cash and cash equivalents, RMB60.0 million (US$8.8 million) in restricted cash and RMB313.5 million (US$45.9 million) of short-term investments. We have no outstanding bank loans or other financial guarantees or similar commitments to guarantee the payment obligations of third parties. We believe that our available cash and anticipated future operating cash flows will be sufficient to fund currently anticipated liquidity needs in the near term. However, any projections of future cash inflows and outflows and any projections of the future state of the PRC economy and travel industry are subject to substantial uncertainty. See “Item 3: Key Information—Risk Factors.”

TREND INFORMATION

Other than as disclosed elsewhere in this annual report, as of March 31, 2010, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial condition.

OFF-BALANCE SHEET ARRANGEMENTS

We have not entered into any off-balance sheet arrangements, transactions or other relationships with unconsolidated entities. We do not have any outstanding derivative financial instruments, off-balance sheet guarantees or arrangements, interest rate swap transactions or foreign currency forward contracts. We do not engage in trading activities involving non-exchange traded contracts.

CONTRACTUAL OBLIGATIONS

The following table presents our aggregate contractual obligations as of December 31, 2009 with payments due in the periods indicated:

(in RMB millions)		Total Payments due				Less than 1 year				1-3 Years				3-5 Years				More than 5 years
Operating Lease Obligations(1)			30.5				10.9				19.6				—				—
Purchase Obligations(2)			0.3				0.2				0.1				—				—
Total			30.8				11.1				19.7				—				—

INFLATION AND MONETARY RISK

Inflation in China has not had a material impact on our results of operations in recent years. According to the National Bureau of Statistics of China, the change in Consumer Price Index in China was 4.8%, 5.9% and -0.7% in 2007, 2008 and 2009, respectively. The scope and extent of inflation could adversely affect the Chinese economy, business and personal travel and our results of operations. See “Item 3: Key information on the Company—Risk Factors—Risk related to Doing Business in the People’s Republic of China—A slow-down of, or increased volatility in, economic growth in China may adversely affect our growth and profitability.”

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Due to our holdings of U.S. dollar and Renminbi cash and cash equivalents, restricted cash and short-term investments, we face interest rate risk and foreign exchange rate risk.

Interest rate risk. Our exposure to changes in interest rates relates primarily to the interest income generated by our cash and cash equivalents, restricted cash and short-term investments deposited in banks. Cash and cash equivalents consist of cash on hand and demand deposits placed with banks or other financial institutions. Restricted cash consists of time deposits in an escrow account in China required to support our air ticket business. Short-term investments are time deposits of nine months in commercial banks located outside of China.

The carrying amounts of cash and cash equivalents, restricted cash, short-term investments, accounts receivable and other receivables represent our principal exposure to credit risk in relation to our financial assets. As of December 31, 2009, substantially all of our cash and cash equivalents, restricted cash and short-term investments were held with large international banks.

We have not used any derivative financial instruments to hedge interest rate risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates, although our future interest income may fluctuate in line with changes in interest rates. The risk associated with fluctuating interest rates is principally confined to our cash and cash equivalents, restricted cash and short-term investments which are deposited in banks.

During 2009, we recorded interest income of RMB12.9 million (US$1.9 million). The following table sets forth a sensitivity analysis suggesting how this interest income would have been impacted if interest rates were: (i) 30% lower, (ii) 15% lower, (iii) actual, (iv) 15% higher and (v) 30% higher.

		2009				2009				2009				2009				2009
		(-30%)				(-15%)				Actual				(15%)				(30%)
		RMB‘000				RMB‘000				RMB‘000				RMB‘000				RMB‘000
2009 interest income			9,016				10,948				12,880				14,812				16,744

Foreign exchange risk. Substantially all of our revenue-generating operations are transacted in Renminbi, which is not fully convertible into foreign currencies. In addition, a substantial majority of our cash and cash equivalents, restricted cash and short-term investments are held in U.S. dollars outside of China. Accordingly, fluctuation in the U.S. dollar to Renminbi exchange rate may have a significant on our financial results. As of December 31, 2009, we had approximately RMB639.5 million (US$93.7 million) in cash and cash equivalents, RMB60.0 million (US$8.8 million) of restricted cash and RMB313.5 million (US$45.9 million) of short-term investments. As of December 31, 2009, approximately 75%, of our cash and cash equivalents and 100% of our short term investments were denominated in U.S. dollars. As of December 31, 2009, 25% of our cash and cash equivalents and 100% of our restricted cash were denominated in Renminbi.

We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency risk. During the year ended December 31, 2009, we recorded RMB0.4 million (US$0.06 million) in foreign exchange losses due to the appreciation of the Renminbi against the United States dollar. During 2009, the value of the Renminbi appreciated 0.09% against the U.S. dollar. The following table sets forth a sensitivity analysis suggesting how this gain/loss would have been impacted if the exchange rate of the Renminbi against the U.S. dollar had (i) appreciated by 10%, (ii) appreciated by 5%, (iii) actual, (iv) depreciated by 5% and (v) depreciated by 10%.

		2009				2009				2009				2009				2009
		(-10%)				(-5%)				Actual				(5%)				(10%)
		RMB‘000				RMB‘000				RMB‘000				RMB‘000				RMB‘000
2009 foreign exchange gain/(loss)			(48,000	)			(24,000	)			(432	)			24,000				48,000

If the Renminbi continues to appreciate we will continue to record foreign exchange losses on United States dollar denominated assets and these losses are likely to be material. See “Item 3: Key Information—Risk Factors—Risks Related to Doing Business in the People’s Republic of China—Fluctuation of the Renminbi may materially and adversely affect our financial results and the value of our company and ADSs” and “Item 3: Key Information—Risk Factors—Risks Related to Our Business—We may not use our cash, cash equivalents, restricted cash and short-term investments effectively.”

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

For a discussion of recently issued accounting pronouncements, see “Note (2) Summary of Significant Accounting Policies—(y) Recently issued accounting pronouncements” in the Notes to the Consolidated Financial Statements contained in this annual report.

Item 6: Directors, Senior Management and Employees.

Directors and Senior Management

Our board of directors currently consists of nine directors. Pursuant to our articles of association, the members of our board of directors were elected by our shareholders or appointed by our board of directors. Our shareholders, including holders of ordinary shares and high-vote ordinary shares, are entitled to vote together as a single class on all matters submitted to shareholder vote, including the election of the members of our board of directors. Each ordinary share is entitled to one vote, and each high-vote ordinary share is entitled to 15 votes.

Expedia, through its indirect subsidiary, Expedia Asia Pacific, is the beneficial owner of 28,550,704 high-vote ordinary shares, and thus controls approximately 96% of the voting power of all shares of our voting stock. Thus, Expedia has the ability to control the composition of our board of directors, including the ability to nominate new or replacement directors, to vote the Expedia Asia Pacific shares to elect such nominees, as well as the right to vote the Expedia Asia Pacific shares to remove members of our board of directors. See “Item 7: Major Shareholders and Related Party Transactions — Major Shareholders.”

Each member of our board of directors is elected or appointed by our board of directors to hold office until the next annual general meeting of shareholders, until such director’s successor is elected and duly qualified, or until such director’s earlier bankruptcy, incapacity, resignation or removal. There are no family relationships among any of our directors or executive officers named below. Our senior executive officers report to our CEO and serve at the discretion of our board of directors.

The names of our directors and executive officers, their ages and the principal positions with eLong held by each of them are as follows:

Name		Age				Position
Guangfu Cui			41			Chief Executive Officer
Mike Doyle			40			Chief Financial Officer
Sami Farhad			37			Vice President & General Counsel
James Li			36			Vice President of Sales
Kenneth Liao			48			Vice President & Chief Technology Officer
Jack Wang			36			Vice President of Partner Service Group
Jason Xie			33			Vice President of Business Development
Wei Xue			47			Vice President of Air Business
Yu Zheng			36			Vice President of Marketing & Operations

Name		Age				Position
Henrik Kjellberg(1)(3)			39			Chairman of the Board of Directors
Lily Cheng(1)			31			Director
Fernando Gil de Bernabé(2)			45			Director
Thomas Gurnee(2)(3)			59			Director
Jens Parkitny(1) (3)			44			Director
Cyril Ranque(1)			40			Director
Michael Scown(2)			51			Director
Johan Svanstrom(1)			38			Director
Justin Tang			39			Director

Biographical Information

Executive Officers

Guangfu Cui, Chief Executive Officer

Guangfu Cui has served as our Chief Executive Officer (“CEO”) since October 8, 2007. Prior to joining eLong, Mr. Cui was the Managing Director for FedEx Kinko’s China. During his four years at FedEx Kinko’s, Mr. Cui positioned the company as a market leader in the digital printing industry in China, with 16 centers and 300 employees. Prior to FedEx Kinko’s, Mr. Cui worked for Procter & Gamble for over 12 years, including two and half years working in the United States. He was instrumental in building Procter & Gamble’s China distribution network and retail coverage systems. Mr. Cui holds an MBA from Kellogg School of Management at Northwestern University in Evanston, Illinois, and a BA in Law from Peking University.

Mike Doyle, Chief Financial Officer

Mike Doyle has served as our Chief Financial Officer (“CFO”) since April 1, 2009, and was a member of our board of directors from December 2004 to May 2009. Prior to becoming our CFO, Mr. Doyle was the Chief Financial Officer of Expedia Asia Pacific, a division of Expedia, based in Hong Kong. Previously, Mr. Doyle also served as corporate development director responsible for Expedia’s investment activities in Asia. Prior to Expedia, Mr. Doyle worked as Chief Financial Officer of Teledesic, a Seattle-based broadband communications company founded by Craig McCaw and Bill Gates. Mr. Doyle started his career as an investment banker at Morgan Stanley & Company in New York and Singapore. While in Singapore, he also worked for the Government of Singapore Investment Corporation, making private equity investments in Southeast Asia. Mr. Doyle holds a BA in Finance from Southern Methodist University and an MBA from Harvard Business School.

Sami Farhad, Vice President & General Counsel

Sami Farhad has served as our Vice President and General Counsel since June 1, 2008, and was appointed to the additional role of Vice President of Human Resources on October 20, 2008. Prior to joining eLong, Mr. Farhad was legal counsel to GE Healthcare China. Before joining GE, Mr. Farhad was an associate in the New York, Beijing and Hong Kong offices of Sullivan & Cromwell LLP. He was also previously a law clerk to Judge Jerry Buchmeyer of the United States District Court for the Northern District of Texas. Mr. Farhad holds a JD from Columbia University School of Law and a BA from Harvard University. He is a member of the State Bar of New York.

James Li, Vice President of Sales

James Li has served as our Vice President of Sales since January 1, 2008. Mr. Li joined eLong as Senior Sales Director for the North Division in March 2007 and was later promoted to Vice President of Sales due to his leadership and contributions to eLong. Prior to joining eLong, Mr. Li served as a sales leader in multinational companies including Procter & Gamble, Motorola and PepsiCo, and has significant sales management experience. Mr. Li graduated from Harbin Institute of Technology with a BA in Marketing.

Kenneth Liao, Vice President & Chief Technology Officer

Kenneth Liao has served as our Chief Technology Officer (“CTO”) since October 7, 2007. Mr. Liao has held technology management positions in several leading U.S. technology companies. He came to eLong from Cisco Systems, Inc., where he served in various technology leadership roles for 10 years, including as the Director of Engineering for the Security Technology Group. In this role he oversaw a global team of more than 120 employees. Prior to Cisco, Mr. Liao managed technology teams at Bay Networks, IBM, and Digital Transparencies. Mr. Liao holds a Master’s degree in Electrical Engineering from Rice University, a Master’s degree in Mathematics from the University of Houston and a BS degree in Computer Science from Zhongshan University.

Jack Wang, Vice President of Partner Service Group

Jack Wang has served as Vice President of our Partner Service Group since December 2007. Prior to joining eLong, Mr. Wang worked for Proctor & Gamble for almost 10 years. Mr. Wang has significant experience in customer business development and trade marketing. Mr. Wang holds a dual-concentration BA in fluid mechanics and journalism from Tsinghua University.

Jason Xie, Vice President of Business Development

Jason Xie has served as our Vice President of Sales & Business Development since January 1, 2008. Prior to joining eLong, Mr. Xie had several years of sales and management experience in multinational companies including Procter & Gamble, Citibank and FedEx. Mr. Xie received his MBA from China Europe International Business School and a BA in Economics from Nanjing University.

Wei Xue, Vice President of Air Business

Wei Xue has served as Vice President of our Air Business since January 1, 2010. Mr. Xue joined eLong as Senior Director of our Air Partner Service Group in September 2006 and manages our air systems, Air Partner Service Group and international air department. Mr. Xue has substantial experience in the air and travel industries where he has worked since 1987. Prior to joining eLong, Mr. Xue managed the air departments of companies including Mangocity, China Travel Service (Hong Kong) and Beijing Merchant’s International Transportation. Mr. Xue holds a MBA from Fordham University, an EMBA from Peking University and a Bachelor’s Degree in Foreign Languages from Peking University.

Yu Zheng, Vice President of Marketing & Operations

Yu Zheng has served as Vice President of Marketing since February 25, 2008 and was appointed to the additional role of Vice President of Operations on March 1, 2009. Prior to joining eLong, Mr. Zheng was the Acting Vice President of Marketing of Nippon Paint (China) Co. Ltd. Prior to that, he worked with Coca-Cola as Beverage Partner Worldwide China Director, and with Proctor & Gamble as Associate Marketing Director for Greater China Oral Care. Mr. Zheng has more than 10 years of experience in marketing, brand management and general management. He successfully launched and built the Pampers disposable diaper brand to be a market leader in China. He also led Crest to become the No.1 toothpaste brand in China. Mr. Zheng Yu holds a Master’s Degree in Biochemical Engineering from Zhejiang University.

Directors

Henrik Kjellberg, Chairman of the Board of Directors

Henrik Kjellberg has been Chairman of the Board of Directors since March 10, 2007, a member of our Board of Directors since October 2005, and was our Interim CEO for a portion of 2007. Mr. Kjellberg is also President of Expedia Affiliate Network (“EAN”), a division of Expedia. Prior to assuming his responsibilities at EAN, Mr. Kjellberg was President of Expedia Asia Pacific, and was also formerly Expedia’s Senior Vice President of international lodging and destination services as well as Vice President and Managing Director, Supply Europe. Prior to joining Expedia, Mr. Kjellberg worked for Procter & Gamble and Scandinavian Internet portal Spray. Mr. Kjellberg holds a Master’s of Science in economics from the Stockholm School of Economics.

Lily Cheng, Director

Lily Cheng has been a member of our Board of Directors since April 20, 2010. Ms. Cheng is Senior Director of Global Strategy & Marketing of Expedia Affiliate Network, and was previously Director of Corporate Strategy and Development (Asia Pacific) for Expedia. Prior to joining Expedia in 2008, Ms. Cheng was a consultant for the Boston Consulting Group consumer goods practice in Greater China, and was also previously Founder, CEO and Board member of an embedded technology start-up funded by Benchmark Capital. Ms. Cheng holds a Master’s and Bachelor’s of Engineering from the University of Cambridge.

Fernando Gil de Bernabé, Director

Fernando Gil de Bernabé has been a member of our Board of Directors and our Audit Committee since December 30, 2009. Mr. Gil de Bernabe is Vice President, Market Development for Cisco China 3.0, and a Senior Director of Cisco Systems. Mr. Gil de Bernabé was previously the Managing Director of Service Providers for the Internet Business Solutions Group of Cisco in Europe, and joined the company in 1999. Prior to Cisco, Mr. Gil de Bernabé was an Associate Director and founding member of Arthur D. Little’s Global Technology Ventures in Palo Alto, and before that he worked in two software startups in Barcelona, Spain. Mr. Gil de Bernabé holds an MBA and a Management of Technology degree from the University of California Berkeley, and a Higher Telecom Engineering degree from the Polytechnic University of Catalonia, Spain.

Thomas Gurnee, Director

Thomas Gurnee has served as a member of our Board of Directors and our Audit Committee since November 2, 2004. Mr. Gurnee is Chief Financial Officer of Xinyuan Real Estate (NYSE: Xin), a US-listed real estate company. Previously he was Chief Financial Officer of GEM Services, Inc., a privately held semiconductor manufacturer. His other prior positions include President and Chief Operating Officer of GlobiTech Inc. and Chief Financial Officer of Sohu.com Inc. Prior to joining Sohu, Mr. Gurnee held a number of senior positions with Chartered Semiconductor Manufacturing Ltd., including Vice President for Business Development, President (North America), Chief Operating Officer (Singapore) and Chief Financial Officer (Singapore). Previously, Mr. Gurnee spent 13 years at Schlumberger Ltd. as finance director of various divisions in France, Singapore and the United States. From November 2000 until June 2006, Mr. Gurnee was a member of the Sohu Board of Directors. He is currently a member of the Board of Directors of Longtop Financial Technologies (NYSE: LFT) and Xinyuan Real Estate. Mr. Gurnee received a BA degree from Stanford University and an MBA degree from the University of Santa Clara.

Jens Parkitny, Director

Jens Parkitny has been a member of our Board of Directors since May 13, 2009. Mr. Parkitny is Managing Director (Asia Pacific) of the Expedia Affiliate Network, responsible for all white label and co-branded affiliate partnerships in the Asia Pacific region. Prior to this role, Mr. Parkitny was Vice President & Managing Director of Expedia.com for Germany and Austria for two years, and previously held other senior roles at Expedia in Germany, including Manager of Product & Business Development, Site & Content Manager and Senior Producer (Travel). He also previously worked in journalism and publishing, among others as a deputy editor for the German publishing group Jaeger Verlag. Mr. Parkitny holds a degree in Business Administration, Travel and Transport Management from the Technical University of Rhineland-Palatinate.

Cyril Ranque, Director

Cyril Ranque has been a member of our Board of Directors since December 22, 2008. Mr. Ranque is Vice President, Partner Services Group Asia Pacific of Expedia. In this position, Mr. Ranque oversees Expedia’s relationships with airline, lodging and rental car supply partners across the Asia Pacific region. Prior to joining Expedia in 2006, Mr. Ranque was Vice President of Marketing & Distribution for Louvre Hotels, a leading European hotel group. He was also previously a Director in charge of the French Customer Relationship Management (CRM) Practice at AT Kearney, and a CRM consultant at Accenture. Prior to Accenture, Mr. Ranque was a financial analyst with Morgan Stanley in London, and also worked at LVMH in Tokyo. Mr. Ranque holds a Master’s degree from Essec Graduate School of Business in Paris.

Michael Scown, Director

Michael Scown has been a member of our Board of Directors and our Audit Committee since December 2007. Mr. Scown is the Asia Managing Director, Treasury, for Intel Capital. From 1999 to 2006 he served as Intel Capital’s Asia Regional Counsel. Before joining Intel he practiced law for 10 years as an associate and partner with Russin & Vecchi in the firm’s San Francisco and Ho Chi Minh City, Vietnam offices where he was a founder and Chairman of the Board of Governors of the American Chamber of Commerce and also worked in hotel development as Asia Assistant Regional Counsel for Marriott International, Inc. Prior to commencing his legal practice, Mr. Scown served as a Foreign Service Officer with the U.S. Department of State. He holds a BA from U.C. Berkeley, a JD from the University of San Francisco School of Law and is a member of the State Bar of California.

Johan Svanstrom, Director

Johan Svanstrom has served as a member of our Board of Directors since February 2006. Mr. Svanstrom is Managing Director (Asia Pacific) of Hotels.com, a division of Expedia, in which role he is responsible for building the Hotels.com business across the Asia Pacific region. Prior to joining Expedia, Mr. Svanstrom was in charge of the Digital Innovations Group at McDonald’s Corporation for three years. Prior to that, Mr. Svanstrom was CEO of Freefund NV, a company providing online grant search capabilities for university students in four different European countries. From 1999 to 2002 Mr. Svanstrom served as Vice President of Business Development at Glocalnet AB, a voice-over-IP telecom company, which he helped take public and which is listed on the Stockholm Stock Exchange. Mr. Svanstrom holds a Master’s of Science in economics from the Stockholm School of Economics.

Justin Tang, Director

Justin Tang is a co-founder of eLong, and, from 2001 to 2006, served as our Chairman and CEO as well as in similar key executive positions at eLong’s predecessor company from 1999 to 2001. Mr. Tang is also a co-founder of Blue Ridge China, a private equity fund formed in 2006 that invests in companies in China. Prior to founding eLong, Mr. Tang held various positions in the financial services industry in the United States from 1993 to 1999. Mr. Tang studied at Nanjing University in China and holds a Bachelor’s degree from Concordia College in the United States.

Board Practices

Between January 1, 2009 and March 31, 2010, other than as discussed below with respect to the employment agreement we entered into with Mike Doyle when he became our CFO (see “Employment Agreements with Executive Officers”), we have not entered into any service contracts or other arrangements providing for benefits upon termination with our directors, provided, however, that generally any non-vested options or performance units granted to our non-employee directors shall vest in full in the event that Expedia effects a going private transaction of us and, provided further, that upon a termination during the one-year period following a change in control, such directors incur a termination other than by reason of death, disability or cause, the directors are entitled to an additional 12 months of vesting on their unvested options.

Committees of the Board of Directors

Audit Committee

The audit committee of our board of directors currently consists of Thomas Gurnee (who serves as chairman), Fernando Gil de Bernabé and Michael Scown. Mr. Gil de Bernabé joined the audit committee on December 30, 2009. Our board of directors has adopted a written audit committee charter pursuant to which the audit committee is responsible for the appointment of our independent public accountants and reports to our board of directors regarding the scope and results of our annual audits, compliance with our accounting and financial policies and management’s procedures and policies concerning the adequacy of our internal accounting controls. Audit committee pre-approval is required for all non-audit services to be performed by our independent auditors. For additional information on our Audit Committee, see “Item 16A: Audit Committee Financial Expert,” and “Item 16C: Principal Accountant Fees and Services.”

Compensation Committee

The compensation committee of our board of directors reviews and makes recommendations to our full board of directors regarding compensation policies and all forms of compensation to be provided to our executive officers and directors. In addition, the compensation committee approves bonus and, subject to the requirement that there be at least two Expedia designees on the compensation committee, stock compensation arrangements for all of our employees.

The compensation committee currently consists of Henrik Kjellberg (who serves as chairman), Thomas Gurnee and Jens Parkitny. Mr. Kjellberg and Mr. Parkitny were appointed by Expedia under an investors agreement with Expedia Asia Pacific and certain other shareholders dated July 23, 2004. Under the investors agreement, Expedia has the right to appoint two directors to the compensation committee, and the compensation committee does not have the authority to approve the issuance of stock options unless two directors nominated by Expedia are on the compensation committee.

Duties of Directors

Under Cayman Islands law, each of our directors has a duty of loyalty to act honestly, in good faith and with a view to the best interests of our company and for a proper purpose. Our directors also have a duty to exercise the skills that they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. Our directors must ensure compliance with our company’s memorandum of association and articles of association. A shareholder may have the right to seek damages on behalf of our company if a duty owed by our directors to our company is breached.

Limitation on Liability and Other Indemnification Matters

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 against civil fraud or the consequences of committing a crime. Our articles of association provide for indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such, but the indemnity does not extend to any matter in respect of any willful neglect or intentional malfeasance which may be attached to such person.

Compensation of Senior Management and Directors

Compensation Arrangements with Directors. We paid aggregate cash compensation (including directors’ fees, meeting fees, travel expenses and stock-based compensation settled in cash) during 2009 to our directors as a group equal to US$332,777. Our directors are reimbursed for travel and related expenses incurred in connection with each board of directors or board committee meeting.

Pursuant to our director compensation policy, a recurring annual grant will be made on December 1st of each year to each member of our board of directors who is not our employee or an employee of Expedia (or an Expedia affiliate). On December 1, 2009, we granted to each of Tom Gurnee, Michael Scown and Justin Tang 8,475 performance units which will vest annually over a 3-year period and which upon vesting will be settled in cash.

Compensation Arrangements with Senior Executive Officers. Compensation arrangements with our senior executive officers consist of (i) cash compensation, which includes an annual salary and the opportunity to earn an annual bonus, (ii) equity compensation in the form of stock options and performance units, and/or (iii) other benefits in the form of vacation days and premiums paid for health insurance.

We paid aggregate cash compensation in 2009 to our senior executive officers who were employed by us as senior executive officers on December 31, 2009 equal to RMB9,834,153 (US$1,440,712). In 2009, we granted equity compensation in the form of stock options to each of our current senior executive officers who were then employed by us as senior executive officers. In addition, we granted equity compensation in the form of performance units to Mike Doyle, our Chief Financial Officer. Additional information on our equity grants to our senior executive officers is contained in the section below entitled “Share Ownership.”

Employment Agreements with Executive Officers

Employment agreement with Guangfu Cui. We entered into an employment agreement with Guangfu Cui, our Chief Executive Officer, effective October 8, 2007. The employment agreement, as amended, provides an annual base salary of RMB1,700,000 (US$249,051), and an annual discretionary bonus of up to RMB1,900,000 (US$278,352). Pursuant to the agreement, Mr. Cui was granted 111,112 performance units under our 2004 Plan, twenty percent of which vest on each of the first, second, third, fourth and fifth year anniversaries of Mr. Cui’s employment start date. In addition, Mr. Cui was granted an option to purchase 111,112 of our ordinary shares, with an exercise price of US$4.50 per share, and the same vesting schedule as the performance units. Mr. Cui also entered into non-competition, non-solicitation, confidential information and work product assignment agreements with us and with our subsidiary eLong Information. The terms of such agreements are set forth below under “Non-Competition Agreements with Our Senior Executive Officers.” For information on subsequent stock option grants made to Mr. Cui in May 2009 and March 2010, see the section below entitled “Equity Compensation Plan and Grants—2009 Plan.”

Employment agreements with other senior executive officers. We have entered into our standard form employment agreements for senior executive officers with our other senior executive officers, other than James Li. See section above “Compensation Arrangements with Executive Officers” for description of stock-based compensation granted to our senior executive officers in 2009. As discussed below, each of the agreements requires that the relevant employee enter into standard form non-competition agreements with us and with our subsidiary eLong Information.

In addition to the standard arrangements for our senior executive officers, our agreement with Mike Doyle is for a term of two years, provides for use of a company car, and contains severance provisions whereby Mr. Doyle will be entitled to a payment of one half of his annual base salary if he is terminated by eLong without cause during the term of his contract, or his annual base salary if such termination occurs within 90 days after the completion of a transaction which results in Expedia (or any affiliate or party acting in concert with Expedia) no longer possessing or otherwise able to direct or control the majority of our voting power.

Non-competition agreements with our senior executive officers. We and our subsidiary eLong Information are parties to non-competition agreements with each of our current senior executive officers, other than James Li. These agreements provide that during each executive’s employment and continuing until the later of (1) 12 months after the termination of such executive’s employment and (2) three years after the effective date of such executive’s restrictive covenant agreement, the executive will not compete with us or our subsidiaries or affiliates. The non-competition period of the agreement with Mr. Doyle extends until the earlier of (1) 12 months after the termination of his employment and (2) three years after the effective date of his employment agreement. In addition, for a period of two years after his employment, the executive will not solicit our employees or customers or the employees or customers of our subsidiaries or affiliates, and while employed and indefinitely thereafter will not disclose or otherwise use our confidential information or the confidential information of our subsidiaries or affiliates. The agreements also state that the employee’s work product will be assigned to us or eLong Information.

Separation agreement. On April 1, 2009, we entered into an agreement with Chris Chan, our former chief financial officer, pursuant to which he became our Vice President for Special Projects on April 1, 2009 and his employment with us concluded on June 30, 2009. At the conclusion of his employment, Mr. Chan received a severance payment of RMB294,500 (US$43,144).

Share Ownership

Please refer to “Item 7: Major Shareholders and Related Party Transactions” and to “Share-Based Compensation Plans and Options Grants” below for a description of the share ownership of our directors and senior executive officers.

Equity Compensation Plans and Grants

Prior to 2009, we had adopted two equity compensation plans: the eLong, Inc. Stock Option Plan, adopted in April 2001 (the “2001 Plan”), and the eLong, Inc. Stock and Annual Incentive Plan, adopted in July 2004 (the “2004 Plan”). The terms of the 2001 Plan and the 2004 Plan are substantially similar. On May 13, 2009, we adopted a new equity compensation plan: the eLong, Inc. 2009 Share and Annual Incentive Plan (the “2009 Plan”). Each equity compensation plan is discussed in additional detail below.

2001 Plan

Under the 2001 Plan, we have granted options to purchase our ordinary shares, of which 2,976,116 options were granted, outstanding, and have not been exercised, as of March 31, 2010. All options outstanding under the 2001 Plan are fully vested and exercisable. We currently do not intend to issue any additional options under the 2001 Plan. The following table summarizes, as of March 31, 2010, the outstanding options granted under the 2001 Plan to Justin Tang, our former CEO and current member of the board of directors, and to our other employees as a group.

Option Grantee		Ordinary shares underlying options granted and outstanding				Exercise price (US$)				Date of grant
Justin Tang			2,750,000	(1)			0.50			April 18, 2001
			156,250	(1)			1.53			September 1, 2003
Other employees			69,866	(2)			1.53			January 1, 2004
Total			2,976,116

2004 Plan

We have reserved an aggregate of 4,000,000 of our ordinary shares for issuance under the 2004 Plan. Under the 2004 Plan, we have granted stock options and performance units to our officers, key employees, directors and non-employee consultants, as discussed below.

Stock Options Granted under the 2004 Plan

As of March 31, 2010, 878,678 stock options were granted, outstanding, and have not been exercised under the 2004 Plan. The following table summarizes, as of March 31, 2010, the outstanding options granted under the 2004 Plan to our current employees and directors. Unless otherwise noted below, grants under the 2004 Plan expire ten years after the grant date.

Option Holder		Ordinary shares underlying outstanding options granted				Exercise Price (US$)				Date of grant
Justin Tang			306,250	(1)			5.25			July 23, 2004
Thomas Gurnee			30,000	(1)(2)			6.75			November 2, 2004
James Li			20,000	(3)			4.95			April 30, 2007
Guangfu Cui			111,112	(4)			4.50			September 4, 2007
Kenneth Liao			30,000	(4)			3.87			December 6, 2007
Michael Scown			30,000	(2)(5)			3.935			January 9, 2008
Mike Doyle			125,984	(6)			3.175			May 29, 2009
Wei Xue			32,832	(7)			5.33			February 25, 2010
Other employees			192,500			From 4.95 to 6.75				From July 23, 2004 to February 25, 2010
Total			878,678

Performance Units Granted under the 2004 Plan

Performance units are awards in the form of units that are denominated in a hypothetical equivalent number of our ordinary shares, which number of units are determined based on the fair market value of our ordinary shares which, when vested, are settled, in either ordinary shares or cash. At the time of grant, our board of directors or the compensation committee determines if we will settle the performance units in cash, stock or both. Settlement terms of performance units, once established, may only be changed by approval of our board of directors or the compensation committee. Except for (i) the performance units granted to our independent directors which are to be settled in cash (and are not reflected in the table below) and (ii) as otherwise described in the footnotes to the table below, performance units granted to our employees are to be settled in ordinary shares. The performance units granted during 2009 to our non-employee directors are to be settled upon vesting in cash in an amount equal to the number of the vested performance units multiplied by the fair market value of our ordinary shares on the applicable vesting date. The fair market value of the performance units, as defined in the 2004 Plan, is determined based upon the fair value of the underlying ordinary shares on the date immediately preceding the grant date. Our performance units are generally subject to service-based vesting where a specific period of continued employment must pass before an award vests. Typically, a portion of the performance units granted vest periodically over the term of the grant. In addition, pursuant to the terms of the 2004 Plan, unless otherwise determined by our board of directors, if, during the one-year period following a change in control, the performance unit holder incurs a termination of employment by us other than by reason of death, disability or cause or the performance unit holder resigns for good reason, such holder shall be entitled as of the termination of employment to an additional 12 months of vesting of the performance unit to the extent unvested as of the termination of employment.

The following table summarizes, as of March 31, 2010, the unvested and outstanding performance units granted to our current employees and directors under the 2004 Plan.

Performance Unit Holder		Ordinary Shares underlying Outstanding Performance Units				Date of grant
Thomas Gurnee			9,222	(1)		December 1, 2008
			8,475	(1)		December 1, 2009
Michael Scown			3,334	(2)		January 9, 2008
			9,222	(1)		December 1, 2008
			8,475	(1)		December 1, 2009
Justin Tang			9,222	(1)		December 1, 2008
			8,475	(1)		December 1, 2009
Guangfu Cui			66,668	(3)		September 4, 2007
Mike Doyle			131,579	(3)		May 29, 2009
Sami Farhad			59,332	(3)		May 22, 2008
James Li			1,340	(4)		April 30, 2007
			50,826	(5)		January 9, 2008
Kenneth Liao			33,334	(3)		December 6, 2007
			5,084	(5)		January 9, 2008
Jack Wang			32,002	(3)		January 9, 2008
Jason Xie			43,478	(3)		January 9, 2008
Yu Zheng			44,064	(3)		January 9, 2008
Other employees			566,131			from October 2, 2006 to February 25, 2010
Total			1,090,263